ASM International NV

AEX:ASM

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the ASM International First Quarter 2020 Earnings Call. [Operator Instructions] I must also advise you that this conference is being recorded today. And now I would like to hand the conference over to your speaker today, Victor Bareño. Please go ahead.

[Victor Bareño, Director of Investor Relations]

Thank you, Sarah. ASM issued its first quarter 2020 results last evening at 6:00 Central European Time. For those of you who have not yet seen the press release, it is accessible on our website, asm.com, along with our latest investor presentation.As always, we remind you that this conference call may contain information relating to ASM's future business and results in addition to historical information.For more information on the risk factors related to such forward-looking statements, please refer to our company's press releases, reports and financial statements, which are available on our website.And with that, I'll turn the call over to Chuck del Prado, President and CEO of ASMI. Chuck?

[Charles Dean del Prado]

Thank you, Victor, and thanks to everyone for attending our first quarter 2020 results conference call. First of all, I very much hope that all of you and your families are healthy and safe in these uncertain times. We also have our CFO, Petrus van Bommel, on the virtual call today. And we all dialed in from home, like probably most of you today.I'll start with an update on the impact of and our response to the global COVID-19 outbreak, which, of course, is on the top of our mind. Then Peter will discuss 2 specific topics: ASMI's recent new CEO announcement and the dividend proposal. And subsequently, I will review our Q1 results. And after that, we will conduct, as usual, our Q&A session.So on the COVID-19 update, as this COVID-19 outbreak has been rapidly evolving, we found ourselves in unprecedented times. Across the world, the pandemics severely affected our lives, our communities, society and our economies. Our thoughts go out to everyone whose health has been impacted by the illness and to those in the frontlines combating it.The health and safety of our employees, their families and of the employees working for our customers and other partners, has always been our key priority. Safety is a core company value. And over the last many years, we made substantial investments to further strengthen our safety organization and procedures. From the onset of the COVID-19 outbreak, we closely monitored the situation and implemented all necessary measures, local government guidelines and orders, and industry best practices to minimize the risk for our people and to do our part to slow the spread of the disease while safeguarding business continuity.Measures included, for instance, enabling home working for all of our employees, where there is no direct need to be at the office. Lab -- where there is no need to be in the office, lab or a factory.Implementation of split-shift work in essential areas, enhance cleaning protocols, and of course, restriction of nonessential travel. I'm extremely proud of how our ASM employees and our partners have responded to this rapidly evolving crisis. All of us quickly adapted and found new ways to stay connected and to maintain the ASM team spirit. While putting the health and safety of all of us first, our team showed strong commitment and creativity to make sure we continue to serve our customers in the best possible ways. Even with all these measures, we have been able to continue our daily operations with only limited impact on productivity. While the bottlenecks in the Chinese and U.S. supply chain only had limited overall impact, the measures taken by the Malaysian government, and recently, the Singapore government had and have a bigger impact. These measures are leading to reduced business activities, creating shortages and delays for specific components at our Malaysian suppliers. Moreover, it also affected part of the workforce in our Singapore facility, where our employees who live in Malaysia were not able to come to work. We, like our critical suppliers, received exemptions in both countries as semiconductor was marked as an essential industry. Although these exemptions will allow us to continue our manufacturing operations in Singapore, the measures as taken will have impact on our ability to deliver all the required products. The further consequence of the containment measures in Singapore is also that construction work on our new manufacturing site has been temporarily halted. We now expect the new facility in Singapore to be completed in Q3 instead of at the end of Q2. Our global operations team and the rest of ASM did an amazing job by detailed planning and constant tracking of potential bottlenecks, maintaining close contacts with suppliers and customers and looking for alternative solutions and workarounds. In case of component delays, our team has managed to ship almost all of the tools to our customers as planned within the first quarter. If we look at customer demand, the impact of the pandemic has so far been limited. Demand remained solid in the quarter, and we did not experience any meaningful order pushouts or cancellations. Customers have continued to execute their planned investments in the new nodes, and they continue to invest in new technology development. I will now hand over to Peter, who will address the recent CEO announcement and dividend proposal. Peter?

