ASM International NV

AEX:ASM

Earnings Call Transcript 2018-Q2

[Operator]

Good day, and welcome to the ASM International Q2 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Victor Bareño. Please go ahead, sir.

[Victor Bareño, Director of Investor Relations]

Thank you, operator. ASMI issued its 2018 second quarter results last evening. For those of you who have not seen the press release, it, along with our latest investor presentation, is accessible on our website, asm.com.As always, 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 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 of ASMI. Chuck?

[Charles Dean del Prado]

Yes, thank you. Thank you, Victor. Thank you all for attending today's ASMI Q2 2018 conference call. And first, we will start with some introductory remarks, and then subsequently, of course, together with Peter van Bommel, our CFO, we're able to answer any questions you may have.So let's now first review our second quarter 2018 financial results. Net sales in the second quarter increased to EUR 209 million, an increase of 31% compared to the first quarter. Sales in the quarter were in line with our guidance, which was a range of between EUR 200 million and EUR 230 million. On a constant currency basis, sales increased year-on-year by 3% in Q2 and by 6% in the first half of this year.Equipment sales increased 34% sequentially. Service and spare parts accounted for 23% of total sales in the second quarter and were up 16%, 1-6 percent, year-on-year in the first half at constant currencies.In terms of product lines, our ALD business was again the key driver. But we also had a decent contribution from the other product lines. To highlight one example, in furnaces, we have seen solid sales levels in Q2 and also in Q1, driven by advanced logic as well as so-called more than Moore more applications such as sensors and IoT products.Compared to Q1, sales in all industry segments were higher, led by strong increases in logic and foundry. Within memory, sales were at healthy levels in both DRAM and 3D NAND.The gross margin was 42% in the second quarter. In line with our expectation, gross margin improved substantially compared to 38% in the first quarter and returned to the target range of low to mid-40s.The sequential improvement in gross margin was a result of a few factors. First of all, moderation of the impact from new products from 2% in Q1 to 1 point -- percentage point in Q2. And secondly, the sales mix of existing products compared to Q1 returning to the normal levels as seen in the past years. And third factor, it was a reduction of the costs associated with our preparations for expansion.We have a strong pipeline of new products and applications that we are going to introduce in, of course, coming periods and that will add to ASM's growth potential.It is possible that some of the next quarters will show the impact of higher associated installation expenses of these new introductions. That can lead to a somewhat higher volatility in gross margin that -- than what we have seen in previous years. Having said that, we expect the gross margin to remain in the low to mid-40s range.SG&A expenses increased by 9% compared to the first quarter. And while R&D spending increase quarter-on-quarter was 5%, the reported R&D expenses, a decrease was 5%. This is due to the higher R&D capitalization as more of the new products and applications that we have been working on are getting closer to the point of commercialization.We generated operating income of EUR 38 million in the quarter with an operating margin of 18%, up from 7% in the first quarter.Financing result in the second quarter included a currency translation gain of EUR 8 million compared to a loss of EUR 8 million in the first quarter. As a reminder, we hold the substantial part of our cash balances in U.S. dollars.Net earnings on a normalized basis amounted to EUR 62 million, up from EUR 19 million in Q1.In Q2 of last year, our normalized net earnings amounted EUR 61 million, excluding a book profit of about EUR 100 million related to the sale of a 5% stake in ASMPT in that respective quarter.Let's take a look briefly at ASMPT. ASMPT delivered, again, solid results in the second quarter. And normalized results from investments, which reflect our share of approximately 25% in the net earnings from ASMPT, increased to EUR 22 million for the quarter, up from EUR 16 million in Q1. And we're talking about euros here.In the second quarter, ASMPT sales rose to USD 672 million, up 21% from the first quarter and up 19% year-on-year and in line with the company's earlier guidance of somewhere between USD 650 million and USD 710 million. Following the strong level in Q1, bookings in the second quarter increased 10% year-on-year, slightly above PT's guidance of single-digit growth.So let's now turn back to ASMI's consolidated operations. Our order intake in the second quarter amounted to EUR 176 million, down from the record high of EUR 207 million in the first quarter, and as such, well within our earlier guidance of a range between EUR 160 million and EUR 200 million.Looking at the breakdown in bookings by industry segment. Foundry was the largest segment, followed by memory. Foundry orders increased versus Q1 and were driven by the continued ramp of 7-nanometer as well as from early demand related to the next 5-nanometer node. Within memory, DRAM accounted for the largest part of the order intake. And NAND bookings, after having been at solid levels for multiple quarters, slowed compared to Q1.Taking a look at our balance sheet and cash flow. At the end of June, the cash position stood at EUR 651 million, down from EUR 741 million at the end of March. This decrease was largely the result of a total of nearly EUR 80 million spent on dividends and share buybacks as well as a negative free cash flow during the quarter and partly offset by EUR 50 million in dividends received from ASMPT.The free cash flow turned to EUR 37 million negative in the second quarter compared to EUR 15 million positive in the first quarter. This is primarily the result of working capital, which increased from EUR 156 million at the end of the first quarter to EUR 213 million at the end of June. The largest part of this increase was in turn caused by accounts receivables, which rose by EUR 42 million due to the strong sequential increase in sales and by the fact that Q2 sales were heavily back-end loaded.In the second quarter, we paid EUR 37 million in dividends or EUR 0.80 per share. We also spent EUR 39 million during the quarter to buy back more than 