ASM International NV

AEX:ASM

Earnings Call Transcript 2020-Q3

[Operator]

Thank you all for standing by, ladies and gentlemen, and welcome to today's ASM International Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised the call is being recorded. And I would now like to hand the call over to your speaker, Mr. Victor Bareño.

[Victor Bareño, Director of Investor Relations]

Thank you, operator. Welcome, everyone. I'm joined here today by our CEO, Benjamin Loh; and our CFO, Peter van Bommel. ASMI issued its third 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 third quarter 2020 results conference call. I hope you're all healthy and safe. Peter van Bommel will review our third quarter financial results, after which I will continue with a discussion of the market trends and the outlook. After that, we will have the Q&A session as usual.Now before handing over to Peter, I want to take a moment to thank him for his outstanding contribution to the development of our company. As most of you have probably seen, on October 14, we announced Peter's decision to retire. He will stay on until the next AGM, and the Supervisory Board has started the search process for his successor.Peter joined ASMI in 2010 as CFO and a member of the Management Board. Over the last 10 years, Peter has been instrumental in not only driving strong and structural improvements in our company's financial performance, but also in the overall strategic orientation of the company.To mention just a few of the highlights, since 2010, sales have grown at a compound annual growth rate of 16% and operating profit at a rate of 34% per year. In addition, during the last decade, ASMI returned more than EUR 1.8 billion in cash to our shareholders. Now with that, over to you, Peter.

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

Thank you for your kind words, Benjamin. Let me briefly comment on my decision to retire. This year, I turned 63. And after 10 years in my job as CFO of ASM, I decided that it's time for someone else to take over this role.As Benjamin just pointed out, the company is in a very good shape. I will stay on until next May to allow a smooth transition. I still expect to meet many of you, highly likely virtually, in the forthcoming periods, but I already want to take the opportunity to thank you all for your support and interest. It has been a great pleasure interacting with all of you during the road shows and other investor events over the last years.Back to business. Let's now review our financial results. In the third quarter of 2020, our revenue amounted to EUR 315 million, up 16% from the second quarter of last year and towards the higher end of our guidance of EUR 300 million to EUR 320 million. Compared to the second quarter, the revenue decreased 8%, half of which was due to negative currency effects. Service and spares sales grew strongly by 31% year-on-year and represented 23% of the total sales. Our equipment sales increased by 12% year-on-year and were again primarily led by our ALD products.By industry segment, revenue in the third quarter was led by foundry, followed by memory and then logic. Logic decreased sequentially, but foundry sales were up. The combined logic/foundry sales continued to account for the largest part of sales. The memory segment was about stable compared to the second quarter, supported by a healthy level of DRAM sales.Gross margin increased again to a record level of close to 50% in the third quarter, up from the already high 48.3% in the second quarter. The gross margin was again driven by an exceptionally strong sales mix. We started guiding the market on gross margin late 2012. [ Better ] days, we informed the market that we targeted gross margins to be in line with the longer-term average within our industry. We also indicated at that time that there could be quarters where we would be slightly below or above this range of a low to mid-40s percentage.Since then, we have seen the margin in 2 quarters below that range and now for 2 quarters above that range. On this moment, we see no reason to deviate from the guidance that we first provided in 