Earnings call: ASM International reports record Q3 revenue, bullish outlook

ASM International NV (AMS: AS:ASMI) reported a record revenue for the third quarter of 2024, marking a significant year-on-year increase and surpassing previous guidance. The company's CEO Hichem M’Saad and CFO Paul Verhagen shared these results during the earnings call, highlighting a robust performance across several segments, particularly in spares and service sales and equipment revenue. The company also provided insights into its future strategies, including a focus on AI and gate-all-around technology, which are expected to drive demand and growth in the coming years.

Key Takeaways

• Record Q3 2024 revenue of EUR 779 million, a 56% increase year-on-year at constant currencies, exceeding guidance.
• Spares and service sales rose by 45%, with strong demand from China.
• Equipment revenue grew 22%, mainly from ALD products, with significant memory sales.
• Gross margin improved to 49.4%; operating profit margin rose to 28.2%.
• Order intake reached EUR 850 million, up 30% year-on-year.
• Strong free cash flow of EUR 242 million, despite EUR 93 million spent on share buybacks.
• Anticipated return to normal growth levels in Q4; R&D expenses expected to rise by 15-20%.
• Launch of new PE208 silicon carbide tool, expected to enhance market share and customer efficiency.
• Transition to volume manufacturing for sub-2 nm and 1.4 nm nodes expected in 2026-2027.
• Memory demand remains strong; silicon carbide market softening but with promising long-term prospects.
• Q4 2024 sales expected to decrease by 7% to 15% compared to the first half.
• Revenue target for 2025 revised to EUR 3.2 billion to EUR 3.6 billion.
• Company optimistic about long-term growth opportunities, particularly in AI and advanced semiconductor devices.

Company Outlook

• ASM International anticipates substantial growth in gate-all-around applications by 2025.
• Long-term growth potential is seen in AI and advanced semiconductor devices.
• Revenue guidance for 2025 increased, with a positive outlook for leading-edge technology.

Bearish Highlights

• Bookings from China declined slightly.
• Silicon carbide market is softening, with a slower growth rate than earlier expected.
• Q4 sales in China expected to be lower than Q3, likely leading to a decrease in margins.

Bullish Highlights

• Strong demand for high bandwidth memory applications, with sales potentially approaching 20% of total revenue in 2024.
• The launch of the PE208 silicon carbide tool is set to improve market share and customer efficiency.
• The transition to gate-all-around technology is critical, with significant increases in ALD intensity expected.

Misses

• The mature logic/foundry business, primarily in China, is declining as customers digest previous capacity investments.
• The company forecasts a double-digit sales increase in 2024 for the silicon carbide market, despite a slower growth rate.
• Sales are expected to decrease by 7% to 15% in Q4 2024 compared to the first half of the year.

Q&A Highlights

• Demand for gate-all-around technology remains strong and consistent with previous forecasts, largely driven by the AI chip market.
• Visibility into the Chinese market remains limited, but ASM focuses on power and analog wafer markets.
• Industry moving towards 4F2 cell architecture in DRAM, with 3D DRAM production anticipated no earlier than 2031.
• Molybdenum has advantages over Tungsten and Copper for future applications due to its lower diffusion characteristics.
• Expectations for Q4 include a normalization of spare parts sales and continued demand for gate-all-around technology, primarily driven by data centers.

ASM International's earnings call revealed a company that is not only experiencing a period of strong financial performance but is also strategically positioned to capitalize on future technological advancements. With substantial investments in R&D and a clear focus on emerging markets such as AI and advanced semiconductor devices, ASM International is poised for continued growth and innovation in the semiconductor industry.

InvestingPro Insights

ASM International's strong financial performance, as highlighted in the earnings call, is further supported by data from InvestingPro. The company's market capitalization stands at $29.02 billion, reflecting its significant position in the semiconductor industry.

