ASM International NV

AEX:ASM

Earnings Call Transcript 2020-Q4

[Operator]

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

[Victor Bareño, Director of Investor Relations]

Thank you, operator. Welcome, everyone. I'm joined today by our CEO, Benjamin Loh; and our CFO, Peter van Bommel. ASMI issued its fourth quarter 2020 results yesterday evening at 6 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, together 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 fourth quarter 2020 results conference call. I hope you and your families are all healthy and safe.Let me start with some highlights. We record high sales and bookings. ASM delivered again a strong performance in the fourth quarter. For the full year, our sales increased by 18%, the fourth consecutive year of double-digit growth. The pandemic turned 2020 into a tough year for all of us. And while customer demand remained strong throughout the year, it created challenging operating conditions for our employees. I want to thank each and every one of the ASM team for their tremendous dedication and teamwork in 2020.Next, I would also like to point to the announcement that we made last month that Mr. Paul Verhagen will be proposed as new CFO and Board member. He will succeed Peter van Bommel, who will retire at the upcoming AGM, as previously announced. We are very pleased that Paul agreed to join ASM. He has a strong reputation and brings a wealth of experience.In addition, we also want to inform you about our plan to hold ASM's first Investor Day later this year on September 28. Please save the date. By that time, hopefully, we can meet again in person.The agenda for the rest of today's call is as follows: Peter will review our fourth quarter and full year financial results. I will then continue with a discussion of the market trends and outlook, followed by the Q&A.With that, over to you, Peter.