700,000 of our shares at an average price of approximately EUR 52. These share repurchases were primarily related to the EUR 250 million share buyback program that we announced on June 5 of this year. As of last week, we have completed 31% of this program.As communicated earlier, this share buyback program is funded, was part of the proceeds of the 9% stake sale in ASMPT that we executed in November last year. And we will use the other part of the proceeds for a tax-efficient capital repayment of EUR 4 per share, which was approved by the AGM in May. And the indicative x date for the capital repayment is August 7, and the AGM also approved the cancellation of 6 million treasury shares, which is expected to become effective as of August 1.So let's now more closely look at the dynamics in our key markets. Despite a number of macro-related risks such as potential impact from trade tariffs, overall conditions in the semiconductor end markets still look healthy, supported by broad-based demand drivers such as cloud computing, data centers, automotive and industrial applications. The total IC market is expected to grow low double digits this year.Looking at the WFE market, the wafer fab equipment market. While 2018 is still expected to be a growth year, the increase this year is likely to be somewhat lower than expected earlier in the year. That's due to the lower than previously expected spending in the second half of the year in primarily the memory sector. General expectations are now for the WFE market to increase by mid- to high single-digit percentage in 2018 in U.S. dollar terms. Drivers behind the growth this year are still expected to be the logic and DRAM segments.For ASM, we continue to expect sales in the second half to be higher than in the first half of this year.As we indicated in April, expected higher sales in the second half will be driven by logic/foundry and DRAM, while NAND sales are still perceived to be lower sequentially. For the full year, we still aim to outperform the WFE market.On balance, WFE expectations for the logic/foundry market have remained largely unchanged. While the mix of spending on the different nodes this year now looks somewhat different than earlier assumed, overall spending within advanced logic is still expected to be up this year.In foundry, the spending in 2018 is related to the ramp of 7-nanometer node as well as the first investments in the next 5-nanometer node. Investments for the 5-nanometer node are likely to further increase in the course of 2019. As we highlighted earlier, we believe the 5-nanometer foundry node is going to be an important transition for our company.Looking at the intensity of our R&D engagement, we see very good opportunity to expand our position to multiple new applications across our ALD portfolio and to increase our overall share of wallet in the foundry sector with the transition to this more advanced node.Now turning to 3D NAND. Growth in end market demand continues to be healthy. But following strong levels of spending in the 3D NAND space in the last couple of years, WFE spending in this segment is expected to decrease in 2018, mostly impacting the second half of the year. Customers are preparing for the ramp of the next-generation devices, which are likely to see volume build-outs in the course of next year.Looking at these next-generation devices, we feel we are well positioned. As customers move to higher stack devices of 90 layers and above, the increasing complexity and aspect ratios will gradually fuel the need for a growing number of advanced single-wafer ALD solutions.Over the last few years, we have invested in new solutions and hardware improvements that will increase the part of the 3D NAND ALD market that we can address, both in terms of existing and new applications.In the DRAM segment, overall growth in WFE this year is still expected to increase, even though some investments have been pushed out to 2019. While technology transition continue, customers are making relatively higher investments in new capacity this year, which is driving for us a healthy increase in new ALD tool demand for double and quadruple pattern.In R&D, we remain focused on broadening our portfolio of ALD in this DRAM segment. We continue to expect the first contribution of new non-patterning solutions in next year.Looking at the longer term, we remain confident about the double-digit growth potential of the ALD market. As the industry continues to transition to smaller geometries, new materials and more complex device architectures, more and more deposition steps are expected to require the superior film precision and control offered by advanced single-wafer ALD with lower temperature processing and high levels of productivity.An important element of our growth strategy is to expand our SAM, our served available market, within the total ALD market, as we shared with you before, including parts of the markets that we have so far not yet addressed. An important step in this context is the introduction of our new Synergis tool that we recently announced at the SEMICON West in San Francisco in -- earlier this month. The Synergis combines the core ALD capabilities of the Pulsar and Emerald reactors with the proven high productivity of our XP8 -- proven XP8 platform and includes innovations such as optimal thermal control in a low-volume reactor with improved purge efficiency, contributing to excellent film uniformity and chamber repeatability in a lower cost of ownership configuration.Furthermore, Synergis supports a wide range of films, film properties and material compositions, and as such, will enable a meaningful expansion of our served available market. We have R&D engagement for our Synergis tools ongoing with several customers.Looking at the longer term next to ALD, we also expect the structural higher contribution from our combined other product lines. In epitaxy, our Intrepid systems are currently supporting the HVM RAM, as you know, of the leading foundry customer in the world. And for the next device generations, we continue to be engaged in R&D with multiple customers.So let's now close this introduction with looking at our Q3 guidance, as we included in our press release. For Q3, on a currency comparable level, we expect sales of between EUR 180 million and EUR 200 million and an order intake between EUR 200 million and EUR 230 million. And Q3 reflects still some uncertainty around the exact timing of individual tools.At this time, we are more than happy to -- me, together with Peter van Bommel, to answer any questions you may have.

