ASM International NV

AEX:ASM

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the ASM International Q2 2020 Earnings Call. [Operator Instructions]I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker, Victor Bareno. Please go ahead, sir.

[Victor Bareño, Director of Investor Relations]

Thank you, Nadia. Welcome, everyone. I'm joined here today by our CEO, Benjamin Loh; and our CFO, Peter van Bommel. ASMI issued its second quarter 2020 results yesterday evening at 6:00 p.m. Central European time. For those of you who have not yet seen the press release, it is available 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 Benjamin Loh, President and CEO of ASMI.

[Gek Lim Loh]

Thank you, Victor, and thanks to everyone for attending our second quarter 2020 results conference call. Welcome to everybody. I hope everyone is healthy and fine. It's a real pleasure for me to talk to you today in today's call. And I look forward to meet everyone of you in the near future, either in person or virtually. As most of you know, I joined ASM as the new CEO, following the approval at the AGM on May 18. I have recently also moved to the Netherlands, and I'm now based out of the headquarters in Almere. My experience comprises about 30 years in the capital equipment sector, covering semiconductor, data storage, scientific and analytical instruments with both U.S. and European public companies. Based on my observation in these first 2 months, it is clear to me that ASM is a great company. We have leadership positions in the fast-growing parts of the wafer fab equivalent market. We have built up strong relationships with all of the top CapEx spenders in our industry. We have a solid portfolio of advanced technologies and finally, we have highly motivated and talented employees, which is our key asset. Having taken over as a great performing company, the key task for me will be to continue to further drive the growth of ASM in the coming years. A quick note on the agenda for the rest of today's call. I will first provide you with an update on the impact of and our response to COVID-19. My colleague, Peter van Bommel, will then review our second quarter financial results. Thereafter, I will continue with a discussion of the market trends and outlook. And finally, we will conduct the usual Q&A session. First, an update regarding COVID-19. During the quarter, we continue to prioritize the safety of our employees. For me, it is very impressive to see how ASM employees, while putting the health and safety of all of us first, showed strong commitment and creativity to make sure we continue to serve our customers in the best possible ways, such as the use of smart technologies to work remotely on our customers' tools. In terms of demand, the impact from the pandemic remain limited in the second quarter as our customers maintain their investments in the most advanced nodes. During the quarter, our operations continue to be impacted by bottlenecks in our supply chain, especially the lockdown measures in Malaysia and Singapore impacted several of our suppliers and led to shortages and delays for certain parts. In addition, the border closure with Malaysia prevented some of our employees from coming to work in our facility in Singapore. Despite these challenges, our team did a fantastic job, and we succeeded in meeting customer demands. Towards the end of the quarter, supply chain and logistical conditions improve as lockdown measures were gradually lifted or eased, especially in Asia Pacific and Europe. However, due to the constraints during the quarter, a relatively large part of sales were booked in the later part of the quarter. As the global pandemic is not yet under control, we remain focused or measures to safeguard our employees and to ensure business continuity. Last but not least, as we already reported last quarter due to the lockdown measures in Singapore, construction work on our new manufacturing facility had to be temporarily halted. Since a few weeks, construction work has started again. Be it at the low scale, and completion is now planned for late this year, early next year. I will now hand over to Peter for a discussion of our financial results.

