ASM International NV

AEX:ASM

Earnings Call Transcript 2021-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the ASM International Q2 2021 Earnings conference call. [Operator Instructions] And please be advised that today's conference is being recorded. I would now like to hand the conference of your speaker today, Victor Bareno. Thank you. Please go ahead.

[Victor Bareño, Director of Investor Relations]

Thank you, operator. Welcome, everyone. I'm joined here today by our CEO, Benjamin Loh; and our CFO, Paul Verhagen. ASMI issued its second quarter 2021 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, CEO of ASMI.

[Gek Lim Loh]

Thank you, Victor, and thanks to everyone for attending our second quarter 2021 results conference call. I hope you are all safe and well. I'm happy that we are joined today on the call for the first time by Paul Verhagen. As most of you know, Paul has joined our company as a new CFO as of last June. We are very fortunate to have him on the team. Paul comes to us with a lot of experience as the CFO of a Dutch listed company and will play a major role in our company's operations and growth going forward.Next, I want to update you on our plans for our Investor Day on September 28. As the COVID-19 situation continues to be uncertain and also in view of the recent rise in COVID cases in Europe and other parts of the world, we will take a decision on the format of the event at the latest in the first half of September. We will host our Investor Day either in the form of an in-person event in London or Amsterdam or as a fully virtual event if it would not be possible to host an in-person event. We hope to see many of you then in-person or virtually.The agenda for today's call is as follows; Paul will first review our second quarter financial results. I will then continue with a discussion of the market trends and the outlook. Followed by our usual Q&A session.Paul, over to you.

[Paulus Antonius Henricus Verhagen, CFO & Member of Management Board]

Okay. Thank you, Benjamin, and it's a pleasure to be here. Maybe let me first briefly introduce myself. As Ben already said, before joining ASM, I was a member of the management board and CFO at Dutch listed Fugro, which is the world's largest geodata specialist. And before that, I worked 24 years at Philips and various financial management and CFO roles in display components in health care, consumer electronics and Philips lighting.My time with Philips also provided me with the opportunity to live and work in many places; Taiwan, mainland China, Hong Kong and the U.S. and now being a few months in the company with ASM, that has confirmed me in my view that ASM is a great and highly innovative company that is focused on fast-growing segments of the semiconductor equipment market with tremendous opportunities ahead. I also look forward to meeting many of you at the call today, at our Investor Day, or as part of our regular road show meetings.So let's now go to the financial results. In the second quarter of 2021, our revenue increased to EUR 412 million, up 4% from the first quarter. Compared to the second quarter of last year, revenue increased 29% at constant currencies and 20% on a reported basis. Revenue in the quarter was a touch above the top end of our previous guidance of EUR 390 million to EUR 410 million.Service and spares grew slightly, up 3% at constant currencies and decreased 1% year-on-year on a reported basis. Here, it should be noted that the second quarter of last year was particularly strong for service and spares, in part because COVID related uncertainty led customers to ordering additional spares as a safety buffer in that quarter. Our equipment revenue in the second quarter increased 36% at constant currencies, year-on-year and 27% as reported and were primarily driven by strong ALD sales.By industry segment, revenue in the second quarter was led by foundry, followed by memory and then logic. Combined logic/foundry sales decreased sequentially, but were still very strong and continued to account for the largest part of sales. Memory sales reached a quarterly high following the strong order intake in Q1, with the 3D NAND sales slightly larger than DRAM.Gross margin amounted to 48.1% in the second quarter, in line with the indications that we provided last quarter, while slightly down from 94.5% or 49.5% in the first quarter. The gross margin in the second quarter was still at a very solid level and again, supported by a positive mix. Looking at the second half year, we continue to expect that compared to the high level in the first half, the gross margin will be somewhat impacted by a higher number of evaluation tool sales.As explained in previous calls, the sale of an evaluation tool is a positive forward sale indicator as it typically takes place upon successful completion of the evaluation, but it tends to have a negative impact on the gross margin in the quarter in which the sale of the evaluation tool is recorded.SG&A expenses increased by 15% compared to the relatively lower level in the first quarter and increased by 12% year-on-year. As a percentage of sales, SG&A expense decreased from 12% in Q2 of last year to 11% in the same period this year. The R&D expenses on a reported basis increased by 10% compared to Q1 and dropped by 8% year-on-year. The decrease compared to Q2 last year was fully explained by lower impairment charges, which dropped from EUR 5 million to EUR 1 million and higher capitalization, which increased from EUR 16 million to EUR 20 million. So excluding impairments and IFRS effects, the underlying R&D increased by 12% year-on-year.And the operating profit in the second quarter increased 35% year-on-year and decreased slightly compared to Q1. Below the operating line, results included a small currency translation loss of EUR 2 million, and this compares to a translation gain of EUR 16 million in the first quarter and a [translation] of EUR 6 million in the same quarter last year.As a reminder, we hold the largest part of our cash balance in U.S. dollars, and the currency translation differences are included in our financial results. Then some inflow on ASMPT. Results from investments, which reflects 25% share of the net earnings from ASMPT, increased to EUR 16 million in the second quarter, up from $11 million in the first quarter and up from EUR 7 million in the second quarter of last year. ASMPT reported sales of $667 million, up 19% in Q1 and up 38% from Q2 last year. Bookings amounted to $943 million in the quarter, down 7% sequentially and up 140% year-on-year.Now going back to the ASM consolidated results. So the ASM orders in the second quarter were $516 million, up 26% from the first quarter and up 73% from Q2 last year. As we already preannounced on July 1, the order intake clearly exceeded the guidance that we provided with our Q1 results, which was a range of EUR 410 million to EUR 430 million. The outside was largely driven by customers in the logic/foundry segments, putting in orders into Q2 that were previously mainly expected to be received in Q3.Looking at the breakdown in bookings by industry segment, foundry represented again the largest segment in the second quarter, followed by logic and then memory. Combined logic/foundry bookings surged to a new quarterly record level in Q2, substantially above the previous record of Q1 last year. Memory bookings decreased slightly compared to the record level in Q1, but were still at a very solid level and for the large part, driven by DRAM.Now turning to the balance sheet. We ended the quarter with EUR 465 million in cash, down from EUR 498 million in the previous quarter. The drop in the quarter was due to almost EUR 100 million dividends paid to ASMI shareholders, which was in part offset by free cash flow of EUR 69 million positive, including EUR 22 million in dividends received from ASMPT.Free cash flow in Q2 was driven by continued strong level of profitability and partly offset by an outflow for working capital of EUR 38 million. And working capital increased because of the higher activity level and the back-end loaded sales in the second quarter. The underlying quality of working capital continued to be healthy.Capex in the first half was EUR 22 million. We still expect capex for the full year to be in the range of EUR 60 million to EUR 80 million, driven by increased spending on the expansion and upgrading of our R&D lab facilities. Then regarding share buyback. Yesterday, we announced the start of the new $100 million program as of today, 20th of July, and authorization for this buyback program was announced on the 20th of April.In addition, the earlier announced cancellation of 0.5 million treasury shares became effective on July 2021. And with that, I would like to hand the call back to Benjamin.