InvestingPro data shows that ASM International has maintained a robust gross profit margin of 49.53% over the last twelve months, aligning closely with the 49.4% reported in Q3 2024. This consistency in maintaining high margins underscores the company's operational efficiency and pricing power in the market.

The company's focus on innovation and R&D is reflected in its valuation metrics. With a P/E ratio of 48.84, ASM International is trading at a high earnings multiple, suggesting that investors are pricing in strong future growth prospects. This aligns with the company's optimistic outlook on AI and advanced semiconductor devices.

InvestingPro Tips highlight that ASM International has maintained dividend payments for 14 consecutive years, demonstrating a commitment to shareholder returns. This is particularly noteworthy given the company's substantial investments in R&D and future technologies.

Another relevant InvestingPro Tip indicates that the company operates with a moderate level of debt. This financial prudence positions ASM International well to navigate potential market fluctuations and continue investing in growth opportunities like the new PE208 silicon carbide tool and gate-all-around technology.

For investors seeking a deeper understanding of ASM International's financial health and growth prospects, InvestingPro offers 12 additional tips, providing a comprehensive analysis of the company's position in the semiconductor market.

Full transcript - ASM International NV ADR (ASMIY (OTC:ASMIY)) Q3 2024:

Operator: Good afternoon, this is the chorus call conference operator. Welcome and thank you for joining the ASM International Third Quarter 2024 Earnings Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [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.

Victor Bareno: 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 of 2023 results yesterday at 6 PM 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 risk factors related to such forward-looking statements, please refer to our company's press releases and financial reports, which are also 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'll now hand the call over to Hichem M’Saad, CEO of ASM.

Hichem M’Saad: Thank you, Victor, and thanks to everyone for attending our Third Quarter 2024 Earnings Call. The agenda for today's call is as usual. Paul will first review our third quarter financial results. I will continue with the discussion of the market trends and the outlook followed by Q&A. To review our third quarter financial results, I will continue with the discussion of the market plans and the outlook, followed by Q&A.

Paul Verhagen: 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 in and 56% at constant curve compared to the third quarter of last year. Revenue in the quarter was at the upper end of our guidance of EUR 740 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 by our ALD product line, which accounted for the majority of our equipment sales. By customer segments, revenue in the third quarter was led by memory, followed by foundry, and then logic. Combined logic/foundry contained accounts 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 growth rate. Memory sales continued to grow significantly, following the strong order intake in the previous quarter. Memory sales consisted mostly of high bandwidth memory-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 represent the smaller part of our memory sales. Sales in the power, analog segments 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 and inventory corrections 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 mixed effects, including increased sales year-on-year from China, which was somewhat higher than expected. For H2, we expect China's sales to be below H1 sales as stated before. SG&A is 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 fourth quarter, 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 sample line item 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 the 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 US dollars. Results from investments which reflect 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 markets. Let's now turn to ASM order intake. In the third quarter, a new order increased to a strong level of EUR 850 million, up to 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 were 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 quarter. Memory orders slightly decreased compared to the second quarter, but were 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 to this and were still at the fairly modest level compared to our DRAM orders. Orders in the power, analog, wafer remains 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. Turning to the balance sheets. 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 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 expected to be back in the target range of 55 to 75 days. We spent EUR 30 million on CapEx during the third quarter. Furthermore, we spent EUR 93 million on share buybacks during the third quarter. On July 25th, we completed the EUR 150 million 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 our shareholders this year, up from EUR 223 million last year. And with that, I hand the call back to Hichem.