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

Thank you, Benjamin. In the second quarter of 2020, our revenue amounted to EUR 342 million, which is up 5% from the first quarter and is a solid increase of 32% compared to the second quarter of last year, and that's excluding the proceeds from the litigation settlement in that period. Revenue in the quarter was towards the higher end of our guidance, which was a range of EUR 300 million to EUR 350 million. Service and spare sales grew strongly by 47% year-on-year and represented 23% of our total sales. Equipment sales increased by 27% year-on-year and were primarily led by our ALD products. The strong improvement in our spares and service sales is partly caused by the COVID-19 uncertainty, which led to an additional safety orders from some of our customers, but also structural higher level of sales caused by a higher installed base. By industry segment, revenue in the second quarter was led by foundry, followed by logic and then memory. Combined, logic/foundry sales decreased sequentially but were still at a solid level and continued to account for the largest part of sales. Memory was up sequentially with sales increases in both DRAM and NAND. The gross margin increased to a record level of 48.3% in the second quarter, which is up from the 44.5% in the first quarter. The gross margin was again supported by cost reductions related to the installation of new products that were introduced in earlier periods, while the exceptional high level in the quarter was entirely driven by mix effects. The SG&A expenses increased by 15% compared to the first quarter, which is explained by one-off costs and higher variable compensation costs. The R&D expenses increased by 18% compared to the first quarter. This increase was primarily driven due to impairment costs. Excluding these impairments, the increase would have been 2%. The operating profit increased 12% compared to the first quarter, with the operation percentage at 25.6% in the second quarter, which is a new record high for ASM. Below the operating line results included a currency translation loss of EUR 6 million, mainly explained by the depreciation of the U.S. dollar in the quarter. This compares to a translation profit of EUR 12 million in the first quarter. The results from investments, which reflects a 25% share of the net earnings from ASMPT, increased to EUR 11 million in the second quarter, which is up from the EUR 1 million in the first quarter and also up from the EUR 2 million in the second quarter of last year. ASMPT reported sales of USD 557 million, which was up 28% compared to the first quarter and was up 21% from the second quarter of last year. Their bookings amounted to USD 472 million in the quarter, which was down 29% sequentially and down 22% year-on-year. Let's now turn back to ASMI's consolidated operations. Our net earnings on a normalized basis amounted to EUR 77 million in the second quarter. Our new orders in the second quarter were EUR 298 million, down 11% from the first quarter and up 10% year-on-year. Orders were well within the range of the EUR 280 million to EUR 310 million that we have guided for. Looking at the breakdown in bookings by industry segment, foundry represented again the largest segment in the second quarter, followed by memory and then logic. Combined, logic/foundry bookings decreased compared to the record level in Q1, but were still at a healthy level. Memory bookings increased sequentially and were mainly driven by DRAM. Now turning to the balance sheet. We ended the quarter with EUR 432 million in cash, which is down from the EUR 529 million in the previous quarter. The drop of almost EUR 100 million is largely explained by EUR 105 million in cash that we returned to shareholders and is partly offset by EUR 8 million in ASMPT dividends received during the quarter. The free cash flow amounted to 0 in the second quarter as the strong level of profitability was offset by a cash outflow of EUR 65 million for higher working capital, which in turn was mainly caused by higher accounts receivable. As Benjamin already mentioned, a relatively large part of sales was booked towards the end of the quarter due to the COVID-19-related constraints, and this drove the higher accounts receivable position at the end of June. The underlying quality continues to be healthy, illustrated by a record low level of overdues at the end of the second quarter. Inventories were also up somewhat in the second quarter as we increased inventory for certain parts in view of the supply chain bottlenecks risks during the quarter. We expect this to gradually come down in the course of 2020 since supply chain bottlenecks are reduced. In the second quarter, we spent also EUR 19 million on CapEx, which is largely related to our new manufacturing facility in Singapore. In the quarter, we also paid the final dividend of EUR 2 per share or close to EUR 100 million in total. In addition, we started earlier announced share buyback program of EUR 100 million, which we completed for 7% by the end of the second quarter. Finally, on the 21st of July, the earlier announced cancellation of 1.5 million treasury shares became effective. With that, I hand the call back over to Benjamin.

[Gek Lim Loh]

