ASM.AS FY2026 Q2 Earnings Call Transcript
Date: 2026-07-29
Source: Financial Modeling Prep

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Operator: This is the Chorus Call conference operator Welcome and thank you for joining the ASM Second Quarter 26 Earnings Call. As a reminder, all participants are in a listen-only mode. At this time, I would like to turn the conference over to Mr. Victor Bareño, of Investor Relations. Please go ahead, sir.
Victor Bareño: Thank you, operator. Good afternoon and thank you for joining our Q2 earnings call. With me today are our CEO, Hichem M'Saad and our CFO, Paulus Verhagen. ASM issued its second quarter 2020 results yesterday at 6PM Central European Time. For those of you who have not yet seen the press release, available on our website together with our latest investor presentation. As always, we remind you that today's conference call may contain forward looking statements in addition to historical information. More details on the risk factors relating to such forward looking statements, please refer to our press releases and financial reports. All of which are available on our website. Please also note that during the call, we will refer to profitability metrics primarily on an adjusted basis. Reconciliations to the reported numbers can be found in the press release and in the investor presentation. And with that, I will now turn the call over to our CEO, Hichem M'Saad.
Hichem M'Saad: Thank you, Victor. Thanks to everyone for attending our second quarter 26 earnings call. We will follow the usual agenda for today's call. Paulus will begin with a review of our second quarter financial results, I will then discuss market trends and our outlook followed by the Q&A session. I will now turn it over to you, Paulus.
Paulus Antonius Henricus Verhagen: Thank you, Hichem, and thanks also, everyone, for joining our call today. So let me start with the Q2 financial results. Revenue in the second quarter of 26 amounted to €1 billion above our guidance of €980 million on a constant currency basis, revenue increased by 24% year-on-year and by 15% compared to Q1 26. Equipment sales increased by 22% year-on-year at constant currency, and were driven by record high ALD sales. Spares and Services continued to deliver a very strong performance with a 34% year-on-year growth at constant currency. This reflected the continued success of our outcome based services, and also strong demand for spares in the current environment of elevated customer fab utilization rates. In terms of customer segments, revenue was again led by Logic/foundry. which represents the largest customer segment. Sales in the leading edge Logic/foundry segment increased strongly compared to Q1. 2-nanometer related sales accounted for the largest part while sales in the 3-nanometer to 7-nanometer nodes also showed a nice uptick. After the acceleration in Q1, mature logic/foundry sales remained at a solid level in Q2, with China continuing to account for the majority of these sales. Memory sales increased sequentially compared to Q1 and were mainly driven by HBM related DRAM applications. With these Q2 results, we have now disclosed for the first time the equipment sales breakdown by customer segment for the first half year. In the first 6 months of the year, logic/foundry was by far the largest segment accounting for 77% of total equipment sales. Both the leading edge and the mature segments had a solid contribution. Memory contributed 15% of the total in the first half. This is slightly below the 16% contribution reported for the full-year 2025 primarily explained by the phasing of shipments. Expect memory sales in the second half to be substantially higher, in the first half, driven by strong demand for advanced DRAM solutions. The remainder of sales consisting primarily of power/analog and wafer, represents a relatively low 8% of total equipment sales in the first half. Although Power Wave and analog revenue increased compared to the prior year, it was from a low base reflecting the continued impact of softer market conditions. For the second half, we expect the contribution from power/analog and wafer to increase. Turning now to profitability. Gross margin in the second quarter amounted to a strong 51.9%, Gross margin benefited from a favorable product and customer mix, including a continued strong contribution from the China market, and also the results from improved efficiency and productivity initiatives. For the full year, we expect gross margin to be around 51%. SG&A as a percentage of revenue improved meaningfully to 7.9% in Q2. This reflected solid operating leverage from higher revenue levels and our continued focus on cost discipline. For the full year, we expect SG&A as a percentage of sales to be below 8.5% compared to 9.2% in prior year. Net R&D increased 22% year-on-year at constant currency in Q2. We continue to invest heavily in innovation, to support customer roadmaps at future technology nodes and to advance our expanding portfolio of growth opportunities. Despite the increase in spending, net R&D as a percentage of revenue declined slightly to 11.1%. For the full year, we intend to keep net R&D within our target range of a low double digit percentage of revenue. Adjusted operating profit increased by 27% year-on-year at constant currency, and the adjusted operating margin remained at a very strong 33%, in line with the record level achieved in Q1. If you look at the main movements below the operating line, financial results included a currency translation gain of €22 million in the second quarter. Compared to a translation loss of €60 million in the second quarter of last year. A reminder, we hold a large part of our cash and receivables and payable positions in U. S. Dollars, and related translation differences are included in our financial results. Our share of income from investments, reflecting our approximate 24.6% stake in ASMPT, amounts to €9 million in the second quarter up from €4 million in the year-ago period. Let's now move to the balance sheet and cash flow. HM's financial position remains on a strong footing and we ended the quarter with a cash position of €1.2 billion Free cash flow increased to a record of €355 million in the second quarter, driven by strong profitability and an improvement in working capital days. In Q1, we still saw working capital cash outflow reflecting the strong ramp up in activity levels and the back end loaded nature of that quarter sales. Days of working capital improved to 50 at the end of June. Compared to 69 at the end of March. We believe working capital remains well under control, and it will continue fluctuating from quarter to quarter. CapEx amounted to €63 million in the quarter. And for the full year, we continue to expect CapEx to be above the higher end of the guidance range of €150 million to €250 million with the largest part related to the construction of our new site in Scottsdale. In short, the quarter once again demonstrates our ability to combine strong growth with continued investment in innovation while maintaining excellent profitability. And with that, I will turn the call back over to Hichem.