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

Thanks, Chuck. On March 23, the company announced Benjamin Loh as the new CEO. ASM's supervisory board selected Mr. Loh after a thorough search process. We are very pleased to propose to the shareholders' meeting on May 18. As you know, Chuck del Prado will step down as CEO at the AGM. We announced that already last September. And after that, Benjamin Loh will take off as a new CEO. He brings a vast international experience in senior management and executive also in the semiconductor industry. His most recent position was at VAT, an important supplier in our industry, where he was responsible for global sales and marketing. And recently, he has been on the Board of a number of companies, and earlier, he was also a Board member of Semi China. The second topic that I will discuss is our dividend proposal. With our Q4 results, we announced the proposed dividend payment of a total EUR 3 per share consisting of a regular dividend of EUR 1.50 per share. That was up 50% compared to last year, plus a special dividend of EUR 1.50. Of the total dividend of EUR 3 per share, already EUR 1 was paid as an interim dividend last November. With the publication of our AGM agenda on April 6, we confirmed this dividend proposal. Our policy has always been to maintain a strong balance sheet that allows us to invest in the growth of our company, this is the key priority, while using excess cash for the benefit of our shareholders. In light of the increased economic uncertainty due to the COVID-19 pandemic, we did a detailed analysis, stress testing our financial position in different scenarios. We concluded that our balance sheet provides sufficient strength to both continue our planned investments and expenses and to proceed with the earlier committed dividends. The strength of ASM's financial position was again demonstrated by our performance in the first quarter. We ended the quarter with a strong cash position of EUR 529 million, up from EUR 498 million at the end of December. We generated a solid free cash flow of EUR 41 million in the first quarter, almost doubling compared to the level in the same quarter of last year. The free cash flow was driven by the increased level of profitability and partly offset by EUR 12 million cash outflow for working capital and CapEx of EUR 24 million. The CapEx was relatively high as part of the payments for a new facility in Singapore. That payment partly shifted from the fourth quarter last year to the first quarter of this year. That's what we discussed already in our previous earnings call. In Q1, we also spent still EUR 4 million to complete the EUR 100 million share buyback program, of which most was already spent in the fourth quarter. As announced with Q4 results, we also will start with a new share buyback program. We are currently in the final phase of the preparation work and plan to start this program shortly. In light of the COVID-19 related uncertainties, we plan to execute this program at a lower speed than the last ones that we did. With that, I will hand the call back to Chuck.

[Charles Dean del Prado]