[Gek Lim Loh]

Thank you, Paul. Let's now look in more detailed strength in our markets. If we look at the market environment, 2021 is shaping up to be a strong growth year for the semiconductor industry. End market demand remained base across the board in the first half of this year, with inventories at low levels and several parts of the market impacted by shortages. The semiconductor market is now expected to grow by more than 20% in 2021.Expectations for WFE or wafer fab equipment market have also further increased. We now expect WFE spending in U.S. dollar terms to grow by a high 20s to low 30s percentage this year. Looking at the WFE market by segment. Logic/foundry spending remained strong in the first half as customers continue to build out capacity for multiyear growth drivers such as 5G and high-performance computing. In foundry, which is our largest segment, the majority of investments continue to be focused on [advanced notes], 7-nanometer, 5-nanometer capacity additions in the second quarter. In advanced logic, investments were mainly related to 10-nanometer capacity extensions. These are areas where ASM has strong share of wallet.We project logic/foundry to remain very strong in the second half of 2021, supported by continued spending on the current advanced notes. In addition, we expect the contribution from the first investments in the next note in the logic/foundry segment to increase in the second half of this year and going into 2022. As highlighted at previous occasions, we expect that the upcoming note in the combined logic/foundry segment will drive a further meaningful double-digit growth in our self-available market.In memory, equipment demand was also robust in the first half on the back of solid increases in key end markets such as PCS, game consoles, 5G smartphones and data centers. Conditions also started to become tight in parts of the memory market. As Paul just mentioned, we achieved record high memory sales in the second quarter, although it should be mentioned that memory is still a smaller part of our revenue.In 3D NAND, we have been gradually increasing our presence, and we benefited from overall healthy spending levels in the first half of the year. In DRAM, the adoption of high-k ALD in the periphery, as we discussed earlier, continues to be a solid driver for ASM. Last year we had our first contribution. And this year, in 2021, the high-k metal gate application will already account for a sizable part of our DRAM sales.In memory, overall demand is expected to remain pretty healthy in the second half and especially supported by DRAM. We also previously touched on the recovery of the analog power market. This market suffered from the impact of COVID-19 last year, but near the end of last year, we saw the market recovery. This recovery has continued through the first half of this year, and we expect to see a meaningful increase in sales from this market for the full year.Next, I will provide an update on the supply chain and capacity situation. In terms of our manufacturing capacity, we now have the benefit of our new and expanded facility in Singapore, which has proven to be well timed. After the transfer was completed earlier this year, Q2 was the first full quarter with our new facility up and running. As discussed in previous calls, this has significantly expanded our manufacturing capacity and also gives us additional flexibility to meet future growth. Since we moved into the new facility, we have been steadily increasing headcount to increase the output.Next, the supply chain situation. Against the backdrop of strong customer demand and growth across the broader industry, supply chain conditions further tightened during the quarter. This was further impacted by new lockdown measures in the last couple of months in Southeast Asia following a worsening of the COVID situation since last April, including in Malaysia, which is an important part of the supply chains in our industry.Our global ops team did a great job in the second quarter in close cooperation with our supply chain partners and customers. As a result, in the second quarter, we were largely able to mitigate the impact of supply chain constraints, for instance, by having ordered earlier than usual as part of our learning from the COVID-19 disruption of the second quarter of last year. As a result, we were still able to meet our customer requirements and to deliver a strong financial performance in the quarter.Supply chain conditions continue to be tight with lockdown measures in Southeast Asia continuing into the third quarter so far. As mentioned in the press release, continued tight supply chain conditions are reflected in our sales guidance for the third quarter, and they are also expected to have some impact in the fourth quarter, although we do expect the fourth quarter sales to increase compared to the level in the third quarter.Moving on to the longer-term outlook. If we then take a look at the longer-term trends, the outlook continues to be very positive. The accelerated trend of digitalization, coupled with secular trends, such as in 5G, artificial intelligence and edge computing is driving ever-increasing demand for advanced semiconductors, not only in terms of volume, but also for faster and more power-efficient semiconductor devices. This creates lots of opportunities for ASM. We will talk more about our long-term expectations at our Investor Day, but it is clear that ALD and epi will continue to be key growth markets for us.In logic foundry, an important driver in the next years will be the transition from FinFET to gate all about. Epi is a key enabling technology to create the nano sheets, the heart of the gate-all-around transistor structures, we believe we are well positioned to increase our share in the transition to gate-all-around, underlined by our new epi customer win that we announced last quarter. Also in ALD, we expect that gate-all-around will require many new applications, and we are heavily engaged with all of the leading customers.Memory is another growth area for ASM as ALD is a key technology to address increasing complexity and the need for new materials in both DRAM and 3D NAND. Based on our R&D engagements and our first production tool of record wins, we are confident about a meaningful further increase in our memory position as our customers transition to the next and next [next] notes starting in 2022, 2023.Next, I would like to highlight the launch of our Intrepid ESA tool that we announced a couple of weeks ago. In the epi market, we address two segments; advanced CMOS represents the largest growth opportunity. Since the launch of our Intrepid ESA tool some years ago, we have made substantial inroads in this market. And again, we are extremely pleased that we recently added a new customer for an advanced gate-all-around applications.The other segment is that of analog power and wafer manufacturers. It is a smaller market segment, but it represents a meaningful part of ASM's epi sales as of today, manufactured at older technology nodes, this market offers healthy growth prospects driven by, for instance, electric vehicles, the Internet of things and opportunities in China.With the launch of our new tool, the Intrepid ESA, we will now offer the benefits of our Intrepid tool, which is high productivity and improved filling performance also to customers in the 300-millimeter power analog and wafer maker markets.Now let us look at the guidance that we have issued with our second quarter press release. For the third quarter, on a currency comparable level, we expect sales of EUR 400 million to EUR 430 million. Third quarter bookings on a currency comparable level are expected to be in the range of EUR 510 million to EUR 530 million and also include orders that are planned to be shipped in 2022. Continued tight supply chain conditions are reflected in our sales guidance for the third quarter. And based on the current visibility, also expect it to have some impact in the fourth quarter, although we do expect fourth quarter sales to increase compared to the level in the third quarter.With that, we have finished our introduction. Let us now move on to the Q&A.