Thank you, Peter. Let's now look in more detail at the trends in our markets. In the first half of the year, the semiconductor market showed overall resilient performance while different segments, such as smartphones, industrial and automotive, have seen a significant impact from COVID-19, other parts related to the digital infrastructure that supports work from home and digital learning softwares demand. Wafer fab equipment spending also held up well in the first half as customers continue to invest in the leading edge nodes. Looking at the market by segment, logic/foundry spending remained strong in the first half. Our customers continue to invest in the advanced node capacity that will enable end market products growth in areas such as 5G and data centers. In foundry, which is our largest segment, the majority of investments will focus on the advanced sub 10-nanometer nodes in the second quarter. The leading logic investments were targeted at 10-nanometer capacity additions. The number of ALD layers in these most advanced nodes has increased with a substantial double-digit percentage. And as is clearly demonstrated by ASM's outperformance in the last 18 months, we substantially increased our share of wallet with key customers on the back of these node transitions in logic and foundry. Our expectations for the combined logic and foundry segment have remained quite steady. We expect healthy spending in logic and foundry in the second half of the year, though slightly lower than in the first half. Expectations regarding the mix have shifted somewhat more towards the foundry segment. The incremental strength in foundry, offsetting some softening of expectations for the logic segment. We are currently strongly engaged in R&D. And looking at the next nodes in the logic/foundry sector, we expect our serve available market to grow again by a double-digit percentage. Looking at the memory market, end market trends in DRAM and 3D NAND developed in a healthy way in the second quarter, supported by strong demand in segments that benefited from work from home, such as PCs and data centers. Wafer fab equipment spending in the memory segment remained, however, at relatively modest levels in the quarter, as customers continue to carefully monitor developments in supply/demand conditions. We still expect some increase in memory spending in the second half with a focus on technology transitions. However, we are not yet seeing evidence of new significant capacity additions. Our ambition in memory remains to increase our served available market as we further step up our investments and customer engagements in new applications. This year, we are especially strengthening our position in the DRAM segment, where we have booked a number of important tool wins in non-patterning ALD. A key application for us in this area is the high-k layer in the so-called [ peri ] of DRAM device. This is a logic light process in which we, of course, have significant experience. In the second quarter, we had a record quarterly high in DRAM bookings, and for a meaningful part, this was driven by non-patterning ALD. Longer term, step-by-step, we expect to improve our position in the memory ALD market. On the back of that, we expect that over time, we will increase the contribution of memory to our growth. However, at the same time, it is important to keep in mind that logic/foundry represents the largest part of our sales. This exposure strongly increase as we more than doubled our sales in logic/foundry over the last couple of years. From a geographical perspective, a strong driver in the first half was the Chinese market, both for the wafer fab equipment market and also for ASM. We achieved substantial growth in this important market with for the first time, a double-digit contribution to our total sales, mainly driven by domestic customers. The mix of investments is shifting towards the more advanced nodes, which is clearly playing to ASM's strength. In view of the breadth of our R&D engagement, we've basically -- all key domestic customers and the commitment to invest in new technologies and capacity, we see good opportunities for China becoming another link of growth for ASM in the coming years. In terms of products, ALD was the key sales driver with record high sales in the first half of this year. In epi, we remain strongly focused on further expansion of our position, supported by ongoing R&D engagements. In vertical furnaces and PECVD, we target to gradually strengthen our position in specific targeted segments. For the full year, we expect wafer fab equipment spending to increase by a mid- to high single-digit percentage. As just discussed, the outlook for wafer fab equipment market in the second half is supported by healthy spending levels in the logic/foundry segment, some increase in memory spending. The economic outlook continues to be dominated by uncertainty about the impact from COVID-19. Global GDP is moving into a steep recession this year, and the pace of recovery is still uncertain. Despite these uncertainties, the longer-term outlook for our industry looks strong. The necessity for all of us during the lockdown to look for smart and virtual ways of working, learning and communicating has led to an acceleration in the trends of digitalization. Investment in leading-edge capacity will be required to produce the powerful and advanced semiconductors that will help enable multiyear drivers such as 5G, cloud computing, artificial intelligence and autonomous driving. As our customers transition to next-generation devices, increasing complexity and shrinking geometries will drive increasing requirements for advanced technologies, such as ALD and epi.Now let us look at the guidance we issued with our Q2 press release. For Q3, on a currency comparable level, we expect sales of EUR 300 million to EUR 320 million. Q3 bookings on a currency comparable level are expected to be in the range of EUR 280 million to EUR 300 million. Based upon current market developments, we expect the wafer fab equipment market to grow with a mid- to high single-digit percentage in 2020. Our Q4 sales are expected to be at least at the same level as in Q3. Hence, we expect to outgrow the wafer fab equipment market in 2020. With that, we have finished our introduction. Let us move on to the Q&A, and I will pass you back to Victor.

[Victor Bareño, Director of Investor Relations]

We'd like to ask you to please limit your questions to not more than 2 at a time so that everyone has a chance to ask a question. All right, operator, we are ready for first question.