[Victor Bareño, Director of Investor Relations]

[Operator Instructions]

[Operator]

[Operator Instructions] We will now take our first question from Quang Le from Crédit Suisse.

[Quang Tung Le, Research Analyst]

Chuck, if I could move to your comment, you said that you remain confident about the double-digit growth in single-wafer ALD market this year. Am I correct? Could you clarify that?

[Charles Dean del Prado]

No, I -- yes, thank you for asking this clarifying question. It's more the -- let's say, the double-digit CAGR, calculated CAGR, over, let's say, 4-, 5-year period of time because we're confirming our statement that with 2017 as a baseline, we are of the view that the single-wafer ALD market has the clear potential to grow to around USD 1.5 billion by 2021. So that's what we meant with that statement. Thank you for asking this clarifying question.

[Quang Tung Le, Research Analyst]

So in that case, how -- what is your projection for this year and next year growth then? Do you have anything in mind?

[Charles Dean del Prado]

Yes. Well, if you look at the ALD market, it's, of course, a little bit too early to do a complete forecast for the year, to make forecast of complete outcome of the year. But if you look at it by industry segment, then we expect the logic contribution, the advanced logic contribution to go up this year. We expect the DRAM contribution to the single-wafer ALD market to go up. And our, yes, opinion now is that we expect the NAND contribution to go down, and likely, the foundry contribution also temporarily to go down also. That's, I think, from an ALD point of view. I think -- yes, our current view.

[Quang Tung Le, Research Analyst]

I see. And if I could clarify, you also said that...

[Charles Dean del Prado]

Not at the same time. If you then look at next year, it's -- if we see -- if advanced logic is able to reaccelerate the ramp of 10-nanometer and foundry really steps up again in -- on investments N7 Plus with especially N5, then there is a big opportunity for those segments to develop very well going into 2017. And that's also a very interesting area for us to be focused on and to work on in increasing our share of wallet.

[Quang Tung Le, Research Analyst]

I see. And if I could also move back to your comment that all your segments have been increasing year-to-year in this quarter. Do you see any market share gains, especially in single-wafer ALD, Epi or PECVD, those segments where you are focused on?