2012. Having said that, we expect the gross margin in the forthcoming quarters to be more at the high end of the range.If we then look at the operating expenses, SG&A decreased by 5% compared to the second quarter, which is explained by the one-off costs that were included in the second quarter. R&D expenses decreased by 6% compared to the second quarter. This is mainly caused by lower impairments, which dropped sequentially from EUR 5 million to EUR 2 million.The operating profit decreased slightly compared to the second quarter. That's mainly due to sequential decrease in sales. The operation margin percentage, however, further increased to 26.7% in the third quarter, which is again a new record high for ASM.Below the operating line, results included a currency translation loss of EUR 14 million, which is mainly explained by the depreciation of the U.S. dollar compared to the end of the second quarter. This compares to a EUR 6 million currency loss in the second quarter and a currency gain of EUR 14 million in the year ago period. As a reminder, we hold the largest part of our cash balances in U.S. dollars, and the currency translation differences are included in our results.The results from investments, which reflects a 25% share of the net earnings from ASMPT, decreased to EUR 6 million in the third quarter, down from EUR 11 million in the second quarter. ASMPT reported sales of USD 551 million, down 1% compared to the second quarter and up 3% from the third quarter last year. Their bookings amounted to USD 583 million in the quarter, which is up 24% sequentially and up 12% year-on-year.Now turning back to ASMI's consolidated operations. ASMI's net earnings on a normalized basis amounted to EUR 61 million in the third quarter. Our new orders in the third quarter were EUR 303 million, up modestly from the second quarter and up 4% year-on-year. Orders were slightly above our guidance of EUR 280 million to EUR 300 million, even with a negative currency impact of 4% compared to the previous quarter.Looking at the breakdown in bookings by industry segment, foundry represented again the largest segment in the third quarter, followed by memory and then logic. Combined, logic/foundry bookings increased compared to the second quarter. While logic decreased sequentially, foundry bookings increased to a new quarterly record high. The memory bookings decreased compared to the second quarter. NAND flash picked up somewhat, but DRAM bookings dropped compared to the relatively strong level in the second quarter.Now turning to the balance sheet. We ended the quarter with EUR 430 million in cash, basically stable compared to the EUR 432 million at the end of the previous quarter. Free cash flow in the quarter amounted to EUR 17 million. The continued strong level of profitability was partly offset by a cash outflow of EUR 26 million for working capital. Accounts receivable increased to a relatively high level at the end of the third quarter due to a distribution of sales, which was again heavily back-end loaded in the quarter. Inventories remained relatively stable following the increase in the second quarter, although the mix shifted from raw materials towards finished goods.As we discussed in the last call, at the end of the second quarter, we had held higher raw materials for specific components and view of the bottlenecks in the supply chain in the second quarter. These raw materials were processed into finished goods during the quarter as the supply chain turned back to normal conditions in the third quarter. The decrease in raw materials in the course of the third quarter also led to a reduction in accounts payable.Assuming a continued normalized supply chain condition, we expect working capital to come down in the fourth quarter. In the third quarter, we spent again EUR 19 million on CapEx, largely related to our new manufacturing facility in Singapore in combination with lab tools. And during the quarter, we spent EUR 28 million on share repurchases. As per October 23, we have completed 40% of the current EUR 100 million share buyback program. With that, I hand the call back over to Benjamin.