[Victor Bareño, Director of Investor Relations]

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

[Operator]

[Operator Instructions] And your first question comes from the line of Stephane Houri from ODDO.

[Stephane Houri, Research Analyst]

Yes. I will limit myself to only two questions. The first one is about the tightness in the supply chain. So you said that you turn to mitigate the impact on Q2. Could you help us quantify how much it does impact your Q3 guidance? And how much upside can you see on Q4 if the COVID-19 situation in Asia was improving? That's the first question.And the second question is about gross margin. So you have confirmed that the gross margin in H2 will be down compared to H1 because of the commercialization of the evaluation tool. How much are we talking about? Are we getting back below 45%? Or are we just talking about a couple of points?

[Gek Lim Loh]

Thank you, Stephane. I will answer the question regarding the supply chain. And then I will let Paul explain to you about the gross margins. So jumping into the supply chain. Maybe it's a good thing to start by maybe explaining that. We actually do a lot of outsourcing. So what we do in our manufacturing facilities is primarily what we call final assembly and tests. So we outsource a lot to contract manufacturers that build the modules, subsystems for us. But of course, we also buy from the component suppliers. And we have seen that, that supply chain has been tight as we enter into 2021. And the worsening COVID situation in Southeast Asia did not help that. In fact, a couple of months ago, we ended up, or we saw, in some countries, lockdowns or what they call, especially in Malaysia, movement control orders being implemented.Now what that really means is that a lot of our suppliers have been forced to cut back on the amount of -- or the number of people that they can send back to or allow in their factories. So for example, in Malaysia, a lot of our suppliers are now working with just 60% of the usual headcount. And of course, with a 60% headcount, you're going to see a decrease in output. For us, we have actually taken some learnings from COVID-19 from the second quarter of last year. So we have implemented a couple of things. One was to try to order earlier than usual. That's the first one. Second one was to try to look for alternative suppliers. And both of those, I think, are actually helping to mitigate some of the risks that we see in the common supply chain.In the second quarter, I think we were basically able to mitigate most of the risk, and we met the customer, let's say, requirements fully. In the third quarter, we think that because of the continuing restrictions in some of these countries, we might see some impact. And hence, we have factored this into our Q3 guidance. As far as Q4 is concerned, or the fourth quarter is concerned, we do see that perhaps if the measures or the lockdown restrictions continue, this may also impact our revenue plans, and that's the reason why we are giving -- or describing that in our guidance as well. Now coming back to the third quarter, I think there will be some impact. But by and large, we will still be able to meet, let's say, the requirements of our customers. We, of course, are continuing to work as much as we can with our suppliers to minimize any kind of risk and to actually make sure that there's not going to be any impact.Stephane, I think to your question on what is going to be, let's say, the outlook for the fourth quarter and so on. As we have given in our guidance, we do expect that the fourth quarter will be higher in the third quarter. Depending on the, let's say, supply chain conditions, it is as least -- it is, at this moment, a little bit difficult for us to quantify. So we are refraining from giving any kind of guidance as far as the fourth quarter is concerned. But we are confident that it will be higher than the third quarter.I pass it now over to Paul for the gross margin, let's say, explanation.

