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ASM International NV
Earnings Call Analysis
Q3-2024 Analysis
ASM International NV
In the third quarter of 2024, the company achieved record revenue of EUR 779 million, marking a robust 26% increase at constant currencies compared to the same period last year. This performance positioned revenue at the upper end of the company’s guidance range of EUR 740 million to EUR 780 million. Notable growth was seen in spares and service sales, which surged by 45% year-on-year, driven by unexpected demand from China and strong performance in outcome-based services.
Equipment revenue also demonstrated strong growth, climbing 22% year-on-year at constant currencies, primarily fueled by ALD product sales. Revenue from the memory segment continued to expand, with DRAM applications showing significant demand. However, the company noted a decline in demand for power, analog, and wafer segments, reflecting softer conditions in the industrial and automotive markets.
The gross margin improved to 49.4%, up from 48.9% a year ago, primarily due to favorable sales mix effects, especially from China. Despite this positive trend, the company cautioned that Q4 might see a reduction in margins due to anticipated softer sales. SG&A expenses decreased by 1% year-on-year, showcasing the company’s commitment to cost control.
Research and Development expenses rose significantly by 36% year-on-year, driven by headcount growth and increased amortization charges. Looking ahead, the company expects net R&D expenses to grow between 15% and 20%. They also recorded a one-off gain of EUR 7 million from the divestment of a property, contributing positively to the operating profit margin, which increased to 28.2%.
The company saw new orders rise to EUR 815 million, reflecting a 30% increase year-on-year. Strong order flows primarily originated from foundry and memory segments. However, a notable shift is anticipated in Q4, where bookings are expected to decrease. This expected decrease is attributed to earlier pull-ins of orders that had artificially inflated Q3 figures.
For the fourth quarter, the company forecasted sales between EUR 770 million and EUR 810 million, estimating that full-year growth for 2024 will be about 10%. Additionally, looking towards 2025, projected revenue has been increased to a range of EUR 3.2 billion to EUR 3.6 billion, up from earlier estimates of EUR 3.0 billion to EUR 3.6 billion, mainly due to rising expectations for gate-all-around related revenues and sustained memory spending.
The company remains optimistic about long-term growth driven by AI technologies, particularly in data centers. They highlighted the increasing demand for advanced semiconductor devices and the strategic importance of their early engagement with leading customers. This positions the company favorably as the industry transitions to smaller geometries and more complex semiconductor architectures.
Despite the positive outlook, challenges in the global market remain, with soft demand persisting in automotive and industrial segments. Additionally, the company expressed caution regarding its dependencies in the China market, indicating a normalization of previously exceptional sales levels expected in the coming months.
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ASM International Third Quarter 2024 Earnings Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Victor Bareno, Head of Investor Relations. Please go ahead, sir.
Thank you, operator. Good afternoon, and welcome, everyone, to our Q3 earnings call.
I'm joined here today by our CEO, Hichem M'Saad; and our CFO, Paul Verhagen. ASM issued its third quarter 2024 results yesterday 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, 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 and financial reports, which are available on our website.
Please further note that reference in this call to profitability numbers will be primarily on an adjusted basis, details of the acquisition related PPA expenses can be found in the press release and in the investor presentation.
And with that, I will now hand the call over to Hichem M'Saad, CEO of ASM.
Thank you, Victor, and thanks to everyone for attending our third quarter 2021 earnings call. The agenda for today's call is as usual. Paul will first review our third quarter financial results, and I will continue with the discussion of the market plans and outlook followed by Q&A.
Thank you, Hichem, and thanks, everyone, for joining the call.
In this third quarter of 2024, our revenue increased to a new quarterly high of EUR 779 million and 26% at constant compared to the third quarter of last year. Revenue in the quarter was at the upper end of our guidance of EUR 740 million to EUR 780 million. Spares and service sales grew by 45% year-on-year at constant currencies. This growth was above trend, including stronger-than-expected demand from China, and with a relatively strong quarter for our outcome-based services. In Q4, we expect growth to return to a more normal level again.
The equipment revenue in the third quarter increased 22% at constant currencies year-on-year and was led in our ALD product line, which accounted for the majority of our equipment sales. By customer segment, revenue in the third quarter was led by memory, followed by foundry and then logic. Combined logic/foundry continued to account for the largest part of revenue and decreased slightly both year-on-year and compared to Q2. Gate-all-around had again a solid and increased [indiscernible].
Memory sales continues to grow significantly, following the strong order intake in the previous quarter. Memory sales consisted mostly of high-banded members-related DRAM applications, which grew sharply. 3D NAND sales grew strongly versus the low level in the third quarter last year and were stable compared to Q2 and represents a smaller part of our memory sales.
Sales in the Power/analog/wafer segment were fairly stable compared to the second quarter. Year-to-date, sales in this segment are down by a significant double-digit percentage. This is compared to the very strong level last year and reflecting the soft demand in energy connections in the industrial and automotive end markets.
Moving on to the gross margin. In the third quarter, gross margin came at 49.4%, up from 48.9% in Q3 '23, explained by mix effects including increased sales year-on-year from China, which was somewhat higher than expected. For H2, we expect China sales to be below H1 sales, as stated before.
SG&A expenses decreased 1% year-on-year, reflecting our ongoing focus on cost control. For the full year, we expect SG&A to be slightly up compared to '23 , excluding the incidental charge of EUR 8.4 million in the second quarter.