[Gek Lim Loh]

Thank you, Peter. Let me first provide you with an update on the impact of COVID-19. Our focus remains the health and safety of our staff. During the third quarter, conditions in our supply chain and manufacturing operations largely normalized again. And as just mentioned by Peter, our employees and suppliers delivered an excellent job, and thanks to their flexibility and relentless efforts, we have been able to continue supporting our customers in the best possible way. With the number of new COVID cases on the rise again in many parts of the world, we remain vigilant and continue to monitor the situation.Let's now look in more detail at the trends in our markets. Despite the impact from COVID-19 and the related slowdown in GDP, the overall semiconductor market has been resilient and is expected to show healthy growth this year. Working and learning from home accelerated the digitalization trend and created healthy demands in segments such as PCs and servers. More recently, other parts that earlier have seen a negative impact from COVID, such as automotive, have also started to show some recovery.Next, zooming in on wafer fab equipment, spending also remained robust in the first 9 months of the year. Looking at the market by segment, logic and foundry spending continues to be on track for a strong year. Investments in the most advanced 10-nanometer and below nodes continue to be the key driver in the logic/foundry segment. Our customers have been stepping up their leading edge manufacturing capacity in support of the wafer demand for multiyear growth drivers such as 5G, cloud computing, artificial intelligence and autonomous driving.5G, just to take one example, is expected to drive renewed growth in the smartphone market and new apps. Enhanced capabilities will lead to a higher semiconductor content as compared to the 4G smartphones. Demand in the coming years for faster and more energy-efficient chips to power these 5G smartphones is an important reason for customers in the foundry segment to invest in new leading edge manufacturing capacity.As well-known to all of you, investments in leading-edge logic and foundry have been a very positive factor for ASM on the back of substantial share of wallet gains we achieved in those most advanced nodes. Looking ahead to the upcoming nodes in logic/foundry, we are strongly engaged in R&D, and we expect our served available market to grow again by a meaningful double-digit percentage. Looking at the memory market, end market trends were mixed in the third quarter. Following healthy developments in the second quarter, pricing conditions softened somewhat due to inventory corrections in parts of the market. We confirm our earlier forecast spending in the broader memory market in the second half will be higher than in the first half, mainly driven by an uptick in 3D NAND spending. Limited capacity over the last couple of years combined with expected growth in end markets such as smartphones brings the potential of a further improvement in supply/demand conditions. But at this point, visibility in the memory market remains relatively limited. This year, we are having good traction in our DRAM business, driven by the high-k application wins that we discussed last quarter. Our ambition in memory remains to substantially increase our served available market over time as we further step up our customer engagements in new applications. However, it is important to keep in mind the logic/foundry represents the largest part of our sales, and therefore will remain the most important driver for our business in the forthcoming periods.A strong area of growth this year has been the Chinese market for the broader wafer fab equipment market and for ASM. We benefited from the investments we made in recent years to strengthen our position in this market and from the first meaningful investment by some of the domestic players in the more advanced nodes. Despite the uncertainty related to new U.S. export restrictions, we recorded again substantial year-on-year growth in our China sales in the third quarter.Another key driver for our sales has been the spares and service business. In the first 9 months, we increased sales in this business line by 29%. In part, growth in our spares and service were driven by temporary customer demand for buffer inventories in view of COVID-related supply chain uncertainties. The more structural driver has been the strong expansion of our installed base in recent years, and on top of that, we have been increasing our efforts to target additional opportunities, which is starting to bear fruit.To sum up, 2020 is shaping up to be a solid year again. For the full year, we estimate wafer fab equipment spending to increase by a high single-digit to low double-digit percentage. On the back of a continued healthy development in the second half, we increased our estimate for wafer fab equipment compared to last July. As also underscored by the guidance we provided for the fourth quarter, we believe we remain on track to outperform the overall wafer fab equipment market this year. Against an uncertain economic backdrop, it is still too early to provide a quantified outlook for 2021, but we believe the fundamentals of our industry continue to look solid with ongoing healthy demand in logic and foundry.Now let us look at the guidance for the fourth quarter we issued with our third quarter press release. For the fourth quarter, on a currency comparable level, we expect revenue of EUR 330 million to EUR 350 million. Fourth quarter bookings on a currency comparable level are expected to be in the range of EUR 340 million to EUR 360 million.Next, I want to share and update you on some of our strategic initiatives. In my first call with you in July, I talk about my initial observations that ASM is an attractive place with strong technologies and customer relationships and well positioned to benefit from solid long-term trends. Now 3 months later, I'm even more convinced of the strong opportunities ahead of us.ASM's existing markets offer excellent growth prospects. While ALD has already moved into the mainstream over the last years, we expect ALD to turn even more into a core technology that will help our industry stay of Moore's law. In the years to come, beyond 2021, we expect that ALD demand will substantially grow above the USD 1.5 billion market size that we have guided earlier.Increasing device complexity, new materials and ever thinner films with higher required conformality mean that conventional deposition will run out of steam and that ALD is going to take a bigger piece of the pie. Both in logic/foundry and in memory, important technology inflections will drive substantial increase in ALD requirements in the medium term.To make sure that ASM is well prepared to win the big part of all these new opportunities, we will keep investing in the growth of our company. For this, we remain further investing in R&D to develop the many new ALD applications that are on the industry's road map. Besides that, our CapEx investments in the forthcoming years will be more focused on lab equipment for customer demos and development of new applications. This will help us to further expand our served available market and to keep our company at a high-growth path in the medium term.Epi remains an attractive growth market, and we are strongly focused on adding new customers and driving our market share in the coming years. In vertical furnaces and PECVD, we continue our strategy to invest in targeted niche opportunities, which already drove decent additional top line growth for our company in the recent years.To conclude, prospects remain solid, and we are focused to ensure ASMI is going to benefit and stay on its growth path. Now with that, we have finished our introduction. Let us now move on to the question and answers.

[Victor Bareño, Director of Investor Relations]

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

[Operator]

We have the first question. It's from the line of Stephane Houri from ODDO.

[Stephane Houri, Research Analyst]

First question would be on Q4. There has been some -- a lot of questions around the Intel issue, I would say. And you were saying before that Q4 would be kind of flattish versus Q3, and now it looks that it's going to be a little bit better.So what has changed during the quarter on the upside? And linked to that, can you update us on your view on the evolution of the situation with Intel that according to what we know remains a pretty important customer for you?