[Operator]

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

[Achal Sultania, Director]

Maybe if you can touch a bit more on gross margin. Obviously, you had very strong gross margins in Q2. You mentioned a strong sales mix helping that. Can you help us quantify or maybe just give some more color as to how should we think about the impact from that strong mix in the quarter helping. And then secondly, as we go into the second half of this year and more actually into 2021, what are the positives and negatives on gross margin given that you're still ramping up your fab in Singapore, you probably still had some supply chain issues from COVID in Q2. So any color around that would be helpful. And then secondly, on this -- one of your large customers, obviously, delaying their latest node ramp. So how should we think about the impact from that customer? I understand that you're already very strong on 10-nanometer, as you mentioned earlier on your remarks on advanced logic. So is it something that is actually a meaningful negative for you as we go look into 2021?

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

Okay. Achal, let me take the questions about the gross margin first and then Benjamin will jump in the impact of the customer that you mentioned. The gross margin, yes. What we have said in the last years is that we expect the gross margins to be in the low to mid-40s. Whereby we have said, okay, in the past quarters that we expected that our gross margin would be more going into the direction of the higher end of that range. We also have always said that we could have gross margin, which is slightly lower or slightly higher than that range depending on the mix that we have. Now we had -- what we also mentioned in our press announcement, a very, very strong mix in the second quarter. And while we had in 2017, '18, a few quarters where we're below the range, you have now seen in the second quarter that we are off that level. When you look going forward, then we still expect that the gross margin trend, what we have mentioned earlier, will continue in the direction of the low to mid-40s with a tendency of being on the higher end of that range. And while there could be quarters that we will be also above that level.

[Gek Lim Loh]

Achal, coming back to your question regarding the large logic player that has recently announced a delay, for us, when we look at the second half, the combined logic and foundry segment continues to be very strong. In that respect, we do not see any impact as far as the second half of 2020 is concerned. Now going into 2021, of course, that's still a little bit far. And some of the plans from the logic player are still not fully, let's say, announced. But when we look at, again, in 2021, especially in the advanced nodes for both logic and foundry, we are in a very good position. And if there is going to be any kind of outsourcing or transfer, we will stand to gain from that as well. Overall, even though it's too early, we view 2021 as still being -- having a very good momentum for logic and foundry.

[Operator]

The next question comes from the line of Stephane Houri from ODDO BHF.

[Stephane Houri, Research Analyst]

Thank you for answering to the question about your largest customer. Just to clarify, and I know there is a lot of moving parts about 2021, would you say that 2021 should be a year of growth for you because you've talked about if there is outsourcing, then you will benefit from that. So this part seems to be clearly under control. So from a global standpoint, what is your view on the year?

[Gek Lim Loh]

Stephane, that's a good question. And I think as far as we can see, 2021 is still a little bit too early for us to give any forecast, any projections as to whether there will be growth. Now what I can say is when you look at the secular trends driving the usage of advanced semiconductors, and just from the last 2 months that I've been in the company, looking at the engagements that we have with our customers, especially on the advanced nodes, it all looks positive.And as long as the demand for advanced semiconductor usage and adoption is good, I think it will also be good for us.

[Stephane Houri, Research Analyst]

Okay.

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

And to add to that, Stephane, it's very strongly dependent on the exact timing of our customers, of course. So the underlying trend is there. The timing is first a big uncertainty.

[Stephane Houri, Research Analyst]

Okay. And Benjamin, as you said, you are here for only 2 months. So it would be interesting for us to know exactly what you think, of course, of the company you discovered. And I assume that you are going to drive a kind of strategic review. And would the stake in ASMPT be part of this strategic review?

[Gek Lim Loh]

As you correctly mentioned, Stephane, I have been in the company for slightly more than 2 months, under very strange conditions caused by COVID-19. So I've been trying to do whatever I can. And of course, trying to understand more about the business that we are in, our customers. And so far, as I've mentioned in my earlier, let's say, report, ASM looks to me to be a great company, not only in terms of the markets that we play in, where we have the leading edge in terms of the technologies, we are also in a market where the longer-term secular trends points to continued growth. But what impressed me most was the motivated and talented employees that we have in the company. I think those are all great ingredients to have in the making of a great company. And my job as the new CEO is to try to continue to drive further growth for ASM in the years coming forward. On your question about the strategic or the stake in ASM Pacific, we view it as a strategic stake for us. And the stake that we have in ASMPT gives us additional financial strength. It is also perceived by our customers favorably. They like that we have that stake. Because it also gives them the perception that we have increased or, let's say, diversified industrial presence. So we do not have any plans at this moment to do -- to make any changes. But you are absolutely correct, Stephane, we will be doing regular reviews as part of our management process to look at the stake that we have in ASM Pacific.