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

Thank you, Benjamin. In the fourth quarter of 2020, our revenue increased to EUR 347 million, which is up 10% from the third quarter and up slightly from the fourth quarter of 2019. In comparing with the 2019 numbers, I make an adjustment for the EUR 159 million settlement proceeds that were included in our financial results that year.Revenue came in at the higher end of our fourth quarter guidance of EUR 330 million to EUR 350 million. Currencies had a negative impact on the fourth quarter revenue of 5% year-on-year. As a reminder, ASM's currency exposure is fairly balanced between both revenues and costs. That means that currency effects for us are largely translational in their nature.Equipment sales in the fourth quarter increased 14% from the third quarter. Spares and services were slightly lower sequentially but increased 29% year-on-year and accounted for approximately 21% of our total sales.By industry segment, revenue in the fourth quarter was again led by foundry, followed by memory and then logic. Logic sales decreased sequentially but were still at a solid level. Foundry sales increased to a new record high in the quarter. The memory segment was relatively steady compared to the third quarter, with DRAM decreasing somewhat compared to the high level in the third quarter and then showing a solid uptick.In line with our earlier indications, the gross margin decreased to 45.2% in the fourth quarter, which is down from the almost 50% that we reached in the third quarter. As we explained last quarter, the third quarter margin was exceptionally high due to an unusually strong sales mix. However, for the next couple of quarters, we anticipate again a relatively favorable sales mix and as a consequence, gross margins to be above of the mid-40s percentage level.Below the operational line, results included a currency translation loss of EUR 15 million, which is mainly explained by the depreciation of the U.S. dollars compared to the end of the third quarter. As we discussed at earlier occasions, we hold the largest part of our cash in U.S. dollars, and the currency translation differences are included in our results.Our new orders in the fourth quarter increased strongly to EUR 379 million, which is up 25% from the third quarter and up slightly year-on-year. The order intake was above our guidance of EUR 340 million to EUR 360 million.Looking at the breakdown in bookings by industry segment. Foundry represented, again, the largest shipments in the fourth quarter, followed by logic and then memory. The foundry bookings decreased compared to the record high in the third quarter but remains at a very strong levels. Logic showed a strong uptick compared to the third quarter, and memory orders were also up strongly, both in DRAM and in NAND.The equipment bookings in the fourth quarter were led by very high ALD orders. Compared to relatively low levels early in 2020, we also saw a strong uptick in epi bookings in the fourth quarter.Let's now have a closer look at ASMPT. The normalized results from investments, which reflect a share of the net earnings from ASMPT, increased to EUR 27 million in the fourth quarter versus the EUR 6 million that we had in the third quarter. The fourth quarter results included a book gain related to the joint venture into which they entered for their materials business, which is partly offset by a provision related to the streamlining of their portfolio. Excluding those one-offs, ASMPT's profit contribution grew to EUR 11 million in the quarter.ASMPT reported its quarterly sales of USD 634 million, which is up 15% compared to the third quarter and up 11% year-on-year and also above the company's guidance. In terms of order intake, ASMPT had a strong end of the year, with fourth quarter's bookings increasing to a record fourth quarter level of USD 658 million, up 13% Q-on-Q and 48% year-on-year. For the full year 2020, ASMPT sales increased by 6% to approximately USD 2.2 billion. The net profit increased from EUR 80 million -- USD 80 million to USD 210 million in 2020.Let's have a look on the 2020 results and there before returning back to ASMI's consolidation operations. And slightly over EUR 1.3 billion, our net sales in 2020 increased 18%. Equipment sales grew by 16%. Spares and services increased by a solid 29% and represented 21% of total sales. By product line, sales were led by our ALD product line, which had an excellent year and continue to represent more than half of our equipment revenue in 2020.The gross margin in 2020 increased strongly from 42.6% in 2019 to 47%. Apart from the positive mix effect in the second and the third quarter, the improvement was also driven by efficiency improvements.Operating expenses remained under control during the year. SG&A expenses increased by 6%, and that increase was due to higher variable costs and specific investments in further strengthening of the organization. The total R&D expenses increased by 14%. That's excluding the IFRS effects. The reported R&D increased by 25% and included higher impairment costs compared to 2019 and an increase in amortization.The operating profit for the year increased strongly by almost 50%, with the operating margin improving from 19.5% to 24.6%.Now turning to the balance sheet. We ended the quarter with EUR 435 million in cash, which was slightly up from the EUR 430 million at the end of the previous quarter. We generated free cash flow of EUR 47 million in the fourth quarter. In addition, we spent close to EUR 30 million on share buybacks.The free cash flow for the full year 2020 amounted to approximately EUR 120 million, which is down from slightly over the EUR 200 million that we had in 2019.A continued solid level of operating profit was offset by a few things: first of all, an increased outflow of more than EUR 100 million for working capital; an increase in CapEx as we continue to invest in the growth of our company; the higher investments in evaluation tools that we had in 2020; and negative currency effects.Regarding the working capital, the increase in 2020 was largely explained by higher accounts receivable. This, in turn, is caused by the heavily back end-loaded sales in the fourth quarter. The underlying quality, however, remains healthy, illustrated by the lowest relative level of overdues we ever recorded at the end of the year. The higher level of accounts receivable is largely a timing effect. In the course of January, a big part of those receivables has already been collected. And for the first quarter as a whole, we expect the relative level of accounts receivable to decrease.Inventories increased in the second quarter as part of our efforts to mitigate supply chain risks related to the pandemic. And in the fourth quarter, our inventory position decreased and was largely normalized again.In terms of CapEx, we spent EUR 93 million in 2020. This is up from the EUR 49 million in 2019. A large part was again related to our new manufacturing facility in Singapore. In addition, as we already outlined with our third quarter results, we invested in the expansion and modernization of our R&D labs. For 2021, we will maintain CapEx at a higher level due to the R&D lab-related investments.In 2020, we returned approximately EUR 165 million in cash to our shareholders, of which EUR 67 million in the form of share buybacks and almost EUR 100 million in the form of dividends. The EUR 100 million share buyback program that we started in June last year was completed for 64% as of December 31 and for 94% at the end of last week.We will propose a regular dividend of EUR 2 per share to be paid over 2020. This is a year-on-year increase of 33% compared to the EUR 1.50 we paid over 2019, and that's excluding the extraordinary dividend of last year. Our policy to use excess cash for the benefit of our shareholders remains unchanged.With that, I hand the call back over to Benjamin.

[Gek Lim Loh]