[Gek Lim Loh]

First of all, Stephane, thanks for calling in. The situation with the logic customer, we will not comment on the specifics, but I can maybe explain to you in more generic terms. So one of the things that we have also explained in the last earnings call is that between logic and foundry, if there's going to be a drop in logic production and the demand for advanced semiconductors continue, the capacity would probably have to be taken up by foundry.And we are hearing of some noise in the market of some of these things that are happening. But at the same time, I would say that because of the delay in the more advanced nodes, the logic customer is probably going to invest more in the existing high-volume manufacturing node that they had. And I think this was also confirmed in the latest earnings call.So when you look at that -- all of that put together, as far as we are concerned, we don't see really a significant impact from, let's say, the announcement of the second quarter. And we continue to see combined logic and foundry being very strong going into the fourth quarter.

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

And regarding your first question, Stephane, we normally, as you know, don't guide 2 quarters ahead, given the fact that there are so much uncertainty last time around the latter part of the year. We decided to guide the market that the fourth quarter will be at least at the level of the third quarter so to make sure that everyone understood that we were not -- that the market was not falling apart in our view. So in principle, there are not that many changes as compared to our view with regard to the fourth quarter as what we had a few months ago.

[Operator]

The next question is from the line of Keagan Bryce from Barclays.

[Keagan Bryce-Borthwick]

One on gross margin. I understand the strength this quarter, much like last, was due to favorable customer configurations or sales mix. But could you give us a little more color as to what that mix was? Was it similar mix the last quarter? And is it more to do with a specific customer ordering for a specific node?And then quickly on China, could you update us on where you stand in terms of shipping equipment to your largest Chinese foundry customer on whether you're seeing any sort of demand pull-in from any of your customers in China?

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

Okay, Keagan. Let me try to answer the first question with regard to gross margin. What we have -- what we are seeing in our gross margin is that certain applications for certain customers have a higher margin or as an average, a lower margin. We had an extremely -- I only can phrase it again, an extremely rich margin in the third quarter, even richer than the second quarter that we have seen. And that is rather unique, to be honest. So that is the reason why we have those differences.And we expect, looking at what's going on, on this moment with regard to the fourth quarter and looking also in the first quarters of next year, that the -- these margins at this level are not sustainable. But as what I mentioned in the prepared notes already, we expect that we are moving more towards the high end of the range that we originally always have indicated instead of that what we have seen in the past where you have big shifts between low 40s and mid-40s. So that's at least the view that we have for the next quarters to come.

[Gek Lim Loh]

Thank you, Peter. And Keagan, on the China question, maybe to also elaborate a little bit. So we are very encouraged to see that our initial efforts and investments in China is starting to pay off. And this year, for the first time, we will see our China sales going into slightly more than 10% of our total revenue, which is a positive development. We have especially had strong, I would say, sales from China in Q2 and Q3, but we do expect that in Q4, the sales will come down a little bit lower. Now as far as the big foundry customer is concerned, at this moment, we are still able to ship majority of our product line. So we continue to be able to ship to them if they still want to buy. At the same time, we understand the restrictions that are coming around from the U.S. government. And we comply with all the regulations, and we strictly follow all the rules and the requirements that they have provided.Now having said that, when you look at -- just to elaborate a little bit broader, when you look at China, our exposure to China is still small compared to our peers. As I've said, this year, for the first time, we will exceed 10% of our total revenue with sales coming in from China, whereas for some of our peers, there is significantly a much higher level. I hope that gives you a better picture of our business in China.

[Operator]

Our next question is from the line of Adi Metuku from Bank of America.

[Adithya Satyanarayana Metuku, Associate]

Yes. I had 2 questions. Firstly, just -- I just wondered if you could give us some color around the levels of growth you saw with ALD in the third quarter and also with epi. And secondly, I just wondered, as you look into 2021, if you could talk about the trends you expect by end markets? And also some color on the uplift you expect from the DRAM ALD layer [ rent ] into 2021. Any initial color around that would be helpful.

[Gek Lim Loh]