Net R&D expenses increased by 36% year-on-year and 16% compared to the second quarter driven by headcount growth as well as higher amortization charges and lower capitalization. As indicated in previous quarters, several development projects are entering the commercial release phase this year, which means amortization of the related capitalized development expenses has started.
Also in relation to the completion of these projects, capitalized development expenses decreased in Q3 because some resources previously allocated to those projects are now being used for a number of months to support the commercial release and must, therefore, be expensed instead of capitalized.
For the [indiscernible], before we expect net R&D expense to increase between 15% and 20%. We also booked a one-off gain of EUR 7 million on the divestment of a building in Singapore, recognized as a separate line item in other income and not included in operating expense. Including this one-off gain, operating profit margin increased to 28.2% in Q3, up from 25.3% in the same period last year. The one-off gain of EUR 7 million had a positive impact of 0.9% on the operating margin.
Below the operating line, results included a currency translation loss of EUR 48 million in Q3. This compared to a gain of EUR 16 million in Q2 and a gain of EUR 3 million in Q3 of last year. These translation results mainly relate to our cash position, which we hold for the largest part in U.S. dollars. Results from investments, which reflects our 25% share of the net earnings from ASMPT, decreased to EUR 0.7 million in the third quarter, down from EUR 4 million in Q2 and slightly up from EUR 0.4 million in Q3 of last year. ASMPT results were impacted by the continued downturn in the back-end equipment market.
Let's now turn to [indiscernible] order intake. In the third quarter, our new orders increased to a strong level of EUR 815 million, up 30% year-on-year at constant currencies. In terms of customer segments, foundry was the largest segment in the third quarter, followed by memory and then logic. Combined, logic/foundry accounted for more than half of equipment bookings and are up compared to the second quarter. Gate-all-around orders were again solid and increased sequentially, with most of the tool orders now for high-volume manufacturing. Mature logic/foundry orders were also up sequentially but down compared to last year.
Memory order slightly decreased compared to the second quarter, but we're still at a very strong level. DRAM orders were roughly similar to the strong level in the second quarter and again driven by high demand for high bandwidth memory applications. 3D NAND orders decreased slightly compared [indiscernible] and we're still at a fairly modest level compared to our DRAM orders. Orders in power/analog/wafer remained at low level in Q3. Bookings from China dropped somewhat, both year-on-year and compared to Q2, but were still slightly higher than we anticipated at the start of the year.
Let's turn to the balance sheet. We ended the quarter with EUR 747 million in cash, up from EUR 637 million in the previous quarter. This increase was largely the balance [indiscernible] of a very strong free cash flow of EUR 242 million in the quarter, partly offset by cash spent on share buybacks. Next, the increased profitability, the free cash flow was primarily driven by lower working capital in the quarter.
Days of working capital decreased to a relatively low level of 48 days, down from 64 days at the end of June. Working capital fluctuates from quarter-to-quarter, and in Q4, we expect it to be back in the target range of 55 to 75 days. We spent EUR 13 million on CapEx during the third quarter. Furthermore, we spent EUR 93 million on share buybacks during the third quarter. On July 25, we completed the EUR 150 million new buyback program that we started last May. Combined with the dividend paid earlier this year, we returned a total of EUR 287 million in cash to sold this year, up from EUR 223 million last year.
And with that, I hand the call back to Hichem.
As just discussed by Paul, we delivered a solid performance in the third quarter despite continued mixed market conditions. Growth in the major economies has been relatively soft this year, and the forecast for next year does not look much better. AI is currently the main driver for this [indiscernible], in particular, boosting data center growth. Other end markets such as PCs and smartphones appear to be bottoming, but expectations for a more sustained recovery have again been postponed.
The industrial and automotive end markets are still in a significant downturn with limited visibility for improvement. This picture in the end markets is also reflected in the spending patterns of our customers. Semiconductor devices that enable AI are the main areas of wafer fab equipment spending, in particular, gate-all-around in advanced logic foundry and high-bandwidth memory in DRAM.
If we first look at the leading-edge logic/foundry segment, momentum in gate-all-around remains strong. Orders for gate-all-around related applications were again started in Q3, and we expect a further increase in Q4. The tools that we are shipping now are in support of the high-volume manufacturing ramp in 2025. Our customers have been talking about substantial demand for 2-nanometer from their customers, including from AI chip makers with expectations for 2-nanometer being a larger node than 3-nanometer.
News flow in this segment over the last couple of months has somewhat impacted the outlook for leading-edge logic/foundry spending in 2025, but it's still within the range of outcomes that we assumed last year when we presented our 2025 revenue targets. We are still projecting a substantial increase in our gate-all-around related sales in 2025.
First, leading-edge logic/foundry spending was relatively soft for most of 2023 as well as in the first part of 2024, and is now picking up, with the majority of the spend on the gate-all-around nodes. Second, the transition from FinFET to gate-all-around has meaningfully increased our addressable market, with several new ALD and Epi applications. This is reflected in our previously communicated estimate of $400 million SAM increase per 100,000 wafer capacity.
And third, with customers now moving to the phase of high-volume manufacturing, we can reconfirm that we have maintained our strong ALD market share in the transition to 2-nanometer; while in Epi, we have substantially increased our share. In addition, we have strong traction in R&D with all leading customers for the next transition that are expected to move into volume manufacturing in the 2026, 2027 time frame, be it the sub-nodes of 2-nanometer or the next major node of 1.4-nanometer.