Okay. Thank you, Peter, and I will now continue with a review of our financial results. In comparing with the previous quarter, I will exclude the gain from the arbitration settlement, which, as a reminder, impacted our fourth quarter results last year with a positive amount of EUR 56 million. In the first quarter of 2020, revenue amounted to EUR 325 million, a strong increase of 31% compared to the first quarter of last year and a decrease of 6% compared to the record high level in the fourth quarter. Revenue in the quarter was above the midpoint of our guidance, which was a range of between EUR 310 million and EUR 330 million. Service and spare sales grew by 7% year-on-year and represented 17% of total sales. Equipment sales increased by 37% year-on-year and was led by strong growth in our ALD product line. While the combination of the other product lines also showed again a double-digit increase. By industry segment, revenue in the first quarter was led by foundry, with sales somewhat lower sequentially, but still at the second highest quarterly level in our history. Second largest segment was logic with revenue increasing to a record high in the first quarter. Third was memory, with sales relatively stable compared to the fourth quarter. Gross margin was 44.5% in the first quarter, up from 43.6% in the fourth quarter and the highest level in the last 13 quarters. The improvement was driven by mix effects and cost reductions related to the installation of new products introduced in earlier periods and despite some inefficiencies and higher cost due to disruptions in logistics and supply chain. SG&A expenses decreased slightly compared to Q4. Excluding the higher cost in Q4, for short-term incentive programs, SG&A was relatively stable in Q1. R&D expenses dropped by 15%, 1-5 percent, compared to the fourth quarter. But excluding the one-off impairment in Q4, R&D would have been stable. Operating profit was up slightly compared to Q4, leading to an operating result percentage of 24% in the first quarter, which is a new record high for the company. Below the operating line results included a currency translation gain of EUR 12 million, mainly explained by the appreciation of the U.S. dollar in the quarter. This compares with translation loss of EUR 14 million in the fourth quarter. Income tax of EUR 13 million, 1-3 million euro, was up significantly compared to EUR 2 million in the year ago period, due to the exhaustion of our tax losses in the Netherlands last year, as explained in previous calls. Let's now briefly look at ASMPT. Results from investments, which reflects our 25% share of the net earnings from ASMPT, dropped to EUR 1 million in the first quarter, down from EUR 6 million in the fourth quarter, and down from EUR 3 million in the first quarter of last year. In the first quarter of this year, ASMPT reported sales of USD 434 million, down 24% compared to Q4 and down 8% from Q1 last year. Planned shutdowns, particularly in China due to the COVID-19, had a negative impact, but sales in Q1 still reached the higher end of ASMPT's guidance. And the net profit was better than the loss that the company had forecasted. Bookings strongly increased to USD 669 million in the quarter, up 50% sequentially and up 45% year-on-year.Okay. Now turning back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to EUR 78 million in the first quarter. Our new orders in the first quarter were EUR 333 million, down 11% from the fourth quarter, but up 42% year-on-year. Orders slightly exceeded our guidance, which was also a range of between EUR 310 million and EUR 330 million. Equipment orders were led by our ALD product line, which increased to a record high level in Q1. Looking at the breakdown in bookings by industry segment, foundry represented the largest segment in the first quarter. Foundry bookings increased strongly compared to the fourth quarter to a new record high. The largest foundry customer continued to account for the biggest part, but other foundry customers also had meaningful contribution this quarter. Logic was the second largest segment, with bookings somewhat lower than in Q4, but still at a very healthy level. Memory represented the third segment. Bookings in both DRAM and 3D NAND were relatively stable compared to Q4. Last but not least, in terms of geographic breakdown, we saw a strongly increased contribution from Chinese customers in terms of both sales and bookings. In the first quarter, we booked multiple tool orders, particularly in our ALD product line from several Chinese customers.Okay. Let's now look in more detail at the trends in our markets. According to forecast, the global economy is expected to move into recession this year. Looking at the semiconductor end markets, segments such as automotive, smartphones and other segments related to consumer spending are expected to be down this year.Other parts of the semiconductor industry that support online communication, work-from-home and virtual learning have reported increased demand in the recent period, illustrated by, for instance, recent brisk demand in laptops, data centers and part of the communication infrastructure market. If we look at expectations for the semiconductor wafer fab equipment market in total, VLSI Research recently lowered its forecast to a drop of 7% year-on-year due to the impact of the coronavirus. Earlier this year, it's still expected an increase of 5% for the year 2020. It is positive to see that in China and some countries in Europe, the growth curve of COVID-19 patients is flattening or even declining. However, it is obviously too early to tell when the pandemic will be under control and when restricted measures can be reduced, and how quickly and to what extent the economic activity in different parts of the world can be restarted again. This will be an important factor for the state of the semiconductor industry in the second half. And therefore, also for, of course, the WFE outlook, for the wafer fab equipment outlook, given this higher level of uncertainty, we decided the company not to provide a forecast for WFE for the full year. Looking at the first half of 2020, we believe the trend in WFE spending is holding up well. As I mentioned earlier, demand has been strong in the first part of the year, and we didn't see any meaningful order pushouts or cancellations. And for the second quarter, bookings are shaping up in line with our earlier expectations.Our bookings in the first half are for the largest part driven by strong demand in logic/foundry. Spending in this segment is focused on the most advanced node capacity for new end market products that will enable multiyear growth trends in, for instance, 5G, data centers and artificial intelligence. The foundry segment was, as mentioned, our largest segment in the first quarter, with the majority of investments focused on the advanced sub-10-nanometer nodes. In the advanced logic segment, meaningful investments in 10-nanometer capacity continued in the first quarter. As we highlighted in previous calls, the role of ASM has substantially increased in these advanced nodes. The number of ALD layers in the current most advanced logic and foundry nodes has increased with a substantial double-digit percentage compared to the previous technology nodes. We have successfully maintained our leadership position in this space, which has resulted the strong recent increases in our share of wallet with the leading logic and foundry customers. Looking at the next nodes in logic/foundry, we expect the number of ALD layers to further increase. Step by step, we are also increasing our position in epitaxy, which is a market with strong long-term growth prospects. The WFE and ASM sales in the first half of the year is also being supported by a healthy trend in the Chinese markets, where domestic customers show strong commitment to invest in semiconductor manufacturing technology and capacity. We are benefiting from the investments that we made in previous years to strengthen our position in the strategic market and from the fact that some of these customers are now making more meaningful steps to work the technology nodes where ALD requirements start to become more critical. Looking at the memory market and market dynamics -- end market dynamics looked healthy in the first quarter with parts of this market, such as in PCs and data centers, supported by work-from-home related demand. Indicators such as memory device pricing also continued to develop favorably in the first quarter. Following the substantial cuts in memory WFE spending in 2019, spending in the memory segment has remained at a relatively modest level in the first part of the year. The outlook for second half recovery in memory spending, which was expected at the start of the year, still has, yes, some uncertainty. While projects related to technology transitions are likely to continue, investments in new capacity will likely depend on how supply demand conditions will develop in the rest of the year, which in turn, will depend on the state of end market demand and of the global economy. As spending on the next-memory generation's picks are up, we expect to strengthen our memory contribution. In DRAM, for instance, on the back of the non-patterning ALD wins that we discussed last quarter, a longer-term step by step we expect to improve our position in the memory ALD market as a whole. Looking at the analog market, expectations have weakened compared to a couple of months ago. While a much smaller part of our business, of course, the analog market is more exposed to segments that have seen recent weakening of end market demand, such as automotive. While WFE for the second half of the year is difficult to predict, the longer-term outlook for our industry looks strong. Our work with our customers on the next nodes has continued, reflecting continued commitment on the part of our customers to execute their technology road maps in the coming years. Based on the progress in our R&D engagement, we expect to see further increases in our served available markets as customers transition to the next nodes. Digital technologies are increasingly important in supporting new ways of living and working. Today, demonstrated by the work-from-home economy, new, more powerful and power-efficient semiconductor devices will be essential in the development and growth of new end market applications, such as in cloud computing, cloud computing artificial intelligence and autonomous driving. For our customers to stay on Moore's Law, a growing number of process steps will require ALD and epitaxy deposition. Now let's look at the guidance we issued with our Q1 press release. For Q2, on a currency comparable level, we now expect sales between EUR 300 million and EUR 350 million. We slightly widened the range by reducing the lower end compared to the earlier indicated range between EUR 330 million and EUR 350 million. The widening of the range is fully attributable to the risk related to possible disruptions in our supply chain and logistical operations as a result of additional COVID-19-related actions taken by government so far.Q2 bookings on a currency comparable level are expected to be in the range between EUR 280 million and EUR 310 million. On a personal note, finally, as part of this introduction, as this will be my last earnings call with you all on the line, now a few words, yes, on a personal note. When I decided to step down as CEO last September 2019, I believe the timing was right because ASM is in good shape, and therefore, well positioned to undergo a change in leadership. Today, these unprecedented times have really tested our company and our team. Our response to the COVID-19 crisis has confirmed, for me, the strength and resilience of this company. Looking back at the last 12 years, I'm personally extremely proud of what we have achieved as one team. In 2008, we had our first breakthrough in single-wafer ALD. Since then, we have built a leadership position in fast-growing parts of the WFE market and achieved strong relationships with all of the top CapEx spenders in our industry. While staying true to our, let's say, inborn focus on innovation, over the years, we substantially stepped up also on our operational excellence and on the efficiency of our operations, very important. And bottom line, to all of you, is that since 2008, our front-end sales have increased by a solid double-digit compound annual growth rate. We clearly crossed, as a result, the EUR 1 billion mark, top line, in 2019, and we provided ASM with a very strong financial base. In short, ASM, in my opinion, is in a strong position today with a bright future ahead. And therefore, I would like to thank you, our analysts and investors for your support, confidence and healthy challenging interaction throughout all those years that I have been able to interact with you. It has been a real pleasure engaging with you all. And of course, we are not going to close on this call at this moment. But at this moment, I would like to wish you all and your families a very healthy and prosperous future. Peter?