[Paulus Antonius Henricus Verhagen, CFO & Member of Management Board]

Yes. Thank you, Benjamin. On your question on the gross margin, as you know, margin is impacted by quite a few factors, not only eval tools. Most important, of course, being the mix, in particular, application mix, as I think the company has communicated multiple times. So everything else equal, which, of course, will never be the case with [eval]. If I would isolate the eval tools, to your question, there could be a few percentage points impact, not larger than that. But of course, as I said already, there will also be other impacts impacting the second half margin like product mix, currency, maybe, etc., and that could go either way. But eval tools as such, max a few percentage points.

[Stephane Houri, Research Analyst]

And you expect, I would say, [regulation] of the mix in the second half? Or you do not expect this [regulation]?

[Paulus Antonius Henricus Verhagen, CFO & Member of Management Board]

Yes. We're not guiding specifically on the mix, as you know. We do guide on the revenue. We do guide on the order intake. So I'm not going to guide on the mix now if it would be more or less favorable. But what we've said, and I think there's an implied message is that for the second half, we do expect the margin to be somewhat lower than the first half because of a larger impact of eval tools.

[Stephane Houri, Research Analyst]

A few percentage points. That's what you said, right?

[Paulus Antonius Henricus Verhagen, CFO & Member of Management Board]

Yes.

[Operator]

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

[Keagan Bryce-Borthwick]

Two from my side. The first one on logic, I'm sure you've all seen that your larger customer plans to reenter the foundry market and now a clear aim for technology parity. How do you feel about your position with that logic customer across both ALD and maybe potentially epitaxy? And what sort of gains are you expecting for their 7-nanometer node? Or, I guess, would they now call four?And then for my second question, one of your peers has been talking up the industry's potential shift to 3D DRAM. Do you have a view on whether the industry might go in that direction? And if it eventually does, what sort of gains in ALD would you likely expect to see?

[Gek Lim Loh]

Thanks. So on the first question that you have, we will not, of course, refer to customer specifics. But I think we all saw the announcement. And I think it provided a lot of color to the industry. With our logic customer, I would say that we are doing very well in terms of the ramp on the existing [node]. And we also heavily engaged with them on qualifying some of our solutions; both ALD and epitaxy for the next nodes. And as we have said, if you look at foundry versus, for example, IDM, is there a difference for us? It doesn't really make a lot of difference for us.Our biggest, let's say, factor is that the demand for advanced semiconductors continue to be there because if that demand is there, it's either foundry that has to make it or it's IDM that has to make it. So on that note, I would say things are looking positive. On the 3D DRAM, or let's say, the transition from planar to 3D DRAM. I think by and large, the market is coming to a consensus that at some point in time in the future, it's probably necessary to switch one planar to 3D DRAM. Now timing, of course, is still a question mark. And in fact, it is expected that planar DRAM still has a couple of notes to go before it runs out of steam and has to convert into a 3D DRAM.As far as we are concerned, this is still an early stage, but we are already engaged in discussions with some of the DRAM customers, trying to find out what are their plans. And if they have, let's say, any specific milestone in mind, based on what we can see today, we think that the transition to 3D DRAM could potentially also be positive in terms of ALD usage because you have a more complicated, let's say, 3D structures, you also have new materials being used. And these are all good drivers of ALD usage.At the same time, we also feel, or let's say, potentially, there could be an increase in epitaxy use. And that is still being, let's say, worked out. I think over time, we will know more. But at this moment, generally, if the transition happens, we are prepared and we are positive.

[Operator]

And next question comes from the line of Didier Scemama from Bank of America. Please ask your question.

[Didier Scemama]

Maybe a question first on sort of your appraisal of gate-all-around at this stage. Obviously, you are engaged with the first deployment and the first recipe on gate-all-around around production at the leading foundry customer. I wondered if you could share with us what you think the capacity needs are for that particular customer, e.g., are they only in the early phase of deployment of that technology? And perhaps if you could give us a sense of the applications that are supporting that capacity ramp? And then related to that, so you touched on one of your logic customers, and you feel like you're quite comfortable with your portfolio addressing their gate-all-around capabilities whenever that comes. I just wondered at your other foundry customer, do you have a feel for where you might start to see orders for that particular recipe? And I've got a follow-up.