Thank you, Peter. Let's now look in more detail at the trends in our markets. Even though COVID-19 led to a sharp drop in GDP, the overall semiconductor market has been resilient and grew by 7% in 2020 as work from home and remote learning accelerated the digitization trends in our society. With a strong finish of the year, the wafer fab equipment market increased by a mid- to high-teens percentage in 2020.Both the logic/foundry and the memory markets showed solid increases. Demand in logic/foundry was for a large part driven by spending on the most advanced nodes of 10-nanometer and below. Despite inventory corrections in parts of the market earlier in 2020, the memory market further recovered in the second half and memory equipment spending showed a healthy increase for the full year, especially for 3D NAND.2020 was also a year of strong progress for ASM. We booked our fourth consecutive year of double-digit growth. In logic/foundry, our sales were driven by solid spending on leading capacity and the strong share of wallet gains that we have achieved in the most advanced nodes. Foundry continues to be the largest segment for us and grew by a strong double-digit percentage in 2020 after already doubling in 2019.Logic was the second largest segment. After strongly increasing in the previous year, sales were steady at a high level in 2020. Looking at the next node for our logic/foundry customers, we confirm that our served available market will further increase with a meaningful double-digit percentage. And in view of our R&D engagement and tool selection so far, we expect to further increase our share of wallet, with logic/foundry customers transitioning to the next nodes.Memory was the third largest segment and recorded a healthy double-digit sales increase. While for the broader market, 3D NAND was relatively stronger, we had relatively stronger growth in DRAM. In 3D NAND, though, we have seen a strong uptick in bookings in the fourth quarter, which we expect to be reflected in a healthy revenue increase in this segment in the first half of 2021.In DRAM, our sales were driven by the first tool wins with leading memory customers for high-k metal gate applications in high-performance DRAM devices. In memory, in general, we remain strongly focused on substantially increasing our served available market over time. Last year, we have seen a strong increase in our R&D engagements for the next and next-next nodes in both DRAM and 3D NAND. For the shorter term, however, please keep in mind that our exposure to memory is still relatively modest as logic/foundry represents the larger part and, therefore, the main driver of our sales.A strong area of growth this year has also been the Chinese market, both for the broader WFE market and for ASM. Our sales from China grew strongly in 2020 and contributed for the first time a double-digit percentage of our total sales. The investments that we have made to strengthen our position in China in recent years started to pay off. In addition, the part spend by domestic chip manufacturers on relatively more advanced nodes, albeit still a minority of total spending in China, strongly increased last year. In addition, we further expanded our customer base in China last year.In terms of products, 2020 was again a successful year for our ALD business, with strong double-digit growth driven by logic/foundry and our inroads in DRAM. In our other product lines outside of ALD, momentum slowed somewhat in 2020 following the strong growth in the previous 3 years. As explained in earlier calls, this was caused by our relatively higher exposure in these product lines, especially epi, to the power analog markets. Power analog was one of the very few weak spots in 2020 as they are, for a large part, driven by the automotive and industrial end markets, which were impacted by COVID last year. Recently, demand in the power analog has been picking up again.In the fourth quarter, our epi bookings strongly increased compared to lower levels earlier in 2020 driven by multiple Intrepid product orders as well as a recovery in the power analog market. From a strategic point of view, we believe we have made strong progress in strengthening our position in the epi market in 2020. We have been working towards new customer tool of record selections for our Intrepid product, and we expect to increase our market share once these customers start investing in the next node.I also like to highlight the very strong performance of our spares and service business in 2020. As already mentioned by Peter, this business grew sales by a solid 29% last year. For smaller part, growth in our spares and service was driven by temporarily higher customer demand mainly in Q2 -- second quarter due to COVID-related supply chain risks. For the larger part, the drivers were the strong increases in the installed base in recent years as well as the first result of our investments in outcome-based services. Traction with customers is solid, and we expect the contribution of these new value-added services to further increase in the forthcoming periods.An important highlight in 2020 was also our new state-of-the-art manufacturing facility in Singapore. After a delay caused by COVID-19, the facility was completed in the fourth quarter. In December, we shipped our first tool, and we completed our move from the old facility to the new one in late January. Using the first phase of the new facility will already increase our manufacturing capacity twofold, as we discussed earlier.Looking at 2021, our industry has started the year in good shape. In the semiconductor market, the strong momentum at the end of 2020 has continued into the first part of 2021. The strength of the increase in demand has led to shortages in parts of the market. And against this backdrop, WFE spending is expected to increase by a mid-teens percentage this year. Solid spending is expected for logic/foundry, supported by a continued strong demand for the most advanced nodes. In memory, on the back of an expected rebound in key end markets such as smartphones and following limited capacity addition in recent years, a further recovery in memory spending is projected in 2021.A key priority for our company in 2021 will be to further drive our investments to make sure we are going to benefit from all the opportunities in front of us. We will further increase R&D spending to develop the many new ALD applications that are on our customers' road maps. In addition, as also mentioned by Peter, we will keep CapEx at a higher level in 2021 to expand and modernize our R&D labs. Investments will be, for instance, in our own tools for customer demos as well as advanced metrology tools that we use as part of our R&D processes.Longer term, prospects also look strong. The megatrend of digitalization will fuel explosive growth in data and significant investments in key areas such as 5G, high-performance computing and autonomous driving. Advanced semiconductors will play a key role to enable these trends such as in AI where machine learning algorithms require ever faster and more power-efficient processes.ALD will be a key technology to keep the industry on Moore's law. We expect that increasing device complexity, new materials and ever thinner films with higher required conformality will drive substantially higher demand for ALD in the medium term. In the transition to gate-all-around transistors, for instance, ALD and also epi will be key enabling technologies. To sum up, prospects are strong, and ASM remains well positioned.Now let us look at the guidance that we have issued as part of our Q4 press release. For Q1 on a currency comparable level, we expect revenue of EUR 380 million to EUR 400 million, while we expect our revenue in the second quarter to be at the same level. For the first quarter bookings on a currency comparable level, we are also expecting this to be in the range of EUR 380 million to EUR 400 million.With that, we have finished our introduction. Let's now move on to the Q&A.