This transition will further expand our addressable market, including the introduction and wider adoption of applications that we discussed in our Investor Day, such as metal ALD for interconnect and contact [indiscernible], backside power distribution, selective ALD and also increasing Epi intensity.
In the mature logic/foundry business, which for us is mostly about China, the demand trends are almost opposite to the leading edge. In 2023, this business was strong, and in the first part of 2024, even at an exceptional level, compensating for the soft conditions in the leading edge. Now demand in mature logic/foundry has started to come down, as several customers in China are moving to a [indiscernible] phase following the substantial capacity investment in previous periods.
Next, our memory business. Demand continues to be strong and mostly driven by high bandwidth memory. Our key exposure here is our high-k metal gate ALD technology in which we are a leading supplier, and that's used in the high-speed DRAM chips that go into the HBM stack. We expect our memory sales to grow at a very strong rate for the full year, with the percentage contribution in 2024, potentially approaching the previous peak level of 20% that we achieved a couple of years ago.
In 3D NAND, demand has increased this year for our ALD gap-fill solution, but it's from a very low-level last year and relatively small compared to demand. We are working with customers on new ALD applications for the next device generation. But in the foreseeable future, the 3D NAND business is expected to remain the smaller part of our memory sales and mostly driven by technology buys.
Next, our silicon carbide business. As most of you are probably aware, condition in this market segment has continued to soften. We are now immune, and while we have reiterated our forecast for a double-digit sales increase in this business line in 2024, the rate of increase is substantially softer than what we still expected at the start of the year. It's too early to predict if the market will start to recover in 2025, but the long-term outlook for wide band gap materials, such as silicon carbide, is bright due to the increasing power efficiency requirements in EVs and, longer term, also in other areas such as data centers.
In addition, we are in an excellent position to further expand our market share. Since the acquisition of LPE, we have already won several new customers across the globe. Earlier this month, at the silicon carbide conference, we announced the launch of our first 200-millimeter single-wafer cluster tool, the PE2O8. We expect this tool to be a game changer.
Similar to our other silicon carbide Epi 2, the PE2O8 offers best-in-class film performance, excellence within wafer and wafer to wafer uniformity and the lowest level of defectivity. These benefits will only become more important as ourcustomers are planning to transition to the larger 200-millimeter wafer size.
New in this PE2O8 is its dual shaper platform compared to the single shaver architecture of our existing PE108 tool. This substantially increases throughput and lower cost of ownership for our customers. We have already received multiple orders for the PE2O8 from several leading customers.
Finally, China. As Paul discussed, our China sales held up slightly better than we expected in the third quarter. With still projects, however, that revenue will be down in the second half compared to the first half, and that Q4 will below Q3. The main delta from the first half to the second half is the mature logic/foundry business in China, which was at an exceptional level in the first part of the year and, as just discussed, has now started to normalize.
Let's now discuss the guidance that we issued with our press release yesterday evening. For Q4, we expect sales to be in the range of EUR 770 million to EUR 810 million. Taking the midpoint, this means that second half sales are expected to be up by slightly more than 15% compared to the first half, and that full year 2024 sales will increase approximately 10% year-on-year. We expect bookings to decrease in Q4 compared to Q3. This is mostly explained by some orders that were pulled in from Q4 and that drove the upside in Q3 bookings. Compared to Q3, we expect gate-all-around orders to further increase in Q4 and China orders to be down.
Looking at 2025, we now expect our revenue to be in the range of EUR 3.2 billion to EUR 3.6 billion. This compares to our previous target of revenue of EUR 3.0 billion to EUR 3.6 billion in 2025. The most important driver for us in 2025, as just discussed, would be the increase in gate-all-around related revenue. In addition, following a strong increase in 2024, we expect memory spending to be sustained at a healthy level in 2025. Again, mostly supported by high-bandwidth memory.
On the other hand, the power/analog wafer market is not expected to recover before at least the second half of 2025. We expect China spending in the segment, that are relevant for ASM, to be down somewhat in 2025, but not falling off a cliff, and that includes our assumption of a limited impact from new export control regulations.
Before we open up for Q&A, a few words about the longer-term outlook for ASM. After almost 6 months in my new role as CEO, I have only become more convinced about the great opportunities that lie ahead for our company, not only in the coming years, but also in the longer term.
AI is expected to enable new end market applications and to support productivity gains in many sectors and industry. At ASM, we are using AI as just one example in the process of screening future ALD materials. This helps to increase the efficiency of the process, accelerate the time to market of new ALD applications, thereby strengthening our competitive differentiation.
As AI functionality is expected to move more and more to the edge in the coming years in PCs, in smartphones and also in industrial applications, broader demand of the semiconductor end markets in addition to data centers are likely to see accelerated growth. To address the increasing performance and the specialty power efficiency requirements of AI applications, demand for the most advanced semiconductor devices is expected to rise. This plays to ASM's strength as the next-generation devices will bring small geometries, more 3D structures and new materials, which in turn require more ALD and Epi steps.
We continue to invest in our infrastructure and in R&D., and we have great people in our company to execute and deliver on these growth opportunities. Also very important, we have the early and strategic engagement with leading customers. And I'd like to thank them for their continued trust that are key to enabling the next-generation semiconductor technologies.