[Gek Lim Loh]

Didier, thanks a lot. So in general, we are heavily engaged with all three logic/foundry customers in gate-all-around; both in the ALD space and also the epitaxy space. We announced last quarter that we already had the first win as far as the gate-all-around channel is concerned that we have been selected. By one of the key customers as the production tool of record. For the other customers, of course, we are also heavily engaged in trying to get our tool, qualified and selected. This goes both ways for both epi and ALD and the engagements that we have with these three customers continues.In terms of timing or capacity, I think that's still left to be seen. Because at this stage, I think it's still, to a large extent, fine-tuning the process and making sure that they have the right process, integration, yield and so on. So we will probably have to wait to see when they move this into high-volume manufacturing. And I think when -- only when they do that, then we will probably be able to see what kind of capacity that they are planning. So this information at present, I think, is still a question mark.In terms of, again, our engagement with all the three major logic/foundry customers. We are actually very encouraged. I think we are -- we have good momentum in both the epi and the ALD space. And as we continue, we will probably see our self-available market expand because we do believe that gate-all-around is going to lead to a fairly significant increase in the usage of ALD and also epitaxy.

[Didier Scemama]

Yes, very useful. Maybe just a quick follow-up. In terms of your comments on the WFE growing high 20s to low 30s in U.S. dollars. At least for the product part of the revenue, so minus services, would you expect to outperform that number in U.S. dollars?

[Victor Bareño, Director of Investor Relations]

So if you look at what we have described in our press release, in the second quarter, our equipment revenue actually compared to the year before, grew by about 36% on a constant currency basis. That's for the second quarter. And if we look at maybe the first half of this year versus the first half of last year, we also look at our equipment revenue growing at greater than 30% at constant currency.Now what we have actually let's say, describe is that we do believe that our fourth quarter revenue is going to be higher than our third quarter revenue. But at this moment, it's kind of difficult for us to quantify that because of the supply chain, let's say, restrictions. But if you look on the longer term, we are very confident of our ability to continue to maintain a leading share in logic and foundry space, which is the fastest-growing area for us, also for our equipment sales. And we're also making significant inroads and progress in memory, which, as Paul has mentioned earlier, the second quarter, [indiscernible] sales was the highest in our company’s history.So we continue to, let's say, grow significantly. And in the longer term, we do believe that we will outgrow the WFE market, but we will not comment on the shorter term, let's say, question because of the uncertainty over the Q4, let's say, numbers.

[Didier Scemama]

Perfectly understandable.

[Operator]

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

[Sandeep Sudhir Deshpande, Research Analyst]

My question is regarding your epitaxy tools. When we look at your market share in epitaxy, it still not moved very much. You've announced various wins. So should we be expecting to see your epitaxy revenues and thus, your market share in epitaxy increase significantly over the next few years?And then secondly, in ALD, you've talked about wins for ALD within the gatestack. Have you engaged with customers beyond the gatestack in ALD?

[Gek Lim Loh]

Sandeep, thanks a lot. On epitaxy, again, just to clarify, we have two parts of -- or we play in two parts of the market. One, of course, is the advance CMOS and the other part is in the power analog space. Now in the advanced CMOS we had our big to the biggest foundry at seven now continuing into five, and we will also continue probably to three. And for the other two main logic/foundry customers, we have actually announced that we have been selected as the production tool of record for one of the customers as the channel for gate-all-around. So there, we are making progress, but we probably will not see a significant growth in terms of revenue until they go into high-volume manufacturing.Now having said that, with the other two customers who -- where we are not in high-volume manufacturing yet, we are very comfortable with the engagements that we have. I think the engagements are all positive. And we do look forward to getting selected and hopefully supporting them when they move into high-volume manufacturing.The other part of the epi market that we play in, which is a smaller part of our total market, but which is still meaningful for us in terms of epi, is the power, analog and sensor market. That market actually was barely affected last year because of COVID-19. We actually saw most of the investments are canceled after COVID hit. But at the end of last year, the recovery started and the recovery actually has been continuing during the first half of this year. That part of the market is actually doing very well. And we do expect that our sales from that part of the market will continue.Overall, when we look at both parts of the market that we are playing in, we do expect that we will continue to grow our market share in the advanced CMOS space and also continue to leverage on our strengths in the power analog sensor space. So longer term, we do expect that over the next couple of years, we will be able to grow our market share for the epi business.The second question, Sandeep, I think that you have was besides the gatestack, did we make any penetration in terms of ALD? The answer is yes. We are working very closely on various applications. As I alluded to a little bit earlier, I think the transition from FinFET to gate-all-around presents to us significant opportunities because of the increasing epi and ALD usage. And we are engaged with all three customers on working on those kind of applications. Again, we need to get qualified, but we are confident of the engagements. And then it's just a question of when they go into high-volume manufacturing.

[Operator]

Our next question comes from the line of Marc Hesselink from ING.

[Marc Hesselink, Research Analyst]

Yes. First, can you explain the phasing that you now see when orders come in and when you actually see that into the revenues? So see, the order intake this quarter and also the guidance for next quarter, quite a lot higher than the revenues and what you guide for. How should I see that? Is the order intake that you've seen was that exceptionally strong in these two quarters? Or is this something that this is above the EUR 500 million level? That is something that you think can be sustainable. The only thing is then the moment that comes into your revenues is a bit further out than what you usually saw?