Hichem M’Saad: 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 the ASM, in particular, boosting data center growth. Other end markets such as PCs and smartphones appear to be bottoming, but expectation 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 WFE spending. In particular, gates-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 solid 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 two nanometers from their customers, including from AI chip makers with expectations for two nanometers being a larger node than three nanometers. 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 sum increase per 100-k wafer capacity. And third, with customers now moving to the face of high-volume manufacturing, we can reconfirm that we have maintained our strong ALD market share in the transition to 2 manometer, 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 timeframe. Be it the sub-nodes of 2 nm or the next major node of 1.4 nm. This transition will further extend 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 contacts VES, backside tower 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 digesting 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-phase 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 DRAM. 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 sale and mostly driven by technology device. Next our silicon carbide business. As most of you are probably aware condition in this market segment has continued to soften. We are not 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 requirement 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 2 millimeter single wafer cluster tool, the PE208. We expect this tool to be a game changer. Similar to our other silicon carbide type tools, the PE208 offers best-in-class SIM performance, excellent within wafer and wafer-to-wafer uniformity, and the lowest level of defectivity. These benefits will only become more important as our customers are planning to transition to the larger 200 millimeter wafer size. New is the PE208 is its dual chamber platform compared to the single chamber architecture of our existing PE108 tool. This substantially increases throughput and lowers cost of ownership for our customers. We have already received multiple orders for the PE208 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 be 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 7% 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, will 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 the 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 segments 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 six 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 term. AI is expected to enable new end market applications and to support productivity gains in many sectors and industries. 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 segments of the semiconductor end market in addition to data centers are likely to see accelerated growth. To address the increasing performance and especially power efficiency requirements of AI applications, demand for the most advanced semiconductor devices is expected to rise. This plays to ASM strength as the next generation devices will bring smaller geometries, more 3D structures and new materials which in turn will require more ALD and Epi set. 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.

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

Operator: [Operator Instructions] The first question is from Andrew Gardiner with Citi.

Andrew Gardiner: Good afternoon, gentlemen. Thank you for taking the question. I just was interested in a bit more detail around the data around transition. Hichem, you mentioned that you're now shipping tools into the HVM production lines. So we've seen the shift from pilot to HVM begin. I'm just wondering about your visibility into next year. 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? Thank you.

Hichem M’Saad: Okay, thank you for your question. I think when we limit our comments year to the full year 2025 it's really too early for us to be specific quarter-over- quarter of the trajectory within 2025. Regarding backlogs and sales and next quarters, yes, there's a quarter relationship but it's not linear. Sometimes we work on the basis of forecasts and can shift the tool within the same quarter as the order.

Andrew Gardiner: Okay, thank you. And second one if I could, you also mentioned the strength and engagement that you're having below the two nanometer nodes. You shared the EUR 400 million of additional addressable market for every 100,000 wafer starts per month for two nanometer. Do you have a similar sort of guideline for us at the sub two nanometer node?

Hichem M’Saad: No, we have additional in time and at least not externally communicated. I think what we typically communicate, Andrew, is that with every major node change there's a double digit increase, a meaningful double digit increase, but we have not, I’d say quantified precisely what that means in terms of incremental SAM per 100-K way for starts 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.

Operator: The next question is from Stephane Houri with Oddo BHF.

Stephane Houri: Yes, hello. Good afternoon. Actually, I've got two questions. The first one is on China. I would like to come back on what happened in the quarter. You talked about putting orders in Q3. Could you help us to quantify and understand there was also an impact on the revenues then on gross market? 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.

Hichem M’Saad: Thanks for the question, Sam. Indeed, we saw 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 quarter, which was partially, not only, but partially contributed by China, but also because of good growth in our outcome-based services. Then in addition, we saw some higher sales in memory in China, which, as , is the smallest segments 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 it's still our smallest play in China. So that was another, let's say, dynamic that we saw in Q3, kind of thing also, mature logic/foundry was maybe slightly higher than we initially saw at the beginning of the quarter. Then obviously that has, as you all know, typically everything else equal 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 I answered that.

Stephane Houri: Quantification?

Paul Verhagen: Prefer not to guide specific on margin development also because there's a lot of impacts that you might appreciate in terms of mix. So it's pretty hard. We have several scenarios, of course, that we take into account. There's always pull-in and pull-out every quarter. So it's difficult to precisely say at this quarter, but it will be somewhat lower than, we will not be falling off the cliff. So the same remark that we say for revenue, we can also say for margin.