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

Chuck, yes, I would also like to take the opportunity to thank you on behalf of everyone at ASM for your tireless commitment and dedication during the last 12 years. Your leadership, vision and consistent execution and your talent to inspire and motivate has strongly contributed to the extraordinary success of ASM. This success is also reflected to the strong total returns of more than 20% annualized over the last decade and close to EUR 2 billion in cash that we returned to shareholders during this period.

[Charles Dean del Prado]

Thank you, Peter. Very much appreciate. Those are nice words. And with that, we finished our introduction. And let's now, of course, like we always do, move to our Q&A session for which both Peter and myself, of course, are available.Victor?

[Victor Bareño, Director of Investor Relations]

[Operator Instructions] Okay. Operator, we are ready for the first question.

[Operator]

[Operator Instructions] Your first question comes from the line of Achal Sultania from Crédit Suisse.

[Achal Sultania, Director]

Two questions, if I may. First, on the epitaxy. Clearly, like, you've been gaining a lot of market share along with market growth in that segment. Can you help us understand -- maybe I'm wrong -- my impression was that most of the -- your exposure is to one big customer in epitaxy. Can you help us understand, what are you -- how are you seeing the traction with some of the other customers in that market? And then secondly, on the second half, I guess, again, if I look at one of your largest customer in foundry, CapEx seems to be quite front-end loaded this year. Clearly, it will see a slowdown as we go into the second half. So just trying to understand what are the puts and takes beyond that customer as we go into the second half? How should we think about business with -- in the memory and the logic part?

[Charles Dean del Prado]

Okay. Okay. So yes, let me -- thank you for your questions. Okay. First, on epi, yes, you're asking about traction broader than one customer. Well, of course, we -- yes, we have, of course, a long-time track record in the analog power market. So we have many customers in that space in the analog power space, of course, from a volume point of view, that has gone down in the recent quarters, but that will continue. In the mainstream CMOS space, indeed, we penetrated early 2017 with one leading foundry customer, initially N7 technology node. Later on, we expanded number of applications going into 5. And -- but in parallel, we have had R&D engagements with, let's say, more customers beyond that one customer. And of course, our -- what we shared on earlier occasions, it's clear that when we decided, made a strategic decision to get back into mainstream CMOS. Our ambition was not just to get in with one customer and get in with that customer only with, let's say, limited amount of applications. So our ambition goes much beyond where we are today. Also given the attractiveness of the epi market and the compound annual growth rate of -- estimated compound annual growth rate for the epi market in the years to come and logic foundry, but of course, for -- in the strongest way but also in memory. So as a result of that, we have started engagement with other customers. And yes, we're looking forward, let's say, in the next 12 months or so to share with the market that we have made progress in that respect. And that at some point in time, some of those engagements will turn into high-volume business also. But it's early, too early, to further elaborate on that than what I just shared. But we see tremendous opportunities in epi to further grow our served available market -- the service available markets for ASM in deposition. And again, especially logic/foundry because in FinFET, at first, we see further expansion of epi. But beyond FinFET, we see tremendous opportunities engaged all around also. But beyond logic/foundry into memory and also in atmospheric epi, we are more and more engaged. So it's a long answer on epi, but I think it's worth it. Also it has become a very important second growth engine of the company. And as you may recall, it's now the -- it is -- on average, it has been -- become now the second largest product line on average besides ALD in the company -- but on average, not maybe every quarter, but on average. Okay, ALD slowdown. Yes. You related to a specific customer. Can you elaborate a little bit more what you mean because you related to one customer?