[Gek Lim Loh]

Marc, thanks. So maybe just a little bit of clarification first. We book orders when we get the actual purchase order. And because of the timing of when our major customers actually release the paperwork or the purchase order. Sometimes you get some fluctuations or some variations.In the second quarter, as we have announced in our earlier press release, we saw customers placing orders earlier. Some of them were expected in the third quarter, but they decided to place them in the second quarter. We are not going to speculate on the motivations of our customers. But overall, it's positive for us because it gives us much more visibility into what is going on to happen in the next quarter or next, next quarter. With our relatively shorter lead time compared to some of the other WFE equipment. We usually do not have a very long, let's say, visibility spanning several quarters. So this actually is a welcome thing for us.This quarter, again, we are seeing that customers are trying to place orders earlier. Hence, the higher guidance as far as order intake is concerned. We do know that some of the orders may or some of the orders will end up as a 2022 deliveries. Again, we will not speculate on the reasons or motivations behind that. But we are actually happy and positive that we are given more visibility as far as what their planning is in terms of at least having visibility into the next two, maybe even three quarters.

[Marc Hesselink, Research Analyst]

Okay. But maybe to give a bit more feel for me. Is there -- then this is a pull-in of orders? So for example, the orders that you get it now in earlier, you won't get them into the future? Or do you believe that is above EUR 500 million level is sustainable for longer term, given the growth of the market and your market share?

[Gek Lim Loh]

Marc, I think for the second quarter, that, as we have described, there was a [pull in]. I think for the third quarter, is -- as I said, we're not going to speculate on the motivations of our customers, but they seem to be placing orders a little bit earlier than usual. Whether we continue at this pace, whether it's going to be pull-ins or whatever, I think we will not speculate as to what is going to happen in the fourth quarter, and we will see how our customers react or behave. But at this moment, we cannot comment on that.

[Marc Hesselink, Research Analyst]

Okay. Great. And then my second question is on the -- on your OpEx. That increased a bit over the quarter. I can assume naturally with the growing revenue and also the outlook for the coming quarters. What do you expect there going forward? What kind of growth level is like in what kind of operational leverage should you see?

[Paulus Antonius Henricus Verhagen, CFO & Member of Management Board]

Yes. Thanks for the question, and Marc, this is Paul speaking. I think for OpEx there's 2 things. One, of course, is R&D, where, of course, we intend to continue investments in line the growth of the company. That's very important, of course, to maintain our -- or maybe even reinforce our leading positions that we have. For SG&A, I expect to grow that more moderately. So there, we will see some productivity gains, and we will see some benefits from operating leverage. And in the Investor Day, I might give some more -- I want to shed some more light on that very likely.And then on the let's say, manufacturing cost, as Benjamin already explained, we do mainly assembly. So the fixed cost part of our cost of goods is relatively low. So there will be maybe a little bit of operating leverage, but not a lot because the vast majority is variable cost. It's an assembly organization, and it's not a very high fixed cost type of organization. So we will see a little bit there, but don't expect too much in the cost of goods sold.

[Marc Hesselink, Research Analyst]

Okay. And did the second quarter includes some costs for -- that you had to counter all the supply chain constraints?

[Paulus Antonius Henricus Verhagen, CFO & Member of Management Board]

Yes. What we've seen in the second quarter is in terms of supply chain constraints. I think the key impact we've seen there is, let's say, phasing within the quarter. We communicated about the back-end loaded sales, which partially was driven due to simply income material that timing. And two, for certain parts, we had to divert to other suppliers to the extent released by customers. And that might have increased costs a little bit, but not a lot. Overall, I think the cost is very well managed. I have not heard anything in that order. So I don't expect any material impact there in Q2. Otherwise, I would have been thought, I'm pretty sure.

[Operator]

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

[Robert Duncan Cobban Sanders, Director]

Just one question. Just if you could just give us an update on the high-k metal gate opportunity in DRAM. Has there been any developments there? And second question related to this is, will you, at the Capital Markets Day, give a served addressable market kind of outlook for 2025? Is that what we should expect? I'm assuming you're now going to have to roll in epi and a bunch of other things, not just single-wafer ALD.

[Gek Lim Loh]

Thanks a lot. So on the first question regarding the high-k metal gate application. We are very, let's say, encouraged. I think what you see today in terms of let's say, a high-performance DRAM with the high-k metal gate; we are basically the tool of record. And originally, we kind of expected that high-performance DRAM was just a small portion of the overall DRAM market. But it looks like there's a lot of increasing applications that requires a high-performance DRAM. So this year, we are very, let's say, encouraged with our sales for high-k metal gate applications in DRAM. And in fact, in the prepared remarks, that was one of the points that we made that our increasing DRAM sales this year is led by the high-k metal gate applications. So that's going well for us.In terms of the addressable market over the next couple of years, yes, the quick answer is yes. We hope to be able to share with everyone at our Investor Day. A couple of things. One, of course, would be the strategy of the company, the technology, maybe a little bit of explanation into how we see not over node changes, transitions and so on, and of course, we will also like to be able to give everybody a view of where we see ourselves growing over the next couple of years. So we really hope to see everybody. As many of you as possible, either live or virtually because we think that this would be a very good for us to share with you in a more broader sense, the more detailed information about our company.

[Operator]

Thank you. And your next question comes from the line of Tammy Qiu from Berenberg.

[Tammy Qiu, Analyst]

Okay. So I'm really wondering from a market share perspective, [idea], I know previously, your market share was quite solid within the foundry and market, the foundry and logic market. And can you talk about -- is the dynamic actually changing with gate-all-around seems to be a very good opportunity for everybody? And also, AMAT has been trying to go to this market using thermal tools as well. Is the market getting more competitive than it was previously for you?And also, for the memory market, you talked about the opportunity from high-k metal gate DRAM. And also potentially, we may have some new 3D NAND applications as well. Can you talk about what's the competitive landscape in those markets? Is that worse than what you are seeing in foundry and logic market, please?