Stephane Houri: Okay, thank you. 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 of a 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. Thank you.

Paul Verhagen: Yes, the reason for actually, let's say, increasing the bottom end of the range is based one, first and above all, we get closer next year, so there's a little bit better visibility, but there's still quite a few moving parts, as , 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 we have basic guidance 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 the development of the overall WFE market. The second one, of course, will be the mixed development within that market. If leading edge goes faster than normal leading edge or mature, that's, of course, better for us. And we bring us more close 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 significant 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 points. And the second one is the mix, of course, in that overall market.

Operator: The next question is from Adithya Metuku with HBSC.

Adithya Metuku: Yes, good afternoon, guys. Thank you for taking my questions. 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.

Paul Verhagen: Yes, in absolute terms, for sure, R&D will continue to grow for two reasons. One, growth investments will further increase, given, again, all the opportunities that we see ahead of us. And two, amortization, as you've already seen in this quarter, it was up, I think, six, six, minus a quarter-on-quarter, simply because we have started to amortize the number of projects that are now into commercial lease, mainly relates to gate-all-around type of applications. Capitalization, you also saw this quarter was higher. I would expect that maybe not within Q4, but beyond that, to get back to a higher level than 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 anyhow, 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 set low single digits to a high single digit to low double digits for R&D , so we'll get the higher end of this -- that range and then the initial years maybe even slightly higher given the number of opportunities, so that's the best that I can give you right now for the reasons I just mentioned.

Hichem M’Saad: Yes, if I add something here, our OpEx for 2025 as Paul has mentioned in his remarks earlier, we showed that our SG&A expense have decreased 1% year-on-year which the effect of focus on cost control. Weare refocusing on cost 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.

Paul Verhagen: Yes, Adithya, again if you look to our guidance based on what Hichem just said there is high single moving drag, it was high single digits. We're now still in a double digit figure so we should move of course to a certain extent depending on revenue but also of course based on our actions to control cost and improve processes, we should move to the high single digit era next year.

Adithya Metuku: Understood. And then just as a follow-up now with the changing dynamics in the logic/foundry end markets with three 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 for 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 do these changing dynamics at the leading edge between these three customers mean for your ALD and epitaxy intensity and your share gains that you've talked about before? Any color there would be very helpful. Thank you.

Hichem M’Saad: Okay. So, as Paul has mentioned earlier, I think the move to an ether technology node has really increased our ALD intensity tremendously. Yes, there are some differences between customers depending on their integration scheme, but that difference is really minuscule or small compared to the major increase going from three nanometer FinFet technology node to two 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 two 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 three customers. So we got the technology node which will be in production in 2027 and we see even further increases in ALD intensity with the three customers. So we don't really see a difference between whether it's customer A or customer C.

Adithya Metuku: Understood. Any thoughts on pricing pressure that the industry might see given the changing dynamics, if you're able to comment?

Hichem M’Saad: I can, yes, I can comment on your answer. I think that the pricing pressure really 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 in what we do usually is making sure that we innovate. Making sure that we constantly improve productivity and improve variability of our tools of our machines and I think with that you can still continue to be profitable. So pricing pressure I think it's really the material as long as you continue innovating and providing value to your customer.

Operator: The next question is from Francois Bouvignies with UBS.

Francois Bouvignies: Thank you very much. My first question is maybe a clarification on the dynamic with Samsung (KS:005930) and Intel (NASDAQ:INTC). I mean we saw in the press and we of course saw ISML guidance revision. You mentioned as well the outlook somewhat changed. But it seems that you confirm and you even upgrade ‘25. So we're just wondering, did you have any impact? I mean, from that Samsung, Intel, because maybe you asked from confirmation of orders and, or maybe like your orders are coming more from one customer's, did you factor anything from what's going on at Samsung Foundry and Intel? I just wanted to make sure. Because when I really didn't think that you're impacted, did you increase the guidance? You say 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.