With that, we have finished our prepared remarks, let's now move on to the Q&A.
[Operator Instructions] Okay. Operator, we are ready for the first question, please.
[Operator Instructions] The first question is from Andrew Gardiner with Citi.
I just was interested in a bit more detail around the gate-all-around transition. Hichem, you mentioned that you're now shipping tools into the HBM production lines, right? So we've seen the shift from pilot to HBM begin. I'm just wondering about your visibility into next year, right? You've revised your guidance for next year. But for ALD in particular, given the timing of the ramps, would you expect a stronger first half than second half? Or any additional color around the timing would be helpful.
Okay. Thank you for your question. I think while we limit our comments here to the full year 2025, it's really too early for us to be specific quarter over quarter -- of the trajectory within 2025. Regarding backlog and sales in the next quarters, yes, there is, of course, a relationship, but it's not linear. Sometimes we work on the basis of forecast and can ship the tool within the same quarter as they order.
Okay. And a second one, if I could. Just you also mentioned the -- sort of the strength and engagement that you're having below the 2-nanometer node. You shared the -- sort of the EUR 400 million of additional addressable market for every 100,000 wafer starts per month for 2-nanometer. Do you have a similar sort of guideline for us at the sub-2-nanometer node?
No, we have, at this moment in time and at least not externally communicated, I think what we typically communicate, Andrew, is that with every, let's say, major node change. There is a double-digit increase, a meaningful double-digit increase. But we have not, let's say, quantified precisely what that means in terms of incremental SAM per 100,000 wafer per month at this stage. We might consider to do that in the future, but that has not yet been done. But it will be, again, a step-up.
The next question is from Stephane Houri with ODDO BHF.
Yes. Actually, I've got 2 questions. The first one is on China. I would like to come back on the -- on what happened in the quarter you talked about, pulling orders in Q3. Could you help us to quantify? I understand there was also an impact on the revenues than on gross margin, also quantification here could be helpful to understand what's going to happen in Q4. And what would be, for instance, the gross margin without this additional revenue from China? And I have a follow-up.
But thanks for the question, Stephane. Indeed, we saw a somewhat stronger-than-expected sales and orders in China in Q3. It did not change our view that, as we just said, for the second half that China will be below the first half and where we also said that Q4 will be below Q3. So that still stands.
The orders that we saw were amongst orders related to spares and services. You've seen the relatively high growth in spares and services, which you should not get used to. We see this as more an incidental a quarter, which was partially -- not only, but partially contributed by China, but also because of good growth in our outcome-based services.
And in addition, we saw some higher sales in memory in China, which, as you know, is the smallest segment over a number of quarters. Of course, from quarter-to-quarter, it can be different a little bit. But if you take a number of quarters, the smallest play for us in China is memory. But this quarter, it was relatively high compared to other quarters, but it doesn't change the fact that is still our smallest play in China. So that was another, let's say, dynamic that we saw in Q3.
And I think also mature logic/foundry maybe slightly higher than we initially thought at the beginning of the quarter. Then obviously, that has, as you all know, typically everything else equal, an accretive impact to margin. So knowing, based on our view today and expecting that Q4 China sales will be below Q3, it is also likely -- again, everything else equal because there's other elements as well that play a role in the margin development, but everything else equal, that indeed margin in Q4 would come down compared to Q3. That's a very fair assumption to take into account.
I hope with that -- we prefer not to guide specific on margin development, also because there's a lot of impact, as you might appreciate, in terms of mix. So it's pretty hard. We have several scenarios, of course, that we take into account is always pull in and pull out every quarter. So it's difficult to precisely say it this quarter, but it will be somewhat lower than -- we will not be falling off a cliff. So the same remark that we say for revenue, we can also say for margin.
Okay. And -- yes. And so the second question is about the guidance for 2025, now that you have reworked a little bit the assumptions, it's a bit the general question that what needs to happen for you to be at the top end? And what needs not to happen to be at the bottom end? Some general ideas would be very helpful.
The reason for, actually, let's say, increasing the bottom end of the range is based, one, first and above all, maybe get close to next year. So there's a little bit better visibility, but there's still quite a few moving parts, as you know. And two, we based on everything we know today and also based on all kind of external research, we believe that the WFE market will continue to grow next year compared to this year. And with that, given that, yes, we have basically guided for revenue this year north of EUR 2.9 billion, we would expect to grow as well next year and which would bring us then, of course, higher than the, let's say, the lower end of our range.
So the first and I think most important one will be is the development of the overall WFE market. The second one, of course, will be the mix development within that market, and if leading edge goes faster than nonleading-edge or mature, that's, of course, better for us and will bring us models to the higher end of the range compared to the lower end of the range. Of course, if, let's say, somewhere in the year as Hichem already said, some markets that today are still sluggish or in a cyclical downturn, even when they start to recover, that will also, of course, be a positive for next year.
So yes, I would say the logical things that you would expect. But the overall market is, I think, the most important data point. And the second one is the mix, of course, in that overall market.
The next question is from Adithya Metuku, HSBC.
So firstly, I just wanted to get some clarity on OpEx in 2025 to the extent that you're able to comment. How should we think about R&D and SG&A growth in 2025? Any color there would be appreciated. And then I've got a follow-up on, which I can ask afterwards.