[Operator]

And the next question comes from the line of Sandeep Deshpande from JPMorgan.

[Sandeep Sudhir Deshpande, Research Analyst]

Maybe I'll ask 2021 in a slightly different way. I mean there is a 3-nanometer foundry process that is going to ramp-up in 2021. Maybe you can talk about whether you think how your content in that 3-nanometer process is based on what you know today. And of course, there is another logic/foundry process ramping up in Asia as well and your position there. So given your strength in the logic market that you've seen in the last couple of years, whether that -- the logic/foundry market will be able to potentially offset any impacts from your IDM customer into 2021?

[Gek Lim Loh]

Sandeep, thank you for the question. I will attempt to again answer the second part of your question first, which is, I think, directed at how do we see 2021. I think that was another way of you asking the question. And I will say, again, that it's a little bit too early for us. Peter has kindly also chimed in. Part of it is attributed to timing. And at this moment, we are not 100% sure as to when our logic and foundry customers will be investing, although it could be any time within 2021. Now on the 3-nanometer foundry question, every time when there is a node advance, basically our served available market, especially in ALD, increases via double digit. And as the nodes get smaller, especially in logic/foundry, you're probably well aware that the number of layers that requires ALD, the number of layers that require epi increases significantly. And for us, we have been engaging with the said foundry customer that is planning 3-nanometer for a long time. We have a lot of engagements with them, both in -- from earlier period when they were just starting to look at the technology and the process to now where, I think, they are probably finalizing it and about to go into a more substantial manufacturing. So for us, the move to 3-nanometer in summary is going to be very good. We expect that our market share of the -- or let's say, the share of the serve available market is going to increase double digit. More ALD layers, more epi layers, and we are heavily engaged with that -- said foundry customer.

[Operator]

And the next question comes from the line of Keagan Bryce from Barclays.

[Keagan Bryce-Borthwick]

I understand that you haven't given any formal sales guidance for fourth quarter other than saying it's going to be similar to 3Q levels. But perhaps you can give us some more color around some of the order trends you're seeing across foundry, logic and memory. Historically, 4Q has always been up sequentially quite a lot. Is there a reason why this may not be the case this year? Or is it sort of too difficult to say with limited visibility?

[Gek Lim Loh]

First of all, maybe a quick just remark on why we decided to kind of include a little bit of Q4 indication. Primarily, we felt that it might be good for the market or the investors because of all the uncertainty related to COVID-19. You see a lot of reports about recession here, recession there. And we just wanted to add a little bit of color based on what we know about Q4. Now the Q4, we expect that logic and foundry is going to continue to be strong, going right until the end of the year. In terms of memory, just in terms of timing, we see a little bit of uptick. But again, as we have tried to quantify, it's not as significant as a huge amount of capacity additions, but we do see technology investments, technology buys, which is going to be good for us. We have been working for some -- with some of the memory players for quite some time, and they have already the [ first ] tools in their fabs. And we just have to wait for them to go into what we call a capacity buys, and that should be good for us. So in summary, when we look at Q4, memory, maybe a small uptick, but potentially driven by technology buys, logic and foundry, continuing to see very, very strong momentum.

[Operator]

And the next question comes from the line of Krish Sankar from Cowen & Co.

[Krish Sankar, MD & Senior Research Analyst]

Benjamin, congrats on the new role. I had 2 questions. First one is, you kind of mentioned that second half WFEs incremental strength is coming from memory. Is it DRAM or NAND, where you see the incremental strength, even though if it's on the technology side? And then I have a follow-up.

[Gek Lim Loh]

So the question is second half -- the incremental memory, is it coming from DRAM or is it coming from NAND, right?

[Krish Sankar, MD & Senior Research Analyst]

Right. Yes.

[Gek Lim Loh]

Given the level where we play in terms of the memory market in both DRAM and NAND, like I said, when you compare to our strengths and our size in logic and foundry -- in the memory, first of all, it doesn't cover such a huge percentage. The answer to your question is we are seeing increments actually in both, but there are more capacity -- I mean, technology buys. So in that respect, the increments are not of such a high level to us. But we do see technology buys in both.