Hichem M’Saad: So I think to be sure, I mean, we're not going to be talking 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 really still within the range of expected outcomes that we talked about. It does not change our view gate-all-around itself. We really still continue to see substantial entries in 2025.

Francois Bouvignies: And why it's not huge? I mean, it's two 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 material. So why is it not big?

Hichem M’Saad: I think maybe the reason why it's not so big is because what we see today is that this change to gate-all-around is important for all, let's say, three customers. And it's important that they become successful and they will continue to invest to become successful in this transition. Yes, 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. And so the cuts, as we see today, that they might talk about in, yes, publicly, not so much, let's say, in the field of gate-all-around, but more in other areas, which impacts us less.

Francois Bouvignies: Okay, makes sense. Thank you very much. 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 being 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, that would be great. Thank you.

Hichem M’Saad: I think if you talk about metallization, what the industry is experiencing recently is really a generational shift in metallization, from moving from Tungsten to Molybdenum, this is an area metallization is a new area for us. This is something that we didn't play in. And this is the first time that we, ASM, have entered the metallization market with the Molybdenum ALT. And this Molybdenum is really, like I mentioned, is generation shift. It's going to be applied in 3D NAND. It's going to be applied in DRAM and also, it's being applied in Logic. We are actually working with all customers on the three technology areas. We have made some wins in some markets. We actually shipping Molybdenum reactors, as we speak, for our customer for two 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 two nanometer node. But I think as you go to the 1.4 nanometer technology node, you're going to see more and more money application. 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.

Operator: The next question is from Sandeep Deshpande, JPMorgan.

Sandeep Deshpande: Yes, hi. Thanks for letting me on. My question is, how many wafers of GAA do you expect? How many wafers do you expect to transition to GAA in 2025? 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. Thanks. And I have a quick follow-up after that.

Hichem M’Saad: So I think, as we mentioned earlier, we see GAA, gate-all-around in 2 nanometer to be a strong node driven by AI, there's 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 note than 3 nanometer FinFet. So it's really strong. And I cannot give you the actual numbers. But what I can tell you, it's a significant node, a significant investment into nanometer happening right now.

Sandeep Deshpande: But is it bigger than what you had previously forecast, or is it lesser than what you had previously forecast?

Hichem M’Saad: Actually, it's the same as we previously forecast. It's still very strong.

Sandeep Deshpande: Understood. Thank you. 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 into China a view of ASM or rather that what you see in terms of orders? Because I mean, right through this year, China has surprised most companies on the upside rather than on the downside.

Paul Verhagen: 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 two quarters together loss. And we still believe that H2 will be below H1. We've said that from next year, they expect more normalization of sales compared to what we call the exceptional high sales, let's say maybe in the last six quarters or so, six quarters. How much? There’re 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 if you'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 the ‘24. And that's reflected in our current guidance.

Hichem M’Saad: Yes, if I add a couple of notes regarding China to what Paul has mentioned. For us, really China is different from many other players. I think for the major, bigger player than us, China, they are very fond of the mature technology node. We're not, we don't have, because we're an ALD company, we don't have much ALD in this mature technology node. Our bigger play is really the company and 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. I think the softness for the global power, analog, wafer market continues through 2024. And we don't know when they're going to recover. Is it going to recover second half of 2025 or 2026? That's something really to wait for and to watch in the future.

Operator: The next question is from Robert Sanders, Deutsche Bank.

Robert Sanders: Yes, thanks for taking my question. I was just, a few questions just about the last one question about 3D DRAM. There's been a bit more news flow about the company’s outlining basic kind of structures and how that might work out. Do you think that is still in the pathfinding stage or i.e. five years away plus? Or do you think that there are some memory companies now moving into more firm development stage?