[Achal Sultania, Director]

Yes. Basically, I was saying that one of your key customers in the foundry, it seems their CapEx has been quite front-end loaded this year. I guess Q1 was very high CapEx, which means that there will be a slowdown as we go through the year, especially in the second half. So I'm just trying to understand what are the -- some of the things that can be offsetting that customer slowdown, be it logic or be it memory? What are the things that can help you in the second half, not to see a significant drop from H1?

[Charles Dean del Prado]

Yes. Well, I think, in general, if you look at industry-wide level, then logic/foundry spending, of course, is very solid in the first half. And it's a little too early to give, let's say, full guidance on the second half, but we have no indication at all, if you look at logic/foundry combined that it will fall off a cliff in the second half, absolutely not, again, based on visibility today. We see that our visibility now is that logic will continue to stay the spending of logic in our WFE market will -- is expected to stay steady, based on our -- the strong demand for servers, data centers, PCs, high-performance PCs. Foundry, yes, I think in the foundry market, that's a good thing there, is becoming broader. There are more foundries engaged now in the advanced node. So the foundry spending in the WFE market, more and more is not only determined by, let's say, one leading player, you see that, yes, more than one other players are popping up. And linked to that, China is also becoming more visible. Also maybe as a result of all the geopolitical developments in the world is becoming much more aggressive, in spending also in the foundry space. And by now, of course, they also have come to the maturity level where they not only spend more but they are able to spend in really the advanced nodes. In nodes like 8, 7-nanometer. So that's on a high level. For ASM specifically, yes, we have seen in logic, so far, very steady spending in 10-nanometer and also initial clear spending in for 7 development capacity spending in 7-nanometer. And we -- again, with the visibility today, we estimate that to stay steady throughout the year. Foundry, again, we have seen more players now becoming visible. In the leading space, N5 demand has been very, very strong. Indeed, on the N5 space, first half spending could be stronger than the second half spending. That's maybe a fair observation or assessment with the visibility today. Same time N3, initial N3 spending, development spending, or call it, engineering line spending, could very likely come up to speed in -- could become visible in the second half. That's the visibility we have. And again, China is stepping up. I trust that provides you a little bit more color.

[Achal Sultania, Director]

Yes, that's been really helpful.

[Operator]

Your next question comes from the line of Nigel Van Putten from Kempen & Co.

[Nigel Van Putten, Analyst]

Yes. Also from my side, Chuck, I first wanted to congratulate you on the job well done, clearly, leaving the company in excellent shape. So again, congratulations and all the best. Switching to the top line. Maybe a bit of a follow-up because there's a lot of uncertainty ahead, but you've also mentioned some strong demand driver. I think investments in logic, 10-nanometer, 7, a Chinese foundry pick up, and potentially, also memory improving. So again, understanding there's a lot of uncertainty, just from a company planning perspective, where do you expect the biggest potential delta in terms of these drivers? Could you perhaps provide a bit more color, as it's difficult to keep track?

[Charles Dean del Prado]

So you mean company specific or on a...

[Nigel Van Putten, Analyst]

Company specific, especially for China.

[Charles Dean del Prado]

Yes. Okay. Well, I gave already some color on this triggered by the former question, your colleague, on logic/foundry. So I don't have -- there's not much to add to debt really at this moment in time. I think when we talk -- when we also bring memory into the equation, then in memory, we -- in the first half, like, we said in introduction, first half is a reasonable contribution of memory. I think, on average, we expect the first half DRAM and 3D NAND combined contribution to be somewhat similar to the second half of 2019. That's again a rough estimate based on what we know today. DRAM, of course, is stronger than 3D NAND for us. And in the second half of the year, yes, we said something about that already in the introduction. There are -- if you look at the industry as a whole, it's -- the visibility is still limited, but on the one hand, smartphones don't help the memory market to get into a strong recovery. On the other hand, data center demand, server demand, PC demand also support the memory market. So based on all of that and based on the feedback, the visibility we have from our customers so far, we expect now the second half for memory to be somewhat stronger than in the first half, with DRAM, again, being stronger than 3D NAND. Maybe for the industry as a whole, 3D NAND is expected to recover faster than DRAM. But as we shared before, for us, DRAM is stronger as a result of just some very good engagements that we have and also helped by the non-patterning ALD wins that we shared with you and your colleagues on earlier occasions and that are going to become more visible in the P&L of this year. Yes, I think that's -- and of course, in memory, yes, we are heavy onto this year. We are working very, very hard. We are investing in many more initiatives to grow our served available market in memory down the road. And maybe we can get back to that at a later moment in this call. Yes, that's the best we can do to answer you. But -- and again, China is -- on China itself, maybe that's the last part, Nigel, to provide a little bit more color on the year. Q1 was already a record level. We achieved a record level in terms of revenue in China. Q2, potentially, can bring a new record in terms of China revenue looking at historic performance in China, more and more driven by, let's say, local investments. And we see, in general, an opportunity to year-on-year to make a big step in China compared to 2019. But again, that is all -- again, we consciously chose not to put this all into numbers and see how much something going down in one area and something going up elsewhere, what the net impact was because there are a lot of uncertainties in this market. But by providing this color, we would like to at least give you the impression that the company has so many opportunities, and it's just a matter of timing, and we are engaged in so many areas. Okay, timing-wise, it maybe does not play out exactly the way we anticipate today. But if you look at the longer-term story for this company, then we have so many opportunities in both.