[Victor Bareño, Director of Investor Relations]

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

[Operator]

[Operator Instructions] The first question, it's from the line of Keagan Bryce from Barclays.

[Keagan Bryce-Borthwick]

Just 2 from my side. I know it may be a little bit early to talk about full year guidance for 2021, but would it be a reasonable assumption to sort of model you outgrow in WFE? And then one quickly on 3D NAND. One of your largest competitors has been talking up the new gapfill ALD platform, particularly if the industry moves to 128 layers plus. Do you guys have the similar capabilities with your current platform of tools? And then sort of how do you feel about your competitive position in 3D NAND more generally?

[Gek Lim Loh]

Thanks for the questions. I think the first question was directed at how do we see ourselves for the full year, whether we are going to outgrow the WFE market. I think we -- as we have stated in our press release, we see at this moment a mid-teens growth in WFE, and we have guided very strong results for the first half of the year. But I think it's a little bit early for us to say with any kind of color whether we will be able to outgrow the WFE market. So I think we should leave it at that.On gapfill, that's a good question. It's an ALD application that will become increasingly important as the number of layers in 3D NAND increases. And we -- especially -- this application is especially suited for ALD because you need very thin films with very high conformality. And we are engaged with, I would say, multiple 3D NAND players trying to work together on the process and trying to qualify our tools.Does that -- Keagan, sorry, does that answer your question?

[Keagan Bryce-Borthwick]

Very clear.

[Operator]

We'll take our next question is from the line of Stephane Houri from ODDO.

[Stephane Houri, Research Analyst]

Yes. Actually, I have a question on the evolution of the gross margin. As you have stated that you will see better gross margin in the next 2 quarters. It has already happened twice in 2020. So can you explain why you have a better mix? Is it about spare parts and services? Or is it new tools that you are delivering or epitaxy? What is the question of mix here?And also, can you remind us, going from 5-nanometer to 3-nanometer, what is the increase in ALD intensity that would help us to understand the trajectory going forward?

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

Yes, let me take that gross margin question first. Yes, we have seen -- our gross margin is still very much impacted by the development of the mix, so -- as what we have explained earlier in the previous calls. The second and the third quarter are extremely strong. We had still a very healthy mix in the fourth quarter, however, a little bit less than in the second and the third quarter. And for the first and the second quarter, we see again a stronger mix as what we have seen in the fourth quarter.Besides that, there is an underlying trend becoming visible that our efficiencies are improving. So as a consequence of that, we see also that, on the one hand, mix differences play an important role and will remain an important role. On the other hand, also, the efficiency improvements are helping us also to bring our margins relatively on a better -- at a better trend. So that's the color that I can provide to this one.

[Stephane Houri, Research Analyst]

Okay. So can -- why don't you, in fact, if it becomes structural, upgrade your guidance, not saying it's 40% to 45% anymore but maybe 45% to 50%, if that's what it is becoming?

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

Yes, I think that's a good question, and we will have a look at that.

[Gek Lim Loh]

Stephane, on the transition from 5-nanometer to 3-nanometer, I think what we are seeing is -- it's basically the same as what we have always explained. When you see a node transition, basically, we see a double-digit percentage increase in the number of ALD layers or applications, and we do not see anything that deviates from that. So we are going to see when we move from 5-nanometer to 3-nanometer a double-digit percentage increase in the ALD applications.

[Stephane Houri, Research Analyst]

Okay. And does epitaxy follow the same trend?

[Gek Lim Loh]

I would have to qualify your question based on whether it is 3-nanometer continuing FinFET or whether it's 3-nanometer gate-all-around. I think the increased demand will probably come from gate-all-around because epi becomes a more key enabling technology when we move to gate-all-around.

[Operator]

We'll take our next question, it's from the line of Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

Maybe the first question would just be on DRAM, some of the logic-like layers that you talked about in the past. Can you confirm that the opportunity is a sort of similar size to what you saw with FinFET in terms of steps, but that it is a market considerably larger in capacity? So I'm just trying to understand what's the opportunity here, but it sounds like it could be potentially very large. So it would be great to get an update here.And then on the second question would just be on your China comment. Can you confirm you're still shipping to SMIC? Or are you not?