[Gek Lim Loh]

Tammy, thank you very much. The -- I think what we see, maybe let's talk about the logic/foundry market first, which is where we have a leading position. I think we do not see, for example, a significant increase in competitive pressures or anything. The competition has always been there. And we compete with them on new applications, but we are actually very confident that we will continue to maintain our leading share or position in the logic/foundry market segment. Does gate-all-around, have an impact. I think it's actually more a positive than anything for us because of the significant increase in usage of ALD, which we think that we, of course, still have to compete with our peers, but we are confident and comfortable and encouraged by the interactions and engagements that we have with the main logic/foundry customers.In terms of memory, as we said, the high-k metal gate application is helping us to increase our sales in DRAM. But that is just the first of new ALD applications that has now been adopted and moved into high volume manufacturing. We have, over the last two or three years, been also working on other applications, which hopefully becomes adopted and also move into high-volume manufacturing in the 2022, 2023 time frame.Similarly, in 3D NAND because of the highest -- high aspect ratios, material changes. We have been working for new ALD applications, which, again, we hope, over the next years, this will become move into high-volume manufacturing. Overall, we feel that we will be able to increase our share position in memory. And we think that some of these applications will, in fact, move into high-volume manufacturing in the 2022 to 2023 time frame.

[Tammy Qiu, Analyst]

Okay. Cool. That's helpful. And on the market share relating to epi, you mentioned that since last quarter, you'd be getting more market share with the epi tool into new applications. Can you share with us that are you getting the new market share because of your tool design is different from your competitor? Or it just because of the relationship is now mature?

[Gek Lim Loh]

I think we believe that we are winning business because we have a superior solution that not only offers a better cost of ownership. But there are other elements in terms of performance, uniformity, layer-to-layer, for example, uniformity that we are able to provide a better solution to our customers than the competition. And this is the reason why we are increasingly being adopted.I do not believe that it is just because of relationship. Relationship is important. But at the end of the day, I think our customers are savvy enough that whatever selection that they make is going to be heavily based on merit, and that is cost of ownership and performance.

[Operator]

And your next question comes from the line of Nigel van Putten from Kempen.

[Nigel van Putten, Analyst]

I have a brief follow-up on the second half impact from the evaluation tools. Now I can imagine that you don't see any negative impact from supply chain constraints to actually sort of get these tools qualified. So could you maybe give us a bit more sense in terms of the actual amount? I mean, I remember that these tools are sold at about 0% gross margin. So the more you sell, the lower gross margin is, and there's maybe some phasing? I mean, also the third quarter revenue is now maybe a bit lower. So is that chunk of evaluation tools would be relatively higher, then that would have a more significant impact in the third quarter. So actually, long story short. Could you maybe just provide the EUR 1 million sales you expect from evaluation tools in the third quarter?

[Gek Lim Loh]

Nigel, first of all, good afternoon. And I need to maybe address a correction. The gross margin for evals is not 0%. It's some percentage. It's slightly -- or, let's say, lower than what we would normally sell, let's say, in terms to our customers. And the reason for that is when we decide on the eval tool, the customer also has to invest in the evaluation of the tool. So [evaluation] in terms of [fab] space, sometimes they have to come up with the utilities and so on. So it's actually very much a joint effort from both sides; from the equipment supplier and the customer. And because of that, we tend to offer to them at a slightly lower price when we put in an eval tool.In terms of how much do we expect? I think this is something which we -- at least I don't have a full number or an accurate number in my head. But in the third quarter, we do expect a larger number of eval tools to be completed. In other words, the evaluation to be completed. And to be accepted. And that's when we have to book the tools as revenue at a slightly lower gross margin. And hence, to Paul's point, that will potentially have an impact on our overall third quarter, let's say, gross margin. But as we also have mentioned before, the eval tool -- to completion of the eval tools, the evaluation is generally also a very positive sign that it has been accepted. And the next step is it goes into high-volume manufacturing.

[Nigel van Putten, Analyst]

Yes. Yes, clearly. I mean, that is understood. I think there's also going to be a positive cash flow effect if I'm not mistaken. It's just that, I think Paul said, the second half is going to be impacted. It now seems it's -- the bulk of it is going to be in the third quarter. I'm just -- hope you don't get the press release in there like a 42% gross margin, trying to get ahead of that. Maybe just to help you clarify that also to the other participants in the call that I think we should expect a more significant impact third quarter relative to the fourth quarter. Is that correct?

[Paulus Antonius Henricus Verhagen, CFO & Member of Management Board]

So we have -- we will have impact on the third and the fourth quarter. So in the second half, Benjamin just zoomed in on the third quarter because it's the next quarter, of course, that we talk about. But there will be an impact for the second half. As I mentioned before, it will be max a few points, everything else equal, because, again, there's many more factors that do have an impact on the margin, but it will be both in the Q3 and Q4. That's the current expectation.

[Operator]

And your next question comes from the line of David O'Connor from Exane BNP Paribas.