[Charles Dean del Prado]

You mean market share...

[Quang Tung Le, Research Analyst]

Yes.

[Charles Dean del Prado]

In this year?

[Quang Tung Le, Research Analyst]

Yes, this year. I mean, year-to-date, at least.

[Charles Dean del Prado]

I think that's too -- that's way too early to -- because we cannot compare it with the publicly available data because we always build also our intelligence on combining our own assessment with publicly available data. But -- and as you know -- but you can also do an assessment yourself because our market share is mostly a function of overall mix of spending. And you know that, for example, in 2017, our market share decreased somewhat because memory was the main driver of the industry. And you understand that we are better able to, let's say, maintain and develop solid market share when logic/foundry compared to memory is doing well because our relative market share in those segments is the strongest. So that's the color we can provide at this moment in time. And for the rest, for now, you have to make your -- we invite you to make your own assessment. But as soon as we think we can provide more color on that, we will.

[Operator]

[Operator Instructions] We will take our next question from Tammy Qiu from Berenberg.

[Tammy Qiu, Analyst]

So firstly, can you talk about your comment regarding memory spending is lower than expected in H2 this year? Is that more of a pushout or a cancellation of spending? So if it's actually a pushout, are we going to see 2019 higher than expected? And also my second question is, can you talk about your positioning in the new 96-layer generation 3D NAND, which was released literally a week or 2 ago?

[Charles Dean del Prado]

So first of all, memory, in general, yes, I think we have been pretty consistent on the memory market. Since the beginning of the year, we very quickly -- our visibility was that NAND was -- market was clearly weakening in the course of the year. Compared to April, it maybe has weakened a little bit more for the remainder of the year. But on DRAM, we foresaw clearly and we still see that year-on-year, DRAM is clearly stronger. But also there in the second half, certain players have slowed down their spending. So -- and since most of those players only place their orders relatively late, for us, those are pushouts and no cancellations. In general, we are of the opinion that looking at 2019, because that's maybe what you are also looking for, yes, it's, of course, very early, but the common opinion is that DRAM after 2 strong years may slow down year-on-year in 2019. NAND, initially, a lot of people were pretty negative on '19, very aggressively negative on '19. We have said earlier that in talking to our customers, we don't see that same pattern coming back from our customers, especially since some of the slowdown in NAND already kicked in basically in this year. So it could result in a soft landing early next year and maybe even a pickup sometime next year. Again, I'm not -- we're not predicting that, but we don't exclude that from happening. And then for the rest, as I alluded to in the earlier question, for 2019, we see a big opportunity for foundry to pick up, driven by N7 Plus and N5, N3 spending. And advanced logic could also be up if 10-nanometer would reaccelerate. That's -- so now coming back to your second question on 96 stack, I don't know exactly what you mean, but we have seen the industry preparing for 96 stack already since early in the year. We have not seen a strong ramp there yet, and we don't foresee a strong ramp of volume there until early next year based on, again, the visibility we have today. And yes, we have been positioning ourselves with certain applications in 96 stacks of multiple customers. And, let's say, the programs that we have been working on with customers, those programs are going very well. And as we said before, we aim to gradually increase our presence in 3D NAND as we go from stack to stack. And we are also aiming to -- as we said, to expand our presence in -- basically build a presence and the leader in this industry gradually as of 96 stack.

[Tammy Qiu, Analyst]

Okay. I see. So what I meant by 96-layer was that previously, you were involved in some of design wins with 64-layer 3D NAND. But one of the biggest memory maker wasn't actually using single-wafer ALD at 64-layer. You were commenting that you were working with them on the next-generation 96-layer. So I'm just wondering, have they started adopting a single-layer -- single-wafer ALD at 96-layer design?

[Charles Dean del Prado]

We are -- let's say, on that specific application, again, they have not ramped volume significantly. What we can say is that engagement is very much on track. And for us, that is a very strategic path to get in for the customer to familiarize with our tool, with our process capabilities and then gradually build -- further build our presence within that customer.