Yes. In absolute terms, for sure, R&D will continue to grow for 2 reasons. One, our growth investments will further increase given, again, all the opportunities that we see ahead of us. And two, amortization, as you already seen in this quarter, it was up, I think, EUR 6 million or so quarter-on-quarter, simply because we have started to amortize a number of projects that are now into commercial lease mainly on the gate-all-around type of applications.
Capitalization, you also saw this quarter was higher. I would expect that maybe not really in Q4, but beyond that, to get back to a higher level than we have seen that we have seen in Q3, that was actually even lower than what I would have expected to be honest at the start of this quarter, but that was mainly for the reasons I mentioned.
So adding that all up, you will see an increase in R&D. As I've said before, it is even possible, but don't take this as a guidance, that as a percentage of revenue, we will be at the higher end of the guided range that we said, the low single digits to -- of high single digit to low double digits for R&D., so we will be at the higher end of that range. And in the initial years, maybe even slightly higher given the number of opportunities. So that's the best that I can give you now for the reasons I just mentioned.
Yes. If I add something here on OpEx for 2025, as Paul has mentioned in his remarks earlier, we showed that our SG&A expenses have decreased 1% year-on-year, which reflects our focus on cost control. We're really focusing on cost of control. We're focusing on efficiency, so -- and improving our business processes. So from that point of view, we're watching our SG&A part of our business for 2025, and that's something we're taking very seriously.
Yes. So for SG&A this year, again, if you look to our guidance based on what Hichem just said, there, we said high single -- moving gradually towards high single digits. We're now still the double-digit figure. So we should move, to a certain extent, depending on revenue, but also, of course, based on our actions to control costs and to improve processes, we should move to the high single-digit era next year.
Understood. And then just as a follow-up. Now with the changing dynamics in the logic/foundry end markets with 3 customers potentially coming down to one at the leading edge. I just wondered if you could give your thoughts on how you see pricing pressure for your products. There's been some concerns about what it may mean for the overall semi-cap industry and maybe more specifically of you.
But also, if you could also comment a bit on how your ALD intensity might change. For example, some customers have tended to be more ALD intensive in their recipes than others historically. So what are these changing dynamics at the leading edge between these 3 customers mean for your -- for ALD and epitaxy intensity and your share gains that you've talked about before? Any color there would be very helpful.
Okay. So as Paul has mentioned earlier, I think the move to 2-nanometer technology node has really increased our BLD intensity tremendously. Yes, there are some differences between customers, depending on their integration scheme. But that difference is really miniscule or small compared to the major increase going from 3-nanometer FinFET technology node to 2-nanometer technology node.
So that delta from one customer to a customer is really immaterial. We still see a significant increase in ALD intensity going to 2-nanometer. Right now, we're working with our customer actually on -- even the next generation 1.4-nanometer technology node, which will be in production in 2027, and we see even further increases in ALD intensity with the 3 customers. So we don't really see a difference between whether it's customer A or customer C.
Understood. Any thoughts on price pressure or...
Any thoughts on what?
Price pressure.
Any thoughts on pricing pressure that the industry might see given the changing dynamics, if you're able to comment?
I can't comment on your answer. I think that pricing pressure really it depends on value. So if you provide value to your customer, I think that you should be able to gain business and profitable business. I think what's important for us is really to provide the value, I think. And what we do usually is making sure that we innovate, making sure that we constantly improve productivity, improve the reliability of our tools of our machines. And I think with that, you can still be -- continue to be profitable. So pricing pressure, I think it's really immaterial as long as you continue innovating and providing value to our customers.
The next question is from Francois Bouvignies, UBS.
And my first question is maybe a clarification on the dynamic with Samsung and Intel. I mean we saw in the press and we, of course, saw ICML guidance revision. You mentioned as well the outlook somewhat changed. But it seems that you confirm and you even upgrade '25. So I was just wondering, did you have any impact, I mean, from that Samsung, Intel -- because maybe you asked from confirmation of orders or maybe is like your orders are coming more from one customer?
Did you factor anything from what's going on at Samsung foundry and Intel, I just wanted to make sure? Because when I read, it doesn't seem that you are impacted. You increased the guidance, you said that you had confirmed orders from everybody and that gate-all-around is going to be very strong next year. So I just wanted to clarify maybe if you had any impact.
So I think to be sure, I mean, we're not going to be taking -- from one customer to the other. But what I can tell you is that, I mean, we have seen an impact in 2025. But it's not really a huge impact and it's still within the range of expected outcomes that we talked about. It does not change our view that gate-all-around related sales will really still continue to see substantial increase in 2025.
And why it's not huge? I mean it's 2 big players, they spend a lot of CapEx, so -- and you are less exposed to memory, more logic. So I would think they would still be material. So why is not big?
I think maybe the reason why it's not so big is because, at least today, is that, that this change in gate-all-around is important for all, let's say, 3 customers. And it's important that they become successful, and they will continue to invest to become successful in this transition, which is a new architecture, which is strategically important for them, not only for next year but for also, let's say, medium to longer term. So the cuts, as we see today that they might talk about in -- yes, publicly are not so much, let's say, in the fields of gate-all-around, but more in other areas, which impacts us less.
Okay. Makes sense. And maybe my second question is on moly. I mean you talked a lot to Capital Markets Day some of your competitors are talking about this from the migration from tungsten. And I was wondering how you see as the layers are laid out, how your share is evolving? I mean do you still feel strong about your share in moly to increase. If you could update on that front would be great.