[Krish Sankar, MD & Senior Research Analyst]

Got it. That's very helpful, Benjamin. And then just as a follow-up. Congrats on getting some share wins in the non-patterning ALD for DRAM. You said that it is a logic-like device. So are you seeing your DRAM customers kind of mimic the whole logic production tool of records in the DRAM fab? In other words, if you have position and strength in logic, is that tool also being mimicked in DRAM too right now?

[Gek Lim Loh]

So in DRAM, one of the areas, as you correctly mentioned, that we have had success in penetrating is the non-patterning layer, specifically what we call the high-k layer that is associated with the high-k metal gate stack, which essentially is a logic layer. Now if you look at -- and this is in the CMOS of peripheral transistors. So if you look at -- as DRAM scales and becomes shrink, the geometry is a shrink, our expectation is that we're going to see more and more non-let's-say-patterning layers being used. We're going to see more and more logic-like layers and that is driving actually potential future demand for us. And that is where we are currently heavily engaged with the DRAM players.

[Operator]

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

[Robert Duncan Cobban Sanders, Director]

Just coming back on the decision of the delayed Intel. If they were to go fully fab-less, what it actually means, you think, for your long-term addressable market? Now obviously, it's great that there's a lot of more advanced volume at leading edge if they do that. But obviously, it would lead to more customer concentration. It would also remove a very inefficient deployer of capital. So have you guys thought about the long-term implications of potentially a pseudo monopoly in foundry logic?

[Gek Lim Loh]

Rob, thank you for the question. I think you may have asked a question where a lot of people have been speculating maybe. And I appreciate the question very much. To all, I think Intel going fab-less is kind of limited possibility, but let me try to answer the question that you have posed. For us, it really is just dependent on the usage and adoption of advanced semiconductors and customers continuing to shrink geometries to produce semiconductors with 3D, let's say, structures and so on. As long as the demand is there and as long as our logic/foundry customers continue to invest in these advanced nodes, we do not see an impact on us. You could say that, in one sense, logic then shifts to foundry. We don't really see an impact even if that happens.

[Robert Duncan Cobban Sanders, Director]

Got it. And just my follow-up, just be in DRAM, the incumbent there is Lam on the single-wafer side and tail on the batch side. Are you seeing any benefit from the shift from batch to mini batch or batch to single-wafer in DRAM because of the need for more precision, et cetera?

[Gek Lim Loh]

The shift from batch to a single-wafer definitely plays to our strength because our biggest market share is a single-wafer, and that's also our biggest strength. At the same time, the shift towards more logic-like layers in DRAM is also an area that plays to our strength. So as this technology change is going on, it becomes better for us.

[Operator]

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

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

First of all, on the split between spares and services and systems. You obviously had a bigger weight towards spares this quarter as your clients are stocking up some components, which they deem critical in the supply chain. Given all the uncertainties, what is in your feeling a more normalized level for spares during the quarter? And do you think that the stocking is over now or the stocking by your clients may continue for a few more quarters to come? And in association there with what is the gross margin differential between system sales and spares and services? Is it possible that, let's say, the elevated weight of the spares business is actually pushing our gross margin temporarily. And then I have a small follow-up.

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

Wim, let me take that question. First of all, I think when you look to the step-up that we have seen in the spares and service business in the second quarter, that was part -- what I mentioned earlier in the prepared notes was partly related to the stocking, but also a big part was indeed installed base that we really see improving now with the increases of sales that we have had in the past years. When you're running out of the guarantee period, you see that we are structurally going to a higher level as we expect. So the biggest part of our growth is related to that. The gross margin on spares is healthy. But as what we have said in earlier calls, the gross margin that we have on the spares business is comparable with -- is not much deviating from the margins that we have on our equipment sales. So -- and the underlying question is, is the gross margin mainly related to the fact that you have more spares business, then the answer is no. We have seen also that our equipment margins in this quarter are very healthy.

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

Very good. And then a second question, if I may. This quarter, you had another impairment of about EUR 4.8 million. That's actually the second quarter in a relatively short period of time that you did have these impairments. Can you give us a bit more feeling on what it is related to? And if you have any visibility on kind of what the future is going to bring in terms of impairment. Do you think this is it? Or should we expect a structurally higher level of impairments going forward?