[Operator]

We will take our next question from Mr. Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

I have 2 questions. Firstly, on EUV at foundry. So basically, clearly, TSMC is a large customer. They are adopting EUV or trying to in a big way of 5-nanometer. How is that impacting your single-wafer ALD patterning business with them? Have you seen an impact already? Are they reusing tools more? I'd love to get an idea if you -- have you seen any impact and how you see that going forward? And then just a kind of naughty question. Probably this is a stupid question, but I'd love to know a bit more about the mechanism behind this capital return. What does it mean for our model, et cetera? Did the share count go down? I'd love to learn a bit more. Frankly, not seen a lot of this in my career.

[Charles Dean del Prado]

Okay. First of all, yes, EUV, I don't want to speak too much about specific customers, but I think, in general, with the introduction of EUV, in general, we really embrace it. First of all, we expect our ALD patterning business to remain a really steady business for the foreseeable future. As we said before, percentage-wise, in the growth to EUR 1.5 billion, likely we did not foresee the patterning business to -- percentage-wise, to significantly grow in all our projections. So that has not changed. But the actual contribution will stay a steady one regardless of the introduction that -- introductions -- or perceived introductions or planned introductions that have been announced recently. And -- yes, and in general, within the foundry space, we see tremendous opportunity to increase our share of wallet from -- going from N7 to N5 in that industry segment, in general, Rob. Okay? So that's one, Robert, that's just one...

[Robert Duncan Cobban Sanders, Director]

Sorry, could you clarify a little bit more about that? I mean, it does seem like they're not going to be adopting gate all around. So you're not saying -- the non-patterning driver at TSMC is not the transistor gate-type stuff, it's something else. It's a replacement of CVD or something else.

[Charles Dean del Prado]

We have multiple areas, multiple product engagements with foundry to increase our share of wallet going from 7 to 5. Across the board, we are working with them. Across the board, multiple products to increase our presence in the foundry space going to the next technology node. And those cooperations are very, very intense from both sides. And then the one last thing, because basically your question makes 2 things, and EUV in general, I think EUV will be successful. In general, I cannot -- we cannot, let's say, repeat that enough. It will enable the industry to further continue Moore's Law. And that is -- we view that since we are an innovative company that tries to be at the leading edge of the deposition landscape with many of our technologies, many of our equipments, many of our materials, chemistries. It opens up more opportunities for us to grow our business down the road. Okay? So that's the answer to that question. And, Peter, if we can take...

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

Yes, let me try to answer your question with regard to the capital return. It's a rather technical issue. First of all, what we are doing on this one, we have, of course, nominal capital and we have paid up capital in excess of that nominal capital. And we're following, basically, a 2-step approach, which has also been approved by the AGM in May. The first step is, in principle, that we add the paid-up capital in excess of nominal capital towards the nominal capital. So you increase, in principle, the nominal value per share. And then -- and the second step, you reduce that nominal capital again for the same amount as what you have done, that you have increased it out of the paid-up capital in excess of the nominal capital. And by doing so, you are, in principle, returning capital towards your shareholders. And you can do that tax-free. So the only thing what you have is a waiting period of slightly above the 2 months because creditors of the company could disagree with that. Now that waiting period ends early August. And directly after that period, we will pay out that EUR 4 to the outstanding shares in the company.

[Robert Duncan Cobban Sanders, Director]

Got it. From a modeling point of view, is that basically equivalent to the share count going down accordingly by that amount and the cash out of that amount? I mean, just to ask [indiscernible] the question.

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

The share count will remain the same.

[Robert Duncan Cobban Sanders, Director]

Okay. So it's just like a special -- it's modeled like a special div, basically.

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

It's in principle that the combination of the nominal capital -- the nominal value of the capital and the paid-up capital in excess of the nominal capital that -- when you add those numbers together in this moment in the books, that will reduce towards simply the nominal capital per share again.

[Operator]

We will now take our next question from Edwin de Jong from NIBC.

[Edwin de Jong, Analyst]

A couple of questions left. If you take your guidance of above-market growth for [ 3 years ] and then look at the Q3 guidance as well, should be very strong, well above EUR 200 million quarter again. And could you maybe explain a little bit what is driving that? And can we maybe also have some comments on what the order intake is looking like -- looks like at the moment?

[Charles Dean del Prado]

So your first question was what the drivers are for this ALD market to keep growing?