Hichem M’Saad: 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 roadmap. So we talked about the 6F2 cell architecture which is happening right now. And then the industry is moving to 4F2, which is really shrinking of the cell. So that's actually going to happen. And it's going to happen in two or three generations in the future, which really delays the 3D DRAM to 2030, 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 few years is going to be big in the 4F2 architecture, which by the way, opens many new layers into for ALD and Epitaxy.

Robert Sanders: Got it. And on Molybdenum, you mentioned the current transition from tungsten, but is there not an opportunity from copper as well? And isn't that at large an opportunity?

Hichem M’Saad: Yes, I think it's, moly replaces both tungsten and copper. I think the beauty of moly as a metal is that it does not need a dire layer when you deposit it. Copper, everybody knows that copper diffuses a lot. It's 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 we deposit increases the resistance of copper, the final resistance of the copper. Well, with Molybdenum, you don't need to use this dire layer because Molybdenum does not diffuse. It's a big molecule, very big atom. So that's not diffuses. And with that, actually you achieve a much lower resistance. Absolutely, Molybdenum is replacing both tungsten and also copper in atomization.

Operator: The next question is from Didier Scemama, Bank of America.

Didier Scemama: Thank you so much. Good afternoon, everyone. A couple of questions, so first big question for Paul. I think you said spares, obviously was a pull-in in Q3 from China, but that's going to normalize, you said it's a one-off, can 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. Thank you.

Paul Verhagen: 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 Q3, obviously. I would expect to 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. At this moment in time, it would be a positive surprise if you would see something similar happening as in Q3, and I don't think that will happen, so I would not, I mean, so far, we have not gotten those indications that it's, again, to happen in the Q4.

Didier Scemama: Okay, but a normalized level is, what, 123 that you had in Q2? Is that what you're thinking of that?

Paul Verhagen: A specific 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.

Didier Scemama: Okay, brilliant. And a follow-up to Hichem. So, I mean 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 40K or with a stock capacity for 2 nanometer GAA, but given the lack of customer support for Calendar year ‘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 for the pilot line, are you worried at any point over the course of Calendar year ‘25 over their pocket? Or do you think that actually this is going to carry through Calendar year ‘25 because ‘26, the capacity should get 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 are no high-end smartphones ramping gate-all-around in ‘25.

Hichem M’Saad: 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 dwarfs the 40-K, a way to start a month that you're talking about. As we mentioned, 2025 will see significant investment into a nanometer in HVM, and we think this is going to continue in the future.

Operator: The next question is from Timm Schulze-Melander, Redburn Atlantic.

Timm Schulze: Yes, great. Thank you for taking my question. First question was for Hichem. [inaudible] congratulations on the insertion into volume manufacturing. How many customers do you expect to put Moly into high volume in 2025, please, and then have a follow-up?

Hichem M’Saad: We're not going to really talk about the number of customers in production because of a different factor. Some customer really has 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 difference 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 this first generation, rather than the second generation. And when I talk about first generation and second generation, is that okay when you look into the 2 nanometer, a 2 nanometer is a big node. So a 2 nanometer can be 2.0, can be 1.8, can be 1.6 nanometers. So that has a different sub-nodes. So 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.

Timm Schulze: 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 P tool, kind of level of conviction, I guess. Maybe a question for Paul, just on the SAM uplift per 100,000 wafer starts per 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 to some color there would be really helpful. Thank you.

Hichem M’Saad: Yes, 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 ALD combined. So that's the $400 million 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've also not disclosed that. But it's compared to the FinFet node, it's more than double digits. It's meaningful double digits, we always say, but that's maybe not very alpha, but that's as far as we have given insight into the markets.

Timm Schulze: Okay, but it's not triple digit, I guess is also similarly helpful. Is that fair?

Hichem M’Saad: No, it's not. And then the other thing, earlier in the call, of course, with every subsequent major node, there will be incremental SAM for us, because of your shrinking and all going 3D, it's the perfect development for ASM.

Operator: The next question is from Tammy Qiu, Berenberg.