So I think if you talk about metalization, what we -- what the industry is experiencing recently is really a generational shift in metalization from -- moving from tungsten to molybdenum. This is an area -- metalization is a new area for us. This is something that we didn't play in. And this is the first time that we, ASM, has entered the metalization market with molybdenum ALD. And this molybdenum is really, like I mentioned, is a generation shift. It's being applied in 3D NAND; it's going to be applied in DRAM and also is being applied in logic.
We are actually working with all customers on the 3 technology areas. We have made some wins in some markets. We're actually shipping molybdenum reactors, as we speak, for our customer for 2-nanometer technology node production. So we feel good about our position. This is a newer area. We see introduction in logic happening right now in 2-nanometer node. But I think as you go to the 1.4-nanometer technology node, you're going to see more and more moly applications.
DRAM is slower from that point of view, but it's going to happen soon. And there's more and more layers happening in molybdenum. So we are very excited about this market, and we look to be an area of growth for us in the future.
The next question is from Sandeep Deshpande, JPMorgan.
My question is how many wafers of GAA do you expect -- how many wafers do you expect to transition to GAS in '25? And given what we had heard from some of the other players that they've seen some kind of slowdown, has the number of wafers that are transitioning to GAA in 2025 changed? Has it gone up? Or has it gone down since the changes have occurred in the industry? That is my first question. And I have a quick follow-up after that.
So I think as we mentioned earlier, we see gate-all-around in 2-nanometer to be a strong node driven by AI. There is a huge demand for AI chips. There's a huge demand for gate-all-around chips. So it's actually in our remarks earlier, we said that 2-nanometer, which is GAA, is going to be a bigger node that 3-nanometer FinFET. So it's really strong. And I cannot give you the actual numbers, but what I can tell you is it's a significant node, significant investment into 2-nanometer happening right now.
But is it bigger than what you had previously forecasted? Or is it lesser than what you had previously forecasted?
Actually, it's the same as we previously forecast, it's still very strong.
Understood. My follow-up question is on China. I mean you've had a stronger third quarter than expected on China. Many of the players exposed to the China market have not been able to forecast China that accurately. So do you actually have a clear visibility into China into 2025? Or is this your view into China and the decline in China, a view of ASM or rather that what you see in terms of orders? Because I mean, for -- right through this year, China has surprised most companies on the upside rather than on the downside.
Yes. Thanks for the question, Sandeep. I wish we had good visibility. So similar to other companies, we also have limited visibility. And as you heard, we also have been I think, positively surprised somewhat at least in Q3 for the 2 quarters to get a node. We still believe that H2 will be below H1. We've said that next year, we expect more normalization of sales compared to what we call the exceptional high sales, let's say, maybe in the last 6 quarters or so, 7 quarters. How much there is, of course, different assumptions.
In addition, you have export restrictions that are not yet fully clear. Also there, we've made certain assumptions in, of course, the guidance that we've given and now, but that's still to be seen how that will play out. So we have some level of visibility based, of course, on all our discussions with all our customers, all our intel that we have.
But yes, at the same time, also as we've seen in prior quarters, that might still change. But at least, we have taken into account a more normalization of the sales that we have been. I think it's one of the first ones we've been talking about already that might happen in '25 compared to '24, and that's reflected in our current guidance.
Yes. If I add a couple of notes regarding China to what Paul has mentioned. For us, China is different from many other players. I think for the major bigger players than us, China, they are very strong in the mature technology node. We are not -- we don't have -- because we are an ALD company, we don't have much ALD in this mature technology node. Our bigger play is really, as a company, in the power/analog/wafer market in China. That's really the difference between us and our biggest competitor.
We see the power/analog/wafer market has slowed down from the start of 2024. And I think the softness for the global power/analog/wafer market continues through 2024. And we don't know when it's going to recover. Is it going to recover second half of '25 or 2026? That's something we need to wait for and to watch in the future.
Thank you, Sandeep.
The next question is from Robert Sanders of Deutsche Bank.
I was just -- two questions just about -- the last one -- one question about 3D DRAM. There's been a bit more news flow out from companies outlining basic kind of structures and how that might work out. Do you think that, that is still in the pathfinding stage or i.e., 5 years away plus? Or do you think that there are some memory companies now moving into a more firm development stage?
So I'll answer this question. I think that what we have mentioned in our last previous conference call is that we have -- we know what's going to happen, we have better visibility on the DRAM road map. So we talk about the 6F square cell architecture that is happening right now. And then the industry is moving to 4S square, which is really shrinking of the cell. So that's actually going to happen.
And it's going to happen in 2, 3 generation in the future, which meant -- which really delays the 3D DRAM to 2030, and that's really what we have mentioned. Right now, we see actually 3D DRAM to be in production in 2031, that's the earliest we see it right now. So in DRAM, the next 3 years is going to be big in S4 square architecture, which, by the way, opens many new layers into -- for ALD and epitaxy.
Got it. And on molybdenum, you mentioned the transition from tungsten. Is there not an opportunity from copper as well? And isn't that as large an opportunity?
Yes. I think it's -- moly replaces both tungsten and copper, I think as the beauty of moly as a metal is that it does not need a barrier layer when you deposit it. Copper, everybody knows that copper diffuses a lot. It is very high diffuser as a metal. So we need to -- in order for us to stop the diffusion of copper, we have to put better layer. This better layer that the deposit increase in the resistance of copper. The final resistance of the copper.