[Edwin de Jong, Analyst]

No, no, just the general sales guidance. You say you're going to grow above market for the year, so let's say, 8%, 9% or so. You have Q3 guidance of around EUR 190 million. If we combine that, Q4 should be very strong in terms of revenue.

[Charles Dean del Prado]

Okay, okay. So you talk to the remainder of this year. Okay. So first of all, you are maybe combining a few facts, which I understand from your point of view. But we have not given specific sales guidance for the full year of '18. I would like to make that clear. But your question basically is whether we anticipate a strong fourth quarter based on our guidance Q3 and for the full year. And -- well, we can confirm that we do expect a strong fourth quarter as, of course, implied by our guidance. And yes, if you look at the backlog of June, it was lower sequentially but still very healthy. And if you look -- if you combine that with our guidance on the Q3 bookings, we would end up with, of course, a very healthy backlog at the end of Q3. And so then you can understand what that could mean for, let's say, Q4 revenue. And if you look at the drivers for our Q3 order intake, then logic is expected to be -- foreseen to be a strong contributor. Analog is foreseen also to be a healthy contributor. And also foundry, to a certain extent, Q-on-Q, we think will step up. So just to provide you some color on what we took into account in getting to our current guidance for Q3, which is not a number. It's based on certain trends that we experienced in specific industry segments of the environment that we work in, yes? So -- and then -- no, that was my answer. Any follow-up?

[Edwin de Jong, Analyst]

And the follow-up would be on Synergis. We already have some first shipments for the new tool. Again, maybe there's some idea of the specific markets you are targeting with the new tool and how it's being received by the market. Maybe some general comments.

[Charles Dean del Prado]

Yes, general comments. Well, we really -- of course, we always have had -- with our Pulsar and Emerald reactors, we really focus on this market. And so far, we have had 4-reactor platform that we use for that market. And we really worked very, very hard over the last 2 to -- 2, 3 years to do 2 things: to repackage all the know-how we have on the ALD aspects that are incorporated in these reactors in an 8-tool -- 8-reactor configuration, to really improve -- to make the cost of ownership more attractive; and secondly, take all the learnings from all the process and tool learnings that we built in -- during those ALD engagement with customers that we've had over the last few years to also incorporate those in this tool. And yes, we think that for specific application, not for every application, for certain applications, the current configurations are still very well valid, are maybe more suitable, depends also on the application itself, the speed of the process, wafers per hour, all -- the process itself, without going into too much detail. But we basically -- by bringing this configuration to the market, we really have tremendous opportunity to increase our share of available market within the ALD space. And that's what we said all along in the last few quarters that we are aiming to increase our share of available market within deposition. So was happy with -- to a certain extent, with PECVD; to also a certain extent, with vertical furnace. PECVD and vertical furnace in a more modest way than in Epi, but those are only in ALD. Regardless of the fact that we are the leader, still we don't -- we said many times, we don't address all the areas of the business. We don't address all the applications in logic, don't address all the applications in foundry. And we have significant areas of opportunity in memory. And this will -- it's an important step, not the only step, but an important step to increase that served available market, to protect our leadership in ALD. And we see a tremendous interest among multiple customers. And yes, we expect to go in -- we aim to go into high volume with this tool next year. We aim to go into high volume with this tool next year. Yes, and that's our aim again and -- so that's our ambition.

[Edwin de Jong, Analyst]

Okay. And that's mostly targeting memory market, I think. Or am I wrong there?

[Charles Dean del Prado]

Well, it will be gradually. It will gradually be, and likely the initial space will be -- initial traction will be in the logic/foundry space and then subsequently -- in memory, it may take a little bit more time, but we have engagements ongoing there. But we are believers that likely we will build first traction the most in logic/foundry space.

[Operator]

Our next question is from Charles Elliott with Inflection Point Investments.

[Charles Elliott]

A quick one. We're hearing a story that your Japanese competitors producing CVD are not getting enough aluminum capacitors, and that, in turn, may be responsible for the pushback in DRAM investment, in planned DRAM CapEx spending to next year by one of the major Asian clients. Could you give any comments?