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

It will not be a structurally higher level of impairments. It's really difficult to say in general. But what you see is with that at a certain moment, you start a lot of projects. And some of them are less successful than others. And we are a conservative company, as you know. So on the moment that we see any risk that we take impairments on that, and that was -- there are several smaller projects this time where we said, okay, listen, there are certain risks on it that -- and we impair them.

[Operator]

And the next question comes from the line of Peter Olofsen from Kepler Cheuvreux.

[Peter Olofsen, Analyst]

I had a question on epitaxy where you said you remain focused on further expanding your position there. In the past, you've talked about broadening your customer base in logic/foundry beyond your big foundry customer. Could you talk about the progress there? And to what extent is the delayed technology transition by the bigger logic guy affecting -- yes, the potential timing of [ DTT ] broadening customer base? When we might see that on your business? Or is there also a scope to broaden your customer base within the foundry segment.

[Gek Lim Loh]

Peter, thanks. And thank you for the question. I will answer in 2 ways. One is when you look at the logic/foundry sector, as the node transitions happen, the number of ALD, but also epi layers tend to increase.And as I said earlier, we have been actively engaged with our customers on trying to work with them on these new layers at the new nodes. The second part of the answer is we cannot give a specific, let's say, details of our customers and so on. But if you look at the last 3 years, what has happened is we have basically carved out a share of greater than 20% for ourselves in the epi sector. And we have ambitions to continue to grow our market share in this area. So I think going forward, when you look at the advanced node transitions, I think we will be in a very good position.

[Peter Olofsen, Analyst]

But is it fair to say that at this moment, your position in logic/foundry is mainly the position at 1 large foundry?

[Gek Lim Loh]

At this moment, again, just hold on. Sorry, so excuse me, because I'm 2 months in the company, I just want to make sure I tell you the right thing and not give you some things, which are mistaken or some [ incorrect ]. At this moment, yes, we have a lot of strength in one foundry, but we have a lot of, let's say, engagements going on at other logic/foundry customers.

[Operator]

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

[Marc Hesselink, Research Analyst]

I would also like, more in general, talk about that expanding client base. You have quite a lot of evaluation tools in the field. If I'm correct, that's quite widely spread. How do you see that progress? And maybe to focus on the 2 areas, dynamics in other foundries, so outside the leading one. And also more broadly on the memory space. Do you see that those evaluation tools are -- you're getting those inroads?

[Gek Lim Loh]

Mark, thanks for the question. The answer to your question is yes. It's part of our strategy and also, to a large extent, a requirement by the customers when we are trying to penetrate advanced nodes, that -- if it's a very new layer that we have to work together with them. And there's no other better way than to have eval tools at the outside so that we can work together. We are very confident that a lot of the eval tools are going to be changed into a tool or process of record. And then when they really do the volume investment, that's when we get the returns and see the business coming back.

[Marc Hesselink, Research Analyst]

So this then imply that we've seen in the last couple year that there's more and more concentration towards the top 3 clients. That is a trend that should then reverse a bit over the coming quarters?

[Gek Lim Loh]

You're probably correct that a lot of the focus has been on the top 3 clients. But I would say that we also do selectively with customers that are not in the top 3 when they have special processes or if it's a process that is not -- that is new and that we have to work together with them. So that's also an area that we work on.

[Marc Hesselink, Research Analyst]

Okay. And one very short question. Looking at the buyback that you're doing, that the volumes don't seem to be very, very high despite the fact that you still have a lot of cash. Is there any reason for that?

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

We heavily look to every share buyback program that we are doing, Mark. We look at the specific market circumstances on that moment. And we have chosen this time for a program, which is a more extended program than what we did in the past times. And that's not deviating from the earlier share buyback programs that we did, which we have also over a more extended period of time.

[Operator]

There is no further question. Please continue.

[Gek Lim Loh]

If there are no further questions, I would like to thank everybody for calling in to our second quarter 2020 earnings call again. And as I said at the beginning, I look forward to meeting all of you either in-person or virtually. And with that, I would like to conclude the call for today by wishing you stay healthy, stay safe and let's hope that this pandemic ends as soon as possible. Thank you, everybody.

[Operator]

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