Well, with molybdenum, we don't need to use this barrier layer, because molybdenum does not diffuse. So it's a big molecule, very big assets. So that's not diffuses. And with that, actually, you -- achieve a much lower resistance. Absolutely, we -- molybdenum is replacing both the tungsten and also copper in metalization.
The next question is from Didier Scemama, Bank of America.
A couple of questions. So first, maybe a question for Paul. I think you said spares, obviously, was a [indiscernible] in, in Q3 from China that is going to normalize. You said it's a one-off. Could you just give us a sense of what Q4 is going to look like? What is a normalized level? Or is that going to take several quarters to go back to a normalized level? That would be my first question. And I've got a follow-up.
What we've seen, Didier, in spares is actually quite a few quarters in a row a pretty strong double-digit growth, but not to the level that we've seen in Q4, obviously -- sorry, in Q3, obviously. And I would expect -- I'd be a little careful here, but I would expect it to go back already in Q4 more to a normalized level that we've seen in the last few quarters. And at this moment in time, it would be a positive surprise if you would see something similar happening in -- as in Q3, and I don't think that will happen. So I would not -- at least so far, we've not gotten those indications that is again to happen in Q4.
Okay. But a normalized level is, what, 123 that you had in Q2? Is that what you're thinking about or not?
Specific number, of course. But -- yes, it's a good number, of course. But yes, it's definitely in Q3. But yes, if you look at, let's say, over the last few quarters, I think that's something that is likely going to happen.
Okay, brilliant. A follow-up to Hichem. So congratulations going into high volume production for gate-all-around equipment. My question is, when you look at your leading customer, I think the intention is to build about 40,000 or with wafer [indiscernible] terminal capacity for 2-nanometer GAA. But given the lack of customer support for calendar '25, I mean, there is no smartphones, it's all, some low-volume HPC customers or maybe crypto miners.
Are you worried given what you've shipped already pilot line? Are you worried at any point over the course of calendar year '25 of an air pocket? Or do you think that, actually, this is going to carry through calendar year '25, because '26 the capacity should again double. And as you mentioned, 2-nanometer capacity build will be bigger than 3. So just trying to understand a little bit whether you think there is a risk to the extent that there is no high-end smartphones ramping gate-all-around in '25?
I think gate-all-around is really driven mainly by data centers, more than smartphones. So the demand for that is very significant. And it works, the 40,000 wafer start per month that you're talking about, the -- as we mentioned, in 2025, we'll see significant investment in 2-nanometer in HBM. And we think this is going to continue in the future.
Thank you, Didier.
The next question is from Timm Schulze-Melander, Redburn Atlantic.
Yes. Great. First question was for Hichem. So molybdenum, congratulations on the insertion into volume manufacturing. How many customers do you expect to put moly into high volume in '25, please? And then I have a follow-up.
We're not going to really talk about the number of customers in production because of a different factor. Some customers really have a different technology -- for the same technology node, they have a different integration scheme. Whereby, okay, they will introduce molybdenum in one generation, not the other one. So that's different from one customer to the other. But we see some customers who are more aggressive, or for some integration reasons, they need molybdenum, to introduce molybdenum in their first generation rather than the second generation.
And I talked about first generation is -- and second generation, is that, okay, when you look into the 2-nanometer, 2-nanometer is a big node. So 2-nanometer can be 2.0, it can be 1.8, can be 1.6-nanometer. So that -- there's a different sub nodes. So as the nodes -- as the sub-nodes continue, you see more and more molybdenum being introduced in those layers. And the same thing is really -- we see the same thing for -- happening in the other technology, be it 3D NAND or DRAM.
Okay. But so it's more than one process tool of record. The others are not still development tool of records, they've moved on to P2, that kind of level of conviction, I guess. Maybe a question for Paul, just on the SAM uplift per 100,000 wafer starts a month. Could you just give us a kind of sense of scale of what the base is? Is that a 400 million uplift on a base of 100 or 400? Just some color there would be really helpful.
We have -- it's a very fair question, Timm, but actually we've never quantified that externally at least. It's compared to the FinFET node. So it's from an Epi and ALD combined. So that's the $400 million we have -- we have referred to. So unfortunately, I cannot give you more. I don't even know the precise answer by heart, to be honest, but we have also not disclosed that.
So that's -- but it's compared to the FinFET node, it's more than double digits. It's meaningful double digits, as you always say, but that's maybe not very helpful. But that's as far as, we -- yes, we have given insight into the markets.
Okay. But it's not triple digit, I guess, is also similarly helpful? Is that fair?
No, it's not correct. And then the other thing -- earlier in the call, of course, if every subsequent major node, there will be incremental SAM for us. Because of your shrinking and/or going 3D, it's the perfect development for ASM.
The next question is from Tammy Qiu of Berenberg.
So from GAA perspective, relating to ASMI's ALD penetration, does different players ramping up in the different volume makes any difference for you, i.e., your market share is different between various GAA player. And also, how do you think about your ALD market share or time expansion when all the 3 main chip makers go into backside power related to the ALD marketplace?
If you look into ALD, I think your first question was talking about ALD in 2-nanometer. That's the first question.
Yes.