Okay. Adithya, thank you. On the first question, so we of course see very strong growth in our ALD business. And I think overall, when we look at the whole year 2020, we are going to see a fairly significant increase in the ALD business for us, and that continues to be the main driver for us, for our business.In epi, we continue to be engaged with the main players in the markets to try to get customer engagements, to qualify for the next nodes, and that's ongoing and very encouraging. We have, as we have discussed or explained during the second quarter call, that we really have one customer that is already using our epi tools for high-volume manufacturing, and we think that as we go further into next year, hopefully, when the customer starts to engage the more advanced nodes, we might see a more, let's say, opportunities and our served available market increase.In terms of trends for 2021, I think, you were referring to specifically any kind of uplift that we see in DRAM. So I would just maybe -- have -- provide you with a more generic picture. I think for 2021, it's still a little bit early. But we do think that logic and foundry will continue to remain healthy going into 2021. In terms of memory, I think there's been probably some pent-up demand in terms of investments. There's ongoing, I would say, announcements about investments in 3D NAND. As you probably saw today, Kioxia or one of the Japanese NAND manufacturer has announced a EUR 9 billion investment. So I think the NAND market is healthy.Now in DRAM, we think that it's more uncertain. It could be much more dependent on what is the demand pool due to the various, let's say, drivers. So that's a little bit uncertain for us. But overall, I think it's still a little bit early for mapping out any firm trends for 2021.So one thing I forgot about the epi business for us. This year, we -- for the power and analog market, as we all know, with automotive and industrial being severely affected by COVID-19, we are seeing less of demand for our epi tools in that area. And even though -- that part of the market, even though it's a very small part of the overall ASM, let's say, market, it does play a certain share in our overall epi market. So that is probably going to bring, I would say, some impact to us. But with the engagements that we have in terms of CMOS, in memory, in logic and foundry, we hope that next year, we will pick this up again and significantly increase.

[Operator]

Next question is from the line of Tammy Qiu from Berenberg.

[Tammy Qiu, Analyst]

I would like to ask from a technology perspective. Looking into the foundry and logic pipeline for next few years, basically, they are working on 3 nano or 2 nano or something below that number. Do you know what is the adoption of insertion level of ALD comparing to where they were previously? And am I seeing incrementally ALD being used in more applications compared to previously, i.e., your TAM expansion is likely will accelerate going forward? Or will it slow down?

[Gek Lim Loh]

Thanks for the question. So when we look at the logic/foundry, which has been driving a lot of the sales and business growth for us as a company, every time when there is, let's say, a node advance, we generally see a double-digit percentage increase in the number of applications or layers that requires ALD. And that's a very natural consequence of the scaling that is being done or that is required. So every time when there is no change and things become smaller, circuits become more miniaturized, we see, in effect, a double-digit percentage increase in opportunities for us.And as we have given or let's say, explained in our prepared remarks, over the next couple of years, we see a significant increase in the overall ALD market size going forward, especially from 2021. And we are now right now in the process of trying to look at and trying to quantify how big that will be. But it's definitely going to be bigger than the previous size of USD 1.5 billion that we have guided several years ago.

[Tammy Qiu, Analyst]

Okay. That's cool. And also, what about competitors? Because we have been hearing that U.S. competitors try to basically aiming for the same market, and it has been a few years since they entered the market. And what kind of progress do you see them making recently given the TAM expansion is quite attractive?

[Gek Lim Loh]

Of course, it's probably the -- one of the most, if not the most, attractive segment of the overall wafer fab equipment market. So competition is definitely going to come after and try to enter the market. I think so far what we have seen is that from our, let's say, first entry at our, let's say, penetration into certain applications where we have a dominant position, such as high-k metal gate and so on, we continue to be very strong in those areas because for most of the customers, for something that is proven and working, they don't like to change. So we have a very strong, let's say, position in those kind of applications and layers.Now of course, you're also seeing newer applications coming up, and that's where the competition tries to come in. And there is competition. We recognize that. But I think at the same time, because of our expertise and because we have a long presence and continue efforts in both the materials and the chemistries that are required for ALD, I think, we will continue to see ourselves being the market leader, if not, in fact, maybe winning more share as the market expands.

[Operator]

Next question is from Nigel Van Putten from Kempen & Co.

[Nigel Van Putten, Analyst]

Just like to follow-up on the gross margin. The exceptional strength seems to coincide with exceptional strength in China. Would it be fair to say that growing your sales in China has been beneficial for the gross margin? That's my first question.

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

Nigel, the only answer that I can provide is that -- is a repetition of what I said earlier. I mean our gross margin is dependent on certain applications with -- at certain customers. And that's not country dependent.

[Nigel Van Putten, Analyst]

Okay. Yes, we've discussed before, it's not too dependent. It's not -- there's no difference between equipment and services. So I'm just really trying to figure out, but I guess it's a mix of both.

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

It's a mix. So there are certain, as you can imagine, it's the color that I provided also in the earlier calls, I think. It's there -- when you have a very unique solution then the prices are mostly higher, then when you replace an existing technology where just the timing is there, that's the customers are saying, "Okay, I'm now -- I can now make the choice to go from the older to the newer technology." And there you see mostly big margin differences in the different products.