[Nigel Van Putten, Analyst]

Very helpful. Maybe a quick follow-up, rephrasing the question on China. In terms of similar nodes, similar capacities, you've obviously had a very strong market position at the leading foundry player. How does that look in terms of production to those records at the Chinese foundry -- foundries, I must say. Is that sort of similar then at a similar node? Or is there more competition because maybe they're still lagging a bit and competition has had the chance to maybe grab some more to the record? How does that sort of compare?

[Charles Dean del Prado]

Yes. Okay. Well, we see in the foundry space, in the logic/foundry space, significant opportunity for growth. If your question, is your penetration level in terms of amount of layers and participation the same as with, let's say, leading foundries elsewhere in the world where we so far have run engagements with? No, then we are not there, yet, of course. That will take time. But the fact, if you look at the growth opportunity we see this year, then we don't need maybe that immediate same level of penetration to still make a big impact in that market, let's say, within the foreseeable future. But of course, it will help us tremendously that we have such a strong reference base, let's say, close by in the same region.

[Operator]

And your next question comes from the line of Marc Hesselink from ING.

[Marc Hesselink, Research Analyst]

Yes. First, on the -- what you were saying on the node transitions towards the end of the year. It was -- if I'm correct, it was always to be seen how much extra ALD demand that we drive those nodes today? How much extra layers you would win? And it seems that you have a bit more visibility on that now. Could you share that how big the step-up in ALD intensity is? And my second question is on your visibility that you have on the supply chain at the moment. How deep in your supply chain can you look? And how certain are you or how quickly can you react if you see that the COVID-19 is impacting that? Also maybe a little bit to highlight. You're saying that you see the impact on the supply chain, but actually in the numbers, you don't really see it. Does that mean that without COVID-19, your revenues in your business would have been significantly higher in the first quarter?

[Charles Dean del Prado]

Okay. Okay. All right. So the supply chain question, I'll ask Peter to speak to that as soon as I've answered the node transition question. So on the visibility, yes, visibility on the node transitions, you are basically asking if we are gaining share, expecting to gain share of wallet and then let's say, market share or market share in going to new nodes in logic foundry. That's what you mean, right?

[Marc Hesselink, Research Analyst]

Yes. Yes, exactly. How many extra layers are there with your inventories?

[Charles Dean del Prado]

Yes. That's a little bit too early to tell still. Again, we have a very strong engagement with the key -- the leaders in both logic and foundry, we see an engagement clearly on more applications and more layers than, let's say, in the current nodes than the current N5 foundry node and the current N10 logic node. But it's just too early development engagement and the early capacity they order there is not a guarantee for final selection. Sometimes, they have -- they test out processes in parallel with some competitors. But we can't say -- at the same time, you can't say that if you look at the amount of money that these days evolves in bringing a new node to life, they don't waste their money. They try really carefully not to waste any dollar on wrong choices. So it gives at least an indication that we are on the right track. But it's way too early to quantify that to you at this moment in time. But the answer is clear. From our point, we can -- we see a clear opportunity to increase layers, applications, share of wallet, going to the next one, but we cannot quantify at this moment. So -- and we see not only opportunities again in ALD but also in the other product lines. We talked earlier a little bit about epi, also -- but we also have other components, we have PECVD, especially PECVD. And epi, we're looking at also the other product lines how we can gain here. And a lot of programs are ongoing, also beyond ALD. And one of the questions that came up also ahead of this call was a number of evals that are out in the field. So as an observation that the amount of evals have the activity on evaluation tools has increased significantly year-on-year, at least in the numbers. That is a clear reflection of the amount of joint development programs that we have ongoing in the field at this moment in time. And again, it's only -- it's a win-win situation for both sides. And none of -- both the customer and the supplier cannot waste their money. So both parties are very serious in -- when they engage on these things. So it also shows, in a way, that we are really working hard to further increase our served available market down the road for the company. And the interesting thing, it's maybe not specifically your question but it's a good opportunity to share that. If you look at the amount of the eval -- amount of eval tools is going to increase, it has been increasing significantly. And the percentage of memory exposure, also the percentage of memory representation in the amount of evals is increasing significantly also. And that's what we always have said. Over time, we want to increase our exposure in memory, especially in ALD. And the eval picture is a reflection of all those efforts ongoing. Okay. So that was a long answer on your first question, Marc, little bit beyond the question also. But let's now move to supply chain, Peter. Can you fill in Marc on that part?