I think like what I can tell you there is that -- and this really was -- which was earlier one of our colleagues has mentioned that the case some customers -- some customers use more deposition layer than others and et cetera, et cetera. That's true, okay? I mean it really depends on litho, it depends on, okay, if you have more aggressive litho than you have less patterning layers, et cetera, less patterning layers, so you have less ALD.
But in the whole scheme of things, these delta changes in one customer to the other is small compared to the double-digit significant increase in ALD intensity going from FinFET to gate-all-around. So for us, it's really immaterial from that point of view. It's really very small from that point of view. So that's really the answer for your first question.
And your second question is -- remind me of your second question.
So basically, how did your ALD market or TAM or market share change when all the 3 mainstream makers start to use backside power?
Yes. I think that what I can tell you is that our market share is good and strong for all 3 players. I think in ALD, we are a leading player in ALD. And as I mentioned in my remarks, we're actually keeping our good market share in ALD from the transition from FinFET to gate-all-around.
Thanks, Tammy.
The next question is from Nigel van Putten, Morgan Stanley.
A follow-up on DRAM in China, maybe reading too much into this. But is your visibility of healthy demand into next year for DRAM and also saying that China will only be moderately lower in the first half of '25, are those related? So are you seeing China memory becoming more of a tailwind into next year? That's my first question.
Yes, thanks for the question, Nigel. That is difficult to say. We have, of course, a certain level of visibility. As I said, likely to be [indiscernible] especially if you take a number of quarters, I mean from quarter-to-quarter, it can cause be some phasing difference or lumpiness or whatever. But if you take a few quarters, memory is the relatively smaller part of our China business.
So for us, most important is actually, at least in the last, whatever, 6, 7, 8 quarters, mature logic/foundry. And before that, it was power/wafer/analog, and that might become #1 again. Now that mature logic/foundry is likely to come down somewhat or normalized, we don't know yet how it will play out next year. But in all scenarios that we're looking at today, memory is still the relative -- the smallest part of our play in China.
Got it. And not any sort of view today that, that could change in the next year, there's no reason to believe that?
Yes, I don't want to speculate. I would know this the current -- if you talk -- if you look -- if you would have our base case scenario, which you don't have, that's not what we assume. But having said that, there is a limited amount of visibility. And never going to say never, is not possible, but I don't expect -- we don't expect that.
Got it. Maybe a second question on DRAM broadly. So I think for HBM, a lot of conversion going on of the installed base. Some of it coming from non-high-k nodes in the high-k notes. So my question is really, like, is there a double benefit today that you're sort of getting conversion to the latest nodes? But in addition, there's the high-K, and as we maybe move into next year with high-k conversion maybe, at least partly completed, I think you've been going at it for a while now. Is that maybe not a headwind, but could that slow sales as you're sort of normalizing the demand drivers?
I mean -- I'll answer this question, Nigel. I mean the way I learned the HBM, I look into the GAA. If the GAA is strong, HBM is going to be strong. Because, I mean, those 2 chips go hand in hand. What we have seen that the GAA is really very, very strong for 2025. So from that point of view, we see that HBM still continue to be stronger in 2025.
The next question is from Marc Hesselink, ING.
My first question is actually a bit of a color on the pull-in of the orders. I think you discussed before, it was partly China and also, I think gate-all-around. I mean, is the gate-all-around is the biggest part? And the reason why I'm asking is that historically, obviously, and with this kind of relative transitions, whenever you saw those pull-in of orders coming in, there was typically very positive signs for more pull-ins in the quarters to come. Just want to understand that dynamic a bit.
There's not one specific reason for the pull-in. So you should not read too much in it, Marc. I mean if we say pull-in, it's based on, let's say, our expectation that we have based on customer forecasts. So we -- although we don't guide on orders, we still have our own expectation on orders will be, of course, for the next quarters. And then when we see that some orders come in, let's say, earlier than what we had in our forecast, that are basically customer forecasts, that's when we speak about pull-ins. It's not one specific segment or one specific customer. Sometimes, it can just be a few weeks earlier and sometimes, it can also be a few weeks later. You should not -- there's no real hidden message in this remark. So yes, and that's basically what it is.
Okay. That's very clear. And then my second question is on your position in DRAM outside HBM. I think you have always, in the past, when we start with HBM and eventually, we also expect to win layers in the DDR5. I mean can you maybe update -- give a bit of an update there?
Yes, I will take this question. I think like for DRAM, like DDR is also still a high-performance memory. So you see -- with this high-performance memory, you see high-k metal gate in corporation in DDR5. So you will see more and more ALD layers in preparation. And also, so we see better ALD layer and also more epitaxy also being implemented in DDR, DRAM from this point of view.
Okay. So you're winning market share also taking out the HBM part?
I think once you go to -- once you go to high-k metal gate, we have a leading position in high-k metal gate from the many years. We've been doing this in logic. So -- yes, we have quite a few customers running high-k metal gate -- ASM high-K metal gate.
Thank you, Marc. I'm afraid that we have run out of time. There are still a couple of callers in the queue. So if you don't have the chance to ask your question, please contact us after the call.
So if there are no more questions, sir, I turn the conference back to you for any closing remarks.
So on behalf of Paul and Victor, I would like to thank everyone for attending today's call. We hope to meet many of you in the upcoming conferences and other investor events. Thanks again. Stay safe, and goodbye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.