[Nigel Van Putten, Analyst]

Got it. That's helpful. And then a question, I think you just said, you see especially strong ALD market expansion in 2021. Did I hear that correctly? And then what will be driving that into next year?

[Gek Lim Loh]

Nigel, I think we continue to see logic/foundry being strong. And at the same time, with memory inflections at the more advanced nodes, we think that the ALD will continue to be strong. But what I was alluding to was that especially from 2021 onwards out into the several years after that, we think that the overall ALD market size is going to grow significantly from what we have guided earlier, which was several years ago of USD 1.5 billion.And what we are trying to do now is to try and find a way where we could look at the future trends and all the requirements and try to quantify. If it's not going to be $1.5 billion, what is it going to be? And hopefully, at some point in the near future, we'll be able to share this with all of you.

[Operator]

Our next question is from Rob Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

First question would just be relating to the previous question, which is your company is getting quite large now. There's a lot more sell-side analysts taking an interest in your stock. Do you not think it's a good time with new management to do a Capital Markets Day and give a full explanation of your growth outlook?And relating to this, second question would be, if gate-all-around gets adopted at 2 nanometers by TSMC, it seems after Samsung adopts it from next year, what could be the impact on your served addressable market just from that alone? Have you had a chance to kind of understand how meaningful that would be? That's it from my side.

[Gek Lim Loh]

Rob, thanks. On the first question, I think that's an easier answer. We are considering doing something. Definitely not this year. And if we do a Capital Markets Day, it will, of course, be next year. And we will be doing this for the first time, so we want to make sure that we are prepared if we do it. And if we decide to do it, I'm sure we will invite all of you, to share with you our, let's say, strategy, et cetera, et cetera.On the second question of gate-all-around, you're absolutely correct that the Korea side is looking already insertion or switching over to, gate-all-around at 3-nanometer wells. The Taiwan side is looking at 2 nanometer. Now I think both sides are feverishly developing the process. I think what we might actually see is that there's not going to be a lot of time difference. When they launch -- when both of them launch the next nodes at gate-all-around. Probably, my guess is in the 2023 time frame. If it can be earlier, it's even better. And the reason for that is when you move to gate-all-around, you will require definitely even more ALD applications.We are already in, I would say, R&D and evaluation engagements with both customers. So we have some idea, not 100%, but we have some idea what kind of layers will require ALD and also epi. They will need more epi layers, highly likely. So we have, I would say, a pretty good idea that this is going to open up new opportunities for us, increase our served available market and especially in the ALD area, as we said, it's just going to increase our market opportunities again and by a double-digit percentage compared to the previous nodes.

[Operator]

The next question is from Marc Hesselink from ING.

[Marc Hesselink, Research Analyst]

First question is actually on the NAND market. Clearly there are quite some momentum. Can you explain what is your addressable market there now at the moment? Initially, you were not that active in 3D NAND, but you're clearly gaining more traction there. And also how deep are you penetrated with all the NAND producers?

[Gek Lim Loh]

So on the topic of NAND, I think over the last 2 years or so, we have gradually but consistently increased our engagements, so much so that if we look at where we are today, we are engaged with all the NAND players in development work for the next nodes.So when we look at where the market is today, it is still probably at a level where it doesn't play to where we have been doing or the work that we've been doing for the last 2 years. I would say that as we move into the more advanced nodes, hopefully next year or the year after, we will see definitely our served available market and opportunities increase, and that's where we are targeting. So we are in a lot of developments with the -- all the key players. And we know that at some point in time, they will switch to, they have more advanced nodes, and that's when it will be highly significant -- I would not say significant, but highly interesting for us.

[Marc Hesselink, Research Analyst]

If you would compare that to the opportunity in DRAM and the opportunity in logic/foundry relative to each other?

[Gek Lim Loh]

I think over the next, let's say, a couple of maybe -- let's put it this way, over the next 2 years or so, I think logic and foundry would still be, by far, the biggest driver for us.Having said that, we do expect that the overall percentage of our business coming from DRAM and from NAND is going to increase from where we are today. So it will play a more significant part in our overall and total business.

[Marc Hesselink, Research Analyst]

Okay. And the second question is actually on the spare and service business. You already indicated that part of it is a little bit extra inventories at your clients for COVID-19, but partly also structurally. Is there a way that you can maybe split that out a bit to give us a feel on what -- after that initial spike of COVID-19, what should be the normal run rate going forward?