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

Yes. Marc, visibility is, of course, one of the key issues that we have on this moment, then we would have had a perfect visibility and our guidance would not have been that broad as far as sales is concerned. So it's not demand driven, that's what we already have earlier indicated as well Q1 sales, that's also for Q2. The key issue was, can we get everything on board? We have decent insights, but you can imagine that in this current circumstances where governments are taking actions from 1 day to the other day, the impact there, looking at the total value chain, is very difficult to grab that immediately. I'll give you some examples we have in Malaysia, we have several suppliers for a lot of our products. But then for some of those products, we saw that both of those suppliers are in Malaysia. On the moment that there are restrictions there, yes, of course, that doesn't help you in full on that moment. So we're working very closely together with our suppliers. We work also very closely together with the governments to ensure that we can get as much as possible of our activities delivered ultimately. And so far, that worked very well due to all the extra efforts that we did. But it's one of the key challenges also going into the second quarter now. And our ability to deliver towards more of the high end of the range and towards more of the lower end of the base.

[Operator]

And your next question comes from the line of Wim Gille from ABN AMRO Bank.

[Wim Gille, Head of Research & Equity Research Analyst]

Yes. Can you hear me?

[Charles Dean del Prado]

Yes, we can hear you well, Wim.

[Wim Gille, Head of Research & Equity Research Analyst]

I would like to follow up on the evaluation tools. I mean especially this quarter, we saw a significant ramp-up of about EUR 20 million investments in the evaluation tools. Can you give us a bit more granularity on which applications you were seeing? You already mentioned memory, but which applications are you predominantly targeting and also which regions are you deploying these evaluation tools? And what's the impact of all these evaluation tools on your gross margin? And in relation to -- or as a follow-up on that one, your gross profit was very strong in the quarter, especially quarter-on-quarter, significant increase despite the fact that your facility in Singapore is not fully up to speed yet. So what's been driving this quarter-over-quarter improvement other than mix effects? These are my first 2 questions.

[Charles Dean del Prado]

Okay. So the second one and also the gross margin aspect of eval tools can be very well answered by Peter. But on the first part, a little bit more granularity. Yes, we really are seeing year-on-year significant increase in the number of eval tools that we have in the market. And a lot of those initiatives were already started up with customers last year that you discuss on what programs to work, but then it takes time to build the tools and ultimately, install them. It's just, yes, a little bit of coincidence that a lot of it came up to speed in the early part of this year. But as we shared earlier, it's a significant increase of the eval tools installed in the field. It's a high double-digit percentage increase, very high double-digit percentage increase of the amount of tools in the field. And we see beyond, let's say, a strong presence already last year in logic/foundry and a further increase in that space. We see especially significant increase in memory. The percentage representation of memory is almost doubling compared to last year. And again, it's further evidence of what we have always said that we are very focused on aggressively increasing our served available market in memory. And we said it will be a gradual process. It will not be a hockey-stick effect, and you won't see an immediate increase in presence in memory next year in 2021. It will go gradually. But I've also said in the last call, 3, 4 years from now, we predict that our presence in memory will be meaningfully different compared to where the company is today. And of course, today, we have also a pretty decent presence, but this is not where we want to be 3, 4 years from now. So that's on the market side of the eval tools. Peter, can you further finalize the question on that part and then go to gross margin, overall?

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

Yes. Yes, 2 things. First of all, when you look to the impact on the gross margin of the eval tools, we normally write down our eval tools in 5 years. So when you have EUR 20 million, you can make the calculations for yourself. And as a rule of thumb, besides the depreciation, we also have the support cost. They are more or less equal to the depreciation cost. So that gives you a good idea about what those -- what the extra impact is on the gross margin when we place approximately EUR 20 million of eval tools at customers. Your second question was the gross margin improvement Q-on-Q. Yes, we have seen quite a decent improvement. On the one hand, that's mix, I don't have to explain it. I have did it already several times what the impact of mix could be quarter-on-quarter. But the other thing was that also in Q4, we're lower than in the previous quarter. And it was mainly driven by the fact that a lot of the newer products that we introduced in the course of 2019 are now installed for the third, fourth or the fifth time. And then we see that we are able to do that more efficient and grabbing those efficiencies earlier than what we originally expected. So that has also a positive contribution to the gross margin earlier than we anticipated. And despite the fact that we don't have the benefit yet from the new factory in Singapore.

[Wim Gille, Head of Research & Equity Research Analyst]

So that will make the gross margin rather sustainable from the current level. And when Singapore ramps up, we could even see then improvement from the current levels. Is that my current understanding?

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

You always have the mix. Mix is the biggest impact, of course. So -- but yes, we are pleased with how the gross margin is developing. Let me say it that way.