Tammy Qiu: Hi, thank you for taking my question. So from GAA perspective, relating to ASM's ALD penetration, does a different player 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 three main chip makers go into backside power, relating to the ALD market, please.

Hichem M’Saad: If you look into ALD, I think your first question was talking about ALD intensity into nanometer. That's the first question. I think like what I can tell you there is that for, earlier, one of your colleagues has mentioned that, okay, some customers use more the position layer than others, et cetera, et cetera. That's true. Okay, I mean, it really depends on plateau, it depends on, okay, if you have more aggressive plateau, then 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 between one customer to the other is small compared to the double digit significant increase in ALD intensity going from FinFet to data loss. 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, reminds me of your second question.

Tammy Qiu: So, basically, how does your ALD market or tam or market share change when all three mainstream makers start to use backside power?

Hichem M’Saad: Yes, I think that what I can tell you, that our market share is good and a strong for all three players. I think in ALD, we are a leading player in ALD. And as I mentioned in my remarks, we are actually keeping our good market share in ALD from the transition to FinFet to lower GAA.

Operator: The next question is from Nigel van Putten, Morgan Stanley.

Nigel Putten: Hi, thanks. 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 low in the first half of ‘25? I mean, are those related? So are you seeing China memory business becoming more of a fulfillment into next year? That was my first question.

Paul Verhagen: Yes, thanks for the question, Nigel. That is difficult to say. We have, of course, a certain level of visibility. As I said, it's likely to be still, especially if you take a number of quarters. I mean, from quarter-to-quarter, there can of course 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, six, seven, eight quarters, a mature logic/foundry. And before that, it was a power, wafer, analog, and that might become number one again. Now that mature logic/foundry is likely to come down somewhat on normalize, we don't know yet how to go 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.

Nigel Putten: Got it. And not any sort of view today that could change in the next year. There's no reason to believe that.

Paul Verhagen: Yes, I don't want to speculate. I would note, the current, if you look, if you 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. I'm never going to say it's not possible, but I don't expect that. We don't expect that.

Nigel Putten: 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 into high-k nodes. 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?

Hichem M’Saad: Well, I mean, I'll answer this question, Nigel. I mean, the way I look at the HBM, I look into the GAA. If the GAA is strong, HBM is going to be strong. Because I mean, those two 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 do still continue to be stronger in 2025.

Operator: Next question is from Marc Hesselink, ING.

Marc Hesselink: Thank you. My first question is actually a bit of a pull-in of the orders. I think you discussed it before; it was partly China and then also I think gate-all-around. I mean, it's the gate-all-around part, the biggest part. And the reason why I'm asking is that historically I've seen anywhere with these kind of technology transitions, whenever you saw those pull-in of orders coming in, there was typically very positive signs for more pull-in in the quarters to come. I just want to understand that dynamic a bit.

Paul Verhagen: There's not one specific reason for the pull-in. So you should not read too much in, 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 what orders will be, of course, for 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, that's basically what it is.

Marc Hesselink: Okay. That's very clear. And then my second question is on your position in DRAM outside HBM. I think you've always said in the past that, okay, when we start with HBM and then eventually we also expect to win layers in the DDR part. Can you maybe give a bit of an update there?

Hichem M’Saad: Yes, I will take this question. I think, like for DRAM, like DDR is also still high-performance memory. So you see, with this high-performance memory, you see high-k metal gate in cooperation in DDR5. So you see more and more ALD layers in cooperation. And also, so we see better ALD layer and also more epitaxy also being implemented in DDR from this point of view.

Marc Hesselink: Okay, so you're winning market share also and taking out the HBM brand.

Hichem M’Saad: I think once you go to a 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.

Victor Bareno: 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 didn't have the chance to ask a question, please contact us after the call.

Operator: So, if there are no more questions, sir, I turn the conference back to you for any closing remarks.

Hichem M’Saad: 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 good bye.

Operator: Ladies and gentlemen, thank you for joining. The conference is now over. And you may disconnect your telephones.

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