[Gek Lim Loh]

Thank you, Rob. On DRAM, as DRAM scales and becomes smaller, I would say that as we have always said, the layers become more logic-like. Now whether they will become as big as FinFET, I think that is still to be, let's say, investigated. But we definitely see an increase in the DRAM served available market as they become smaller. So I hope that answers the first part of your question.On China, we will refrain from commenting on customer specifics. But with the current U.S. restrictions, the impact for us is limited as we are still able to ship a majority of our product portfolio, and it's only for a minority of our products that we now have to apply for an export license. So we are still continuing to ship a lot of our products into China. And for those that we need an export license, we follow the due process.

[Operator]

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

[Dominik P. Olszewski, Research Analyst]

So first question is just around epitaxy. Are you starting to see a trend towards greater dual sourcing on epitaxy products, which is supporting our growth outside of the shifts towards gate-all-around that you just described? Obviously, because you just described better order trends for epi in the last quarters.And then the second question is just more on timing. Is it correct to assume from ASMI's perspective that the customer spending related to industry N3 is starting in the second half of '21?

[Gek Lim Loh]

Thank you, Dominik. On the epi question, we cannot say for sure whether the customers are doing dual sourcing. It could be. But what we do see is that when you move to gate-all-around, the -- for example, the conductor-carrying channel, which was previously very much etch defined, is now epi defined. And this is causing an increase in, for example, the usage of epitaxy on top of the normal, let's say, epitaxy layers. So we think that when we move to gate-all-around, we will see increasing usage of epi applications. And of course, we engage with all the foundry customers, players to try to qualify our tools at this moment.In terms of N3 or 3-nanometer timing, this, I think, is still open. And I think we are engaged with our customers, some of them a little bit further than others. But we do think that at some point in time, they will go into high-volume manufacturing for N3. Whether it is going to be this year, next year, I think that's up to them.

[Operator]

The next one, it's from the line of Achal Sultania from Crédit Suisse.

[Achal Sultania, Director]

Maybe one follow-up on the epitaxy point. I think you mentioned very strong bookings number in Q4 from epi, which was driven by power coming back. Can you also just help us understand as to how much of opportunity is still there for you in terms of getting traction with a broader customer base there in epi? We know that there are factors like gate-all-around in the future. But if you just think about FinFET or DRAM, have you exhausted -- like where are you in the process of engaging with a broader set of customers in that area? And is that opportunity still out there? Or you're already working with a lot of those customers?

[Gek Lim Loh]

Thank you, Achal. Good question. And the quick answer is absolutely not. So basically, what we do is for the most advanced, let's say, technology, leading-edge technology, our epi is used for high-volume manufacturing at one of the foundries. And essentially, what we have been doing and continuing to do last year is engagements with other foundry, logic players and also memory players to try to qualify our epi tools for the next and the next-next nodes. So that's continuing. And when we see -- or when they -- when our tools are qualified, adopted, and when they move into high-volume manufacturing, I think that's where the opportunities will come for us, and our served available market should increase.In terms of besides the leading logic/foundry and memory players, epi also has a portion of their business in what is called the power analog segment. And of course, in the earlier part of 2020, because that segment was heavily impacted by COVID-19, you saw automotive industrial applications all slowing down, the investments in that segment basically slowed down significantly. But recently, we have been seeing, especially late Q4 early this year, that the power analog market is coming back and coming back in a very strong way. And we have been getting quite some good order flow from that segment, which will translate into stronger epi revenue for us during the first half of this year.

[Achal Sultania, Director]

Right. And maybe a follow-up on -- one of the questions that we keep getting asked is about, clearly, we are entering 2021 with a very strong WFE market outlook. A lot of people believe that is there a risk that we see H1 as a peak of WFE, and then we go into second half with signs of slowdown. I know it's difficult to talk about second half at this stage, but are you -- have you seen any signs of that, like from speaking to customers that, that is a risk that could eventually play out? Or is it too early to talk about a slowdown in second half?

[Gek Lim Loh]

I think for this call, we were in a kind of a fortunate position because we are reporting late. So we could also give you some color on what we see as far as maybe the next quarter is concerned. So overall, again, we see a very strong and healthy first half. Is there anything to show or tell us that the second half may have a hiccup? I would say at this moment, we do not see that. But as to how big or how much the second half will be, for us, it's a little bit too early to say.

[Operator]

The next question is from the line of Nigel Van Putten from Kempen & Co.

[Nigel Van Putten, Analyst]

So epitaxy, because in the prepared remarks, you kind of indicated that when new customers start investing, you'll be part of that. So do you now have sort of -- have been qualified as a tool of record at new customers for the more advanced nodes?