Hichem M'Saad: You, Paulus. As Paulus discussed, we delivered strong results with quarterly revenue exceeding the €1 billion milestone for the first time. Despite increasing strain across the semiconductor supply chain. Supported by robust end market demand, and ongoing industry capacity expansions, customers continue to place a high priority on securing the equipment required for their growth plans. I would like to thank our teams for their execution and tireless effort to deliver on our commitments in this demanding environment. Over the past several years, we have invested ahead of the curve to expand our manufacturing capacity in our key manufacturing sites of Singapore and Korea. Today, we are well positioned to increase output to support customer demand. As supply chain conditions become increasingly stretched, we remain focused on working closely with both suppliers and customers to meet shipment schedules and help enable our customers' success. The demand environment remains very favorable. In the second quarter. Hyperscalers continued to invest aggressively in AI infrastructure to support rapidly growing AI workloads. Advanced semiconductors are a critical building block enabling this expansion. And the rapid increase in compute demand is driving the need for both additional semiconductor manufacturing capacity and continued technology innovation. As a result, investment activity across the semiconductor value chain remains strong, supported by both capacity expansion and ongoing leading edge technology transitions. Let's first review the trends in logic/foundry. Our largest market. In advanced logic foundry, we continue to see strong momentum across multiple technology nodes. Capacity expansion at the 2-nanometer node remains the largest driver of investment activity. Supported by the ongoing capacity ramp and increasing adoption of gate all around technology for advanced logic devices. At the same time, we are seeing an uptick in investment activity in the previous generation leading edge nodes of 3- to 7-nanometer. Consistent with the trend that we first highlighted during our first quarter earnings call. Growing demand for advanced CPUs and emerging agentic AI workloads is tightening available capacity and driving increased demand for the 3- to 7-nanometer nodes following a period of relatively limited spending levels for these 2 nodes in the last in the past couple of years. While the 3- to 7-nanometer nodes are no longer the industry most advanced technology generation. they remain ALD and epi nodes. Where ASM continues to hold a strong share of wallet. Looking ahead, leading customers are preparing for the industry next major technology transition at 1.4-nanometer. Customer engagement remains high. And we continue to project the first contribution in the second half of 26 as customers start investing in 1.4-nanometer pilot lines. This node is expected to deliver another meaningful step forward in device performance and power efficiency. Enabling the next generation of AI and high performance compute devices. Some customers have commented that they view the 1.4-nanometer as a potentially larger opportunity than 2-nanometer, which itself is expected to exceed the scale of the 3-nanometer node. As we have discussed previously, we expect our served available market at 1.4-nanometer to increase further. As customers increasingly deploy additional process steps and performance enhancing their to unlock the full potential of the next generation of gate all around architecture. Next to a solid increase in our SAM, we remain confident that our market share in 1.4-nanometer will further strengthen compared to 2-nanometer. Both in ALD and in epi. We are also very pleased by the recent wins for our Mali ALD offering at the 1.4-nanometer node. This positions leading edge logic/foundry to remain a key growth driver for ASM over the coming years. Let's now discuss the mature logic/foundry market. In mature logic/foundry application, particularly in China, demand remains strong. The second quarter, following the acceleration already seen in the first quarter. Customer appetite in the China market for capacity addition continues to be supported by many of the same secular trends underpinning investment elsewhere. Including the growing demand for AI enabled devices and infrastructure. Our strong sales development in China also reflects our company's continuous competitiveness with customers valuing the combination of leading performance and attractive cost of ownership. of our equipment. Looking at our China sales in total, Mature Logic/foundry continues to be a sizable part. But we are also seeing increasing demand from a small base in the memory segment and a gradual recovery in power. wafer/analog. Let's now discuss the memory segment. Demand in the DRAM market continues to strengthen. As customers are moving aggressively to expand capacity and increase output to address a persistently tight supply demand environment. Sales increased strongly and were primarily driven by HBM related DRAM applications. Reflecting continued investment in AI infrastructure and the resulting demand for high performance memory. We also continue to strengthen our position in the DRAM market, and during the quarter, we were selected by another DRAM customer for our epitaxy solution. Looking further out we remain very positive about the strategic opportunity in DRAM. With a transition to 4 f squared cell architectures and FinFET based peripheral circuitry. Which are expected to move to production in the 22 thousand and 30 timeframe. FinFET based peripheral circuitry is expected to deliver further improvement in performance and speed. While the transition to 4 f squared cell architecture and vertical channel structure is targeted to enable a higher bit density and continuous scaling. This technology transition increase process complexity, and are expected to drive additional ALD and epi intensity creating an attractive long term growth opportunity for ASM. We reiterate our forecast that these transition will increase our DRAM served available market by $400 million to $450 million over the next 2 nodes. Supported by expanding customer R&D engagement in 4 f squared and FinFET peripheral circuitry we are targeting an increase in our DRAM market share. Innovation remains a key focus for ASM. As AI driven demand continues to increase, the need for more capable and energy efficient semiconductors. We continue to invest heavily in R and D, to help enable key technology transition including next generation gate all around architecture, and 4F² DRAM. We also see advanced packaging emerging as an attractive medium term growth opportunity, as chiplet-based architecture and heterogeneous integration increase the importance of materials innovation bonding and interface engineering. Beyond ALD and epitaxy, we continue to invest selectively in areas where we can bring differentiated technology to customers. 1 example is our plasma-enhanced CVD patterning solution is gaining encouraging customer engagement due