[Gek Lim Loh]

The kind of buffering of spares inventory was made actually mainly in the second quarter because I think there were a lot of concerns at that time about what's going to happen with the supply chain. So we did see some of that. Now it's probably, I would say, still a low single-digit kind of percentage. So it's not really that significant, but we did see it.Now structurally, we have since probably the end of last year, beginning of this year, been looking at how do we improve and increase our spares and service business. And one of the natural things is to look at, of course, the increased installed base that we have and how do we service the installed base.At the same time, I think we are coming out now with more, I would say, innovative solutions on how to support our customers so that we can help them to kind of reduce their wafer -- their cost per wafer by providing a better service, better, I would say, for example, solutions to help them to do that. And I think we are seeing the beginning of that bearing fruit. So I think going forward, we are going to probably continue to see our spares and service business growing, depending on how fast the customers would absorb our more, let's say, newer and innovative solutions.

[Operator]

And the next question is from the line of Dominik Olszewski from Morgan Stanley.

[Dominik P. Olszewski, Research Analyst]

Yes just one, since we touched on a lot of topics. I guess as we're getting into Q1, you're expecting the ramp-up gradually of the Singapore facility. But obviously, in the past, management had talked about the fact that equipment was sort of being manufactured suboptimally due to capacity and operational constraints.So as this new fab is ramping up in Q1, should we expect any spike in activity particularly front-loaded at the start of the year because of the new capacity availability that you have to play with? That's it.

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

What we basically have said earlier is that, indeed, it will lead to more efficiency in that organization that will come in gradually because -- I mean the plan that we now have is basically transferring late this year, early next year, the activities towards our new premises. But what we said also earlier, it will have some efficiency improvements, but it is not -- it will not change the needle. It will not lead to a substantially higher gross margin as a consequence of that.But it will make the way that we are dealing with our businesses much more fluid, Dominik. So in that sense, it -- you have to think about, as a consequence of that quality issues, highly likely will be much better and the guarantee that we can give to deliver things on time. So that will improve. So there are lot of quality improvement actions as a consequence of that also included.

[Operator]

Our next question, it's from the line of Achal Sultania from Crédit Suisse.

[Achal Sultania, Director]

Just maybe a question on gross margins again, like if I think about the mix, obviously, we understand you had a very rich mix in the last couple of quarters. But as we look into next year, you're talking about some of these new applications with DRAM and even NAND customers. Like how should we think about -- like why shouldn't this mix be more sustainable going into next year?Because a lot of the new products that you're launching probably should be carrying higher gross margins if we look at your evaluation tools on your balance sheet, and we've seen a big spike in that evaluation tool number, which again suggests that a lot of these tools are being trialed at your customer site. So I understand that some of that mix improvement may go away, but still, I'm just trying to understand why you shouldn't be able to retain a large part of that improvement as we go into 2021?

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

Yes. What I tried to guide also earlier is that, well, when you compare what we have done in the last years that we were more in the mid part, low part to the mid part of the range of low to mid-40s as we move forward towards the higher end. And there are a few reasons for that. I mentioned already the mix. You have to recognize also, Achal, that we have new products that's the -- and we plan again to have a lot of new products, especially in the areas that you just mentioned. That will have an impact.The first tools that we are going to deliver, by definition, have always lower margins. So that impact is also taking part of it. So I think that's -- the last important one, I think is that when you look from a longer period of time, you see that low to mid-40s are the normal ranges of gross margins in this industry. And I said earlier, there will be periods where you might be above that level. But I think on this moment, stating that we expect that the margin will be structurally above the levels that we earlier have indicated will be giving you the wrong guidance.

[Achal Sultania, Director]

Yes. Okay. That's understandable, Peter. And maybe one last one on the buyback plan and shareholder return. Obviously, you've accelerated the buyback in the last few weeks after being a bit slow at the start of the program.So is it fair to assume that you should be able to complete this buyback program well before November next year, which was the original time line? And how should we think about the stake at ASM specifically? Is it something that you still think is core to the business or are you willing to actually look at options around that stake?

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

It's highly likely that the share buyback program will be finished well before November next year. That's the answer to the first question. And then the second question -- with regard to your second question, nothing has changed as compared to what we have said last time.

[Operator]

We have another question again from Mr. Adi Metuku.