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

Maybe one or two quick follow-ups, Benjamin, from my side to previous questions. Just going back to the sustainability of this EUR 500 million kind of quarterly order level that we see now over Q2 and as you guided for Q3. Just to clarify, are you indicating that we should not expect this level of orders beyond Q3, given that you suggest they stem for more pull-ins? Or do you think the logic [go-to-market] can strengthen further to sustain these level of orders? That's my first question.And then a quick one on the evaluation tools. Benjamin, can you give us any color on what type of applications or specific new tools are being used for -- at your customers?

[Gek Lim Loh]

Sure. I think, as I have tried to explain, it's difficult for us to kind of give you any color as to the sustainability, as you call it, of the order intake. We, again, will not speculate on the motivations of our customers. But last quarter, we saw them placing orders earlier than usual than normal. And this quarter, again, we are going to see them placing orders earlier than what they normally do.Now the good thing, of course, is it gives us a better visibility but at the same time, given our relatively short lead times, there is nothing to stop them from going back to placing orders with a shorter lead time or they might continue doing this. And at the same time, it also depends on the -- especially in the logic/foundry space, our customers' investment plans. I think a lot of these plans have been announced. And do we see them coming into, let's say, play, when do we see them coming into play? And when will we see them place orders. I think all those are, let's say, questions that we cannot give a definite answer now. And hence, we will continue to just monitor and react or adapt to whatever plans that our customers have and make sure that we support their requirements as much as possible in terms of how fast they want to place orders and how fast they want deliveries.The question that you have on the evaluation tool. Generally, if it's for an application that is already proven and already in high-volume manufacturing, we do not do an evaluation with a new customer or an existing customer for that. So evaluations are usually done for only primarily new applications. And it's because part of it requires that we sort of work together with the customer to optimize, to develop and optimize also the process and sometimes even the hardware.So eval tools are usually, in that sense, targeted at the next notes. So it's not for the current HVM note that is being ramped up, but for the next, next note.

[Operator]

Your next question comes to the line of [indiscernible] from Redburn.

[Unknown Analyst]

Just one follow-up on this eval tool question for the second half. Obviously, this is, in some parts, a normal course of business that you'll have eval tools being revenued in most quarters. Maybe stepping away from a Euro value, could you just maybe just give us some color as to what the normal number of tools would be? And how many additional tools you would be seeing added on top of that into the second half?And then just on that application question, in the eval tools that you'll be putting through the revenue line in the second half, is there -- is it skewed more towards ALD or epi, please?

[Gek Lim Loh]

So maybe -- because I don't have the actual number with me, to be honest. As you correctly mentioned, during the normal course of business, we have eval tools, probably every quarter. And it's not planned in any form or shape or way, not by us or not by our customers, but we have a larger number than normal of eval tools that will be completed in the third and the fourth quarter. And this is the reason why we are kind of sharing this information with everyone.If you look at -- and this number, is one that I remember, if you look at our press release, we have, at the end of the second quarter, about EUR 78 million of eval tools on our books. I would say that the larger part -- the majority of that is for ALD tools. There's probably a couple of epi tools. But the big portion of that is primarily for Epitaxy tools. Sorry, ALD tools.

[Operator]

And the final question will be a follow-up from Didier Scemama from Bank of America. Please ask your question.

[Didier Scemama]

I'll be very quick. First, Benjamin, a question on capacity requirements for the coming years. And I guess, related to that capex. So ASML has commented that demand for the eval tools is substantially higher-than-expected going forward. They're going to significantly increase capacity over the coming years, in part because of sort of automotive application, image sensors, etc. So I just wondered, what are the implications for ASMI? Do you guys need tools to add capacity or outsource more perhaps to get those modules off the ground and sustain that level of demand?And I've got a very tiny follow-up on gate-all-around. Just wanted to clarify your opinion on gate-all-around and whether or not this has got any impact on the number of EUV layers.

[Gek Lim Loh]

First question on capacity. As you probably know, we just moved into a new manufacturing facility in Singapore. So I would say, in terms of timing, that was very fortunate. At the same time, we are, at this moment, sufficient in terms of our internal capacity. Now over the next couple of years, do we need to add capacity? That has to be dependent on demand. We have also shared that when you look at our new manufacturing facility in Singapore, there's actually two floors of manufacturing space. And at this moment, we are only using one of them, and that's sufficient for our current needs. When we need to go into the next level, again, will depend on demand. But at this moment, we are not planning to activate that. So in terms of capacity, even if demand should increase very significantly over the next, let's say, 18 to 24 months, we can expand fairly quickly. So internal capacity, we do not really have, let's say, concerns.Does gate-all-around, have more impact on, let's say, increases EUV or decreases EUV. I am actually not in a position to offer my opinion. But I think if you look at gate-all-around, and it's another shrinkage scaling down, you probably have to find ways that you need to use EUV to achieve that. So my guess -- and again, this is just my opinion, you probably need more EUV.

[Operator]

There are no further questions at this time. I'll hand back the call over to our CEO.

[Gek Lim Loh]

Thank you very much. I would like to thank everyone for your attendance today, also on behalf of Paul and Victor. And I would like to, again, let everybody know that we are going to have our Investor Day on September 28. Although the format is not finalized, we hope to see as many of you as possible, whether live, in-person, or virtually. Once again, thank you, and stay safe, and goodbye.

[Operator]

And this concludes today's conference call. Thank you for participating. You may now disconnect.