[Gek Lim Loh]

Sorry, Nigel, can I ask which product are you referring to?

[Nigel Van Putten, Analyst]

Sorry about that, epitaxy.

[Gek Lim Loh]

Epitaxy. Okay. I think we are still in the process of doing that. And I think -- especially for the next nodes, I think a lot of the customers are still not -- they have not finalized the full, let's say, process. So we will still take a little bit of time. But I think we are in a good engagement with those customers. And of course, we hope that eventually we will be adopted. And when they move into high-volume manufacturing, they will use our tools for mass production.

[Nigel Van Putten, Analyst]

Got it. And then, Peter, your comment about CapEx being elevated in 2021, should we take the fourth quarter 2020 as sort of the base? Or how should we model that into the year?

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

I don't think that you should take the fourth quarter as the leading part. The fourth quarter was accumulation of a few things. But Benjamin already mentioned, we are finalizing our Singapore building. So that's now done. And we had already the initial investments in improving our lab environment. So when you ask me, is there will be the [indiscernible] of EUR 20 million for the year, that will be absolutely not the case, Nigel.

[Nigel Van Putten, Analyst]

Okay. More towards maybe 2020, which I guess was already elevated. It would be helpful if you can slightly quantify that, just it's more of a maintenance question anyway. But it would be good to not have too high numbers there.

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

What we have said that it will be somewhere between the EUR 60 million and the EUR 80 million.

[Operator]

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

[Marc Hesselink, Research Analyst]

The first question is we've been -- over the last couple of quarters, we've been talking about increased engagement on the number of products, and we just discussed epi. But I was wondering on some of the other products that you already moved into being qualified, so maybe on the DRAM side or on the NAND side or maybe even on the -- on N3.

[Gek Lim Loh]

Marc, thanks. So of course, on the -- first of all, maybe let's talk about the memory part. So in DRAM, we started quite some time ago. We have been qualified for the high-k metal gate in the DRAM periphery transistor. So right now, what you see, for example, in what is called in the industry as a high-performance DRAM, I think they are using our ALD to -- for the mass -- or for the high-volume manufacturing.And besides that, of course, we have been engaged in other layers or other applications that support, for example, EUV transitioning to -- or sorry, DRAM transitioning to EUV because the EUV reduces the patterning but creates a lot of other layers to support the EUV, and then we are engaged with that as well.And then, of course, an earlier question was whether we are engaged in gapfill and so on, we do that and several other applications. And mainly in memory, we are looking at next and next-next nodes. So I think the market or the served available market for us should increase from 2022 onwards. Right now, we are just building our positions.In logic foundry, 3D -- sorry, 3-nanometer, we have always been engaged with the main foundry players with many different applications. As I explained earlier, when you move from 5 to 3, we see a double-digit percentage increase in terms of ALD layers and applications, and we have been heavily engaged with that. And when they move into high-volume manufacturing for 3-nanometer, it should open up new possibilities for us.

[Marc Hesselink, Research Analyst]

Okay. So does that then imply that from the high number of evaluation tools that you have in the field, the -- of the most of those opportunities, do you still need to be qualified still in the engagement phase?

[Gek Lim Loh]

It depends. I cannot generalize, but what I can say is you are correct. You look at the higher or the significant increase in engagements or eval tools on our balance sheet at the end of 2020 compared to 2019. Basically, that is telling you that we have a lot of engagements in the field. Some of them are more advanced. Some of them are, let's say, early stage. But it's -- I cannot give you a generic comment as to whether some of them -- or at what stage they are because they are at different stages, and they vary also at different customers.

[Marc Hesselink, Research Analyst]

Okay. That's clear. My other question is on the Singapore facility. You say you increased your capacity twofold.

[Gek Lim Loh]

Yes.

[Marc Hesselink, Research Analyst]

Expect that you won't be capacity constrained from your side. But if you look at your supply chain, is it tight at the moment? Is it more difficult to get everything in?

[Gek Lim Loh]

I would say that at this moment, we don't really feel that we are constrained by the supply chain. I think there's some tightness. That's probably true. But there is nothing that is kind of hampering our ability to meet the requirements of our customers.

[Operator]

Our next question is from the line of Tammy Qiu from Berenberg.

[Tammy Qiu, Analyst]

So I have a epi one here. You haven't been talking about your competitiveness position for a while now. So from my understanding, a couple of semi equipment players have been looking at this gate-all-around market, and they do have solutions, for example, selective etching and also ALD. Can you help me understand, what's the dynamic of the ALD tools, especially for gate-all-around for the future? Do you see any intensified competition trying to address this new application? Or that's something you already got multiple design wins, so everything can be safe?