[Wim Gille, Head of Research & Equity Research Analyst]

Very good. Then I've got a final question. If you look at your business mix, it's obviously quite difficult to have an indication what's going to happen in the second half. You're quite optimistic. Your memory business will grow. Your logic business will at least not follow the clip, but probably be stable as is foundry given your increasing exposure there to several clients. To put it more differently in terms of your mix, what is your exposure to leading edge nodes in the revenues versus the more kind of, if you will, more cyclical bread and butter stuff? If you get my -- the leading question?

[Charles Dean del Prado]

Yes. I think we are -- and Peter, you can add to that if you want to, but we are highly geared to advanced nodes, very highly geared, especially at this moment. When we had, for example, analog power -- at the time when analog power was still much stronger represented in our numbers, we had -- it was broader -- it had a broader distribution. But today, it's -- most of it is advanced nodes. Peter, anything you want to add?

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

Yes. I mean the business, which are not that much of which only partly are in the advanced nodes is, of course, the furnace business. And part of the epitaxy business that Chuck already was referring to earlier, especially the part, which is analog power related. But by far, the majority of our sales is related to the more advanced nodes.

[Operator]

And your next question comes from the line of Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

Congrats, again, to Chuck on the great value creation since you've been CEO. Can I ask relating to the CEO appointment, whether Ben will be based out of Singapore and the Netherlands -- or the Netherlands? And related to his appointment, I'm assuming he will conduct a strategic review over the first 12 months as is normal for any CEO. And could you confirm that the stake in ASM Pacific would be something that would be under consideration for the next CEO? The reason I ask is because a lot of shareholders still are not comfortable with the stake. And the share price of ASM Pacific hasn't gone up over the last 5 years. So I think it would be interesting just to kind of get a feel for whether that would be under bend remit for the first 12 months?

[Charles Dean del Prado]

Yes. Okay. Well, maybe the first part, he will be based in the Netherlands, that is clearly headquarters of the companies in the Netherlands. So he's supposed to have his base working from the Netherlands. On the second part of the question, Peter, maybe you want to say something about it.

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

Yes. I think that's a good question to answer to ask the new CEO. So that will be the chocking months. But I mean the ASMPT stake is part and parcel of the reviews what we have done in the past years, so that will not change. so we'll...[Technical Difficulty]

[Charles Dean del Prado]

Peter? Peter, you're fading out.

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

Sorry, I left it by saying, okay, the review of the ASMPT stake was always part and parcel of the strategic review that we are doing. And I don't think that that's still going to change. So it will remain part and parcel of the strategic review that we do regularly.

[Robert Duncan Cobban Sanders, Director]

Got it. And just a follow-up, just beyond the market share. Your market share is now 57% in single-wafer ALD. And it does look like your competitors are falling away. I mean AMAT now is a very small fraction of the market. And you're saying you're taking share in DRAM non-patterning. So how do you think about your kind of market share objective from here, given you've already gone from low 40s in 2018 to 57% in 2019. Can you get up to 70%? Is there any area you'd rather not participate in?

[Charles Dean del Prado]

Yes, 70%, that would be great, but, yes, well, it's -- that would be great. But I think it's clear -- by the way, whether it's 57% or 52%, it depends a little bit on what assumption you make. I think the 57% number comes from Gartner and BFSI uses 52%. Basically, they all have different methodologies and different parameters that they use to calculate the number, but it's clear to both, and we can confirm that we significantly gained market share, of course, year-on-year in 2019. Having said that, it should be clear to everybody that, of course, short term, the market share is, say, always part of a -- partly a function of mix, mix of spending within the WFE market between different industry segments. And if, for example, on the shorter, memory would come back forcefully and logic/foundry would go through a short pause, then our market share likely will go down because -- at least for that time being, because our -- as you all know, our market share is shortly in logic/foundry is much higher than in memory. So there will be swings on the short-term in that market share number, depending on the mix between industry segments. Longer term, indeed, we are strongly focused on maintaining our leading market share position. And we do that by not only, of course, further strengthening our position in logic and foundry, by expanding our served available market also there, as we touch on briefly, as we go to N7 logic and we go to N3 foundry, we would like to further increase our share of wallet. But of course, big 3 factors is in memory. And we touched on that a number of eval tools, number of JDPs ongoing, first evidence with non-patterning DRAM applications. Over time, we are looking for a much bigger served available market showing up in our P&L. And as we are successful in executing on that in the next 3, 4 years, then we will be in a good position to maintain strong market shares in single-wafer ALD through the different, let's say, mix cycles between industry segments. And we believe we are in a very good shape to make that happen. That's the best answer, Rob to -- Robert to that first -- to that question.

[Operator]

Thank you. And I would now like to hand the call back to you, Chuck. We have no more questions.

[Charles Dean del Prado]

Okay. No more questions. Well, then, again, thank you all for this good interaction today. And again, thank you all for a long time partnership from a personnel point of view. And again, I trust the company is in great shape going forward to serve your interest in the company. And so please keep following the company very, very closely. And again, I wish you and your families great health and prosperity in the future. Thank you, again. Thank you for your attendance today. Bye-bye.

[Operator]

That does conclude your conference for today. Thank you all for participating. You may now disconnect.