[Charles Dean del Prado]

I have difficulty giving comments to this question. Maybe off-line we can sort out if we can respond to this question better. Maybe let's have additional dialogue outside the meeting with Victor because I do not recognize his comment immediately, so I'm not able to comment on it. I can speculate, but I don't think that will help the audience today. Sorry about that.

[Charles Elliott]

That's fine, Chuck.

[Charles Dean del Prado]

Okay. Thank you for bringing it up. And please, let's please follow up off-line with Victor.

[Operator]

Our next question is from David O'Connor from Exane BNP.

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

Maybe just a clarification, Chuck, on one of your comments in your prepared remarks or to one of the questions. You mentioned the advanced logic step-up in 2019 after the issue in ramp-up this year. Is that your current expectation? Or is that just more of a general comment? And I have a follow-up.

[Charles Dean del Prado]

There is no -- there is absolutely no confirmation in that respect from the customer base. But we do know that this technology in advanced logic was announced in 2016, and there should come a time when it will go into AGM. So I think, together with us, more peers are at least commenting that, I think, there is a reasonable possibility. But there is no confirmation from the customer in that respect in any way, if that's what you would like to know. Okay?

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

Okay. And maybe just -- I know that you responded to already, the comment on the -- some uncertainty around the timing of tools in Q3. Can you give us more detail what exactly you were talking with there?

[Charles Dean del Prado]

It's just lead times. It's just related to lead times and the lead times and the exact capabilities to align customer request dates with the capabilities of our supply chain. Peter, anything you want to add to that?

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

Yes. I think that's the reason why we already have given now for a few quarters a broader [indiscernible]. So there's just a lot of -- there are a lot of requirements of customers. Those requirements, due to the pressure that everyone has in increasing its capacity, might lead to -- for certain periods, for certain days or certain weeks sometimes, to an uneven distribution of the products that you need to have. And that leads to last-minute changes, and that leads to sometimes slightly delays in delivering the products. We have seen that in the second quarter. So that was the reason why we said, okay, we have a range of EUR 200 million to EUR 230 million. Well, the analyst community, of course, came to a midpoint, which is EUR 250 million, where you see that one of 2 tools are not going out at the last minute. And this is in principle also some uncertainty that we see on this moment in the value chain also for the third quarter.

[Operator]

We will take our final question from Peter Olofsen from Kepler Cheuvreux.

[Peter Olofsen, Analyst]

I had a question on spares and services sales, which came in pretty strong in the second quarter. Is there any link with equipment sales in the quarter? Or is this spares and services sales mainly driven by your installed base business? And what kind of growth rate could we model for spares and services for the coming years?

[Charles Dean del Prado]

Yes. Let me try to answer that. I think there is no direct link between spares and the services business within the quarter in delivering of tools. Sometimes, you deliver towards customers a few spare tools, but that is not always the case of the moment that you deliver the equipment. It's -- you have to make a distinction or so between the spares, which are not for -- are for normal usage, yes? So the things that are used up during a certain period. And that will increase as a function of the installed base over the longer term. And the other thing on spares, where you simply have to replace a part of the tool, which is, on a certain moment, not functioning any longer. So -- and that has a more ad hoc consequence and ad hoc sales that was increased. So we expect that while installed base is growing, that our service business will grow with the equipment installations that we are doing, be it at a later time level.

[Peter Olofsen, Analyst]

And then what kind of growth rate we then think of, maybe mid-high-single-digit or potentially double-digit?

[Charles Dean del Prado]

That depends a little bit. And so we expect that to grow with the installed base that we have. So -- and we have a sales level of -- increase of 10%, and you might highly expect as well as 2 years later, that also will lead to additional spares and service business.

[Operator]

That concludes today's question-and-answer session. I'd like to turn the call back to Mr. Chuck del Prado for any additional or closing remarks.

[Charles Dean del Prado]

Okay. I would like to thank you all for your questions, especially on such a warm day with regard to all the people in Europe that you still had the energy to -- and stamina to attend this Q2 conference call. Very much appreciate it. And let's really stay in touch in the coming months, and looking forward to meet some of you in one of the upcoming roadshows after this mid-summer period. Thank you again, and have a very nice rest of your day. Thank you. Bye-bye.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.