[Gek Lim Loh]

Thank you, Tammy. I -- of course, when we go into gate-all-around and there's new requirements, new applications that are required and because gate-all-around is the next-generation transistor architecture that perhaps could last for the next decade, just like what FinFET has done over the last decade, so of course, I think everybody wants to try to get qualified. We have already been working with the key players actually for quite some time. In fact, I would say that usually, our evaluation or, let's say, process that we work with the customers is we work with them already 2, 3 years before this becomes a reality. So in other words, for gate-all-around, we have been engaged doing development work with them for quite some time.One of the areas that you have mentioned, selective deposition, which perhaps has been touted by some of our peers. It's, of course, also an area that we are engaged with, with all the logic and foundry players. So we are in the process of working together with them to define the requirements, to meet their requirements and see whether this fits into the whole -- the overall process integration. I would say that, by and large, most of the new, let's say, processes or applications that are required for gate-all-around, we have some kind of engagement already with the 3 major players, not 100%, but most of them.

[Tammy Qiu, Analyst]

Okay. That's helpful. And just further to your point, you said that you've been engaging with the chip makers to see what's their understanding and what's their requirement. There were different semi equipment companies in the U.S. who offer both sides of the solution, i.e., from selective etching and also ALD. So with them having both of the portfolio in-house, would they be at a better position compared to you in terms of serving the new application because everyone has been trying to do their work. If they already know how the tools actually work together, isn't that an advantage for them?

[Gek Lim Loh]

I think it depends on the application. In some areas, it's probably true that they have a small advantage because they don't have to wait for feedback from the customers to get the results. They can try to do this on their own, whilst, for us, because we don't have the etch, we need to wait for that.But at the same time, we have alternative avenues to do that. For example, working closely with a research facility in Belgium. And not all of the processes going forward is a straight, what you call, etch deposition type of process. Some of them is actually a little bit more complicated and requires, for example, cleaning, stuff like that, that we have actually developed ourselves. So we are in the process of doing that. So we -- I would say that this advantage is not big.

[Operator]

Our next question is from the line of David O'Connor from Exane BNP Paribas.

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

One or 2 follow-ups on my side, if I may. Maybe, Benjamin, firstly, on the guide, you're guiding Q2 flat versus Q1. Are we hitting a plateau here given the current wave of spending? Or do you think when you look at the order expectations as you go from Q1 to Q2, you can continue to grow off these type of revenue levels? That's my first question. And I have a follow-up.

[Gek Lim Loh]

Okay. David, I think, as I said, this is -- this earnings is a little bit unusual because we are reporting quite late. So we are already coming to the end of Q1. And because of that, we have, I think, also some visibility into how Q2 is going to develop. And as what we have done in previous years, we always share this insight with the investors and the community.What we are seeing is that I think Q1 and Q2 will continue to be strong in terms of order demand and also in terms of revenue. Do we see anything that says that Q2 is the peak? In other words, do we see a fall-off after Q2? I would say at this moment, that's not what we are seeing. But is it going to go up significantly? I would say that's a little bit early to tell. But at this moment, what we can say is Q2 is not -- I don't think it's going to be the peak, and you will see a follow-up in Q3 onwards.

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

Okay. Understood. That's quite helpful, Benjamin. And then maybe a follow-up on the OpEx, maybe one for Peter. Peter, can you help quantify what kind of OpEx growth we should plug into the model for 2021?And also maybe related to that for Benjamin. You talked about investing further in R&D on the ALD side of things. Can you maybe highlight just the key areas within ALD, either applications or maybe some targets that you have there, where exactly the spending is going within ALD for 2021?

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

Yes. Let me answer the question first about the costs. You see 2 things, yes. And yes, this becomes an awkward answer highly likely because you might know that we are reporting under IFRS. So when you look to the R&D costs, then -- and when you look to our presentation, investor presentation, then we show always what the R&D expenditures are and the R&D expenses. So the expenditures are gradually increasing here, what Benjamin already mentioned in his prepared notes. We see a lot of opportunities in the different product lines where we are active. So that R&D expenditure is going to increase.However, we have capitalized in the past quite a few of those projects, and some of the older projects are now coming in a stage where you have to start amortizing them. So as a consequence of that, we expect that the amortization in the forthcoming period is going to increase. So for your -- in your calculations, you should take that into account.So our expenses, R&D expenses, will remain growing but at the same sort of speed as what you might have seen in the past. But the impact on the profit and loss will be bigger, simply due to the higher amortization.When you look to the SG&A expenses, there, you have seen that we are gradually decreasing the percentage of SG&A expenses over sales turnover in the past year. So on the one hand, we see there some extra costs, which are related to strengthening our organization. On the other hand, the cost increase, which was in SG&A, 6% last year, is more than offset by the sales increase of the 18% that we have reported. So as a consequence of that, we expect that we will remain having leverage on SG&A over sales turnover.