[Adithya Satyanarayana Metuku, Associate]

I just have 2 follow-ups. So just firstly, looking at your peer group operating margins on a like-for-like basis, it feels like your margin's, when I've adjusted for U.S. GAAP of roughly around 10 percentage points, below peers. I just wondered why you think -- what you think the reason is for your margins being lower? And how should we think about the scope for improving profitability going forward?And the second question is on CapEx. As you look into next year, it is -- could you give us some color on how we should think about CapEx, at least like your capacity deployments will largely finish this year? So can we expect CapEx to go down maybe into the EUR 35 million to EUR 40 million range next year? Is that something -- is that a possibility?

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

First of all, your first question about margins here. I suppose that you talk about EBIT margins here, not about gross margins.

[Adithya Satyanarayana Metuku, Associate]

Yes. Yes. Your gross margins are broadly in line with peers, but your EBIT margins are lower.

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

Yes. Yes. And one of the major reasons for that is the size of our company. That's what we also explained in earlier calls. We plan to have gross margins in -- we make a distinction, of course, between R&D and SG&A. The R&D that we are reporting is around 10%, but it's IFRS. When you compare that with U.S. GAAP, what the competition is doing, then we are more at around the 14%, 15%. That's also what the competition is doing. So there, we don't have the major difference. The major difference is, indeed, in the SG&A cost. So that has to do a little bit of size. I think -- I don't want to argue with you if it's 10% or it's less, but there is a difference and the size plays a role. We recognize that.And the second thing is with regard to CapEx. With CapEx, we have indicated towards the markets that after the big investments that we have done in the new fabs that we will, as an average, be back to the EUR 30 million to EUR 40 million, what we also have seen in the past years. But that will be an average. What Benjamin already was referring to is that we are clearly looking on this moment, given the fact that there are so many opportunities popping up, especially in the new products that we see -- that we might have -- that we might speed up there some CapEx investments in the next 18 to 24 months. And that especially related to measurement equipment for our lab environment and eval tools because we need to have to serve all those new applications that are popping up. We might need to have somewhat more equipment that we put on lab environment. So as a consequence of that, our CapEx might remain on a relatively high level for an extended period of time. But again, that will be, over time, developed to the direction that I've mentioned earlier.

[Adithya Satyanarayana Metuku, Associate]

Understood. So when you say high end of CapEx, are you thinking about the high end of EUR 30 million to EUR 40 million? Or higher than that?

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

Higher than that. Might be higher than that.

[Operator]

The next one is from Mr. Nigel Van Putten again.

[Nigel Van Putten, Analyst]

Just a quick follow-up on foundry, both strong in the order book as well as the next quarter sales. Just a question. Is that sort of the big 1 or 2 spending more? Or is that more a breadth with also Tier 2 foundry spending more?

[Gek Lim Loh]

Sorry, I think your question was, are the Tier 2 foundries also spending more? Is that -- am I correct, Nigel?

[Nigel Van Putten, Analyst]

Yes. So what's driving the strength, both in the order book as well as revenue into next 2 quarters? Is that sort of the big 1 spending more or is that maybe some of these other foundries also picking up investment?

[Gek Lim Loh]

Well, I think, by and large, a large part of it is because the big ones are spending more, spending actually a lot more. And hopefully, that continues. In their latest kind of earnings, they did not want to give a number for next year, but I think the consensus of everybody is that in the Taiwanese foundry next year, they're even going to spend even more than what they have already spent or even more than what is already revised upwards this year. So it's -- I think they will spend a lot more. And I think it's primarily driven by the demand that they are facing now from their customers. That's a lot of pool.

[Nigel Van Putten, Analyst]

Would it be fair to say that as they spend more on the advanced node size nanometer that your share of wallet will again increase year-on-year?

[Gek Lim Loh]

Well, I think, especially if they go into the next node. And they are now in the current node where they are ramping up. And there's all kinds of guesses as to how far they will go in terms of capacity for this node. So we are heavily engaged with that now. Now at the same time, we also heavily engage with them, should they go into the next node. And the next node, again, as we have always explained, it's going to see a double-digit percentage increase in terms of number of opportunities and layers for us. So the faster they go into the next node, the bigger opportunity is for us.

[Operator]

And there are no further questions at this time.

[Gek Lim Loh]

Okay. Thank you. Thank you, everybody. And I would like to thank you all for your attendance today, also on behalf of Peter and Victor. We look forward to meeting with many of you in our upcoming investor road shows and conferences. Once again, thank you. Stay safe, be healthy and goodbye.

[Operator]

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