[Gek Lim Loh]

Maybe on your question on what are the new stuff in ALD that we are working on. David, I would really appreciate your understanding that I would like to refrain from giving too much details because this is quite sensitive. But what I can say is that, for example, the question from Tammy of Berenberg, where we were asked about selective deposition, that's definitely an area that, of course, that we are working on.I would say that a lot of the new ALD applications are, what you would also call them, materials-related because going forward, there's quite some new materials that are required. And for that, we need to develop new processes to be able to deposit those materials. I hope that suffices as an answer to you.

[Operator]

The next question is from the line of Jim Fontanelli from Arete Research.

[James Edward Fontanelli, Senior Analyst]

So just to try and reconcile maybe some of your comments at the start of the call versus some of the answers you've given in the Q&A. You sounded relatively cautious at the start of call understandably around wanting to maybe define the sort of absolute revenue environment for the second half of the year, but you're also cautious around relative growth versus wider WFE. And you've talked over the course of the call around [indiscernible] epi recovering, share gains in volume epi, ALD intensity increasing, obviously, node to node foundry, which you know about, and maybe some more share gain in logic around ALD.All of that sounds like you should be much more comfortable around committing to outperformance versus WFE on a relative basis this year. And I'm just wondering what the -- where your relative lack of confidence comes from given the picture you painted over the last sort of 40 minutes?

[Gek Lim Loh]

Good question, Jim. I don't think it's a lack of confidence. I think we have always been very careful with what we guide to the market. Maybe we are a little bit conservative in that sense, but I think it's also still early in the year given that we are in February. I think we have a good view of the first half. Like I said earlier, I don't think we're going to see things falling off a cliff or fall -- or any kind of fall-off as we probably get into Q3 because it still looks healthy. But from a full year perspective, I really think it's a little bit too early for us to say for sure.

[James Edward Fontanelli, Senior Analyst]

Okay. That makes sense. And then maybe just a follow-up. I know you've answered a lot around the gate-all-around question. Just to understand maybe relatively the opportunity, so if we look at 3-nanometer FinFET versus a 3-nanometer gate-all-around, wafer-for-wafer, what do you think -- where would you place the relative ALD opportunity FinFET versus gate-all-around? Is that the sort of double-digit intensity increase in ALD for gate-all-around? Just very broadly, where would you put that relative intensity? And if you could maybe concentrate that on a materials-led opportunity in gate-all-around rather than capturing selective deposition, which is maybe a whole other separate segment.

[Gek Lim Loh]

Yes. I guess where you are trying to figure out -- or your question, Jim, is if you move from 5-nanometer FinFET to 3-nanometer FinFET, what is the impact, versus if you move from 5-nanometer FinFET to 3-nanometer gate-all-around, what is the impact.

[James Edward Fontanelli, Senior Analyst]

Actually, sorry, just to clarify, I probably wasn't clear there. It looks like we're going to see potentially a double stream of transistor design run at the same node, right? So we're going to see 3-nanometer FinFET in conjunction with 3-nanometer gate-all-around, depending on the foundry and depending on timing. So we know 5-nanometer FinFET to 3-nanometer FinFET, we're going to see an increase in intensity. I was much more interested in relative intensity at the same node between FinFET and gate-all-around.

[Gek Lim Loh]

I think what we can say in general is that you see a double-digit percentage increase in ALD applications, maybe a slightly more, let's say, increase in the case of gate-all-around for epi. But I would say that it's also very dependent on specific customer design because there's no one standard design rule. So there are some certain layers which may be used by one customer, which may not be used by the other. So it's very difficult to give an apple-to-apple comparison.I think in general, when we move from 5-nanometer to -- FinFET to a 3-nanometer gate-all-around, we do expect to see a continuation of the double-digit percentage increase, maybe slightly a little bit more epi. I think that's what we can say at this moment.

[Operator]

And there are no further questions at this time. Please continue, Mr. Loh.

[Gek Lim Loh]

If there are no further questions, I would like to thank you all for your attendance today. Also on behalf of Peter and Victor, we look forward to seeing many of you in our upcoming virtual investor road shows starting next week. Thank you again. Stay safe, and goodbye.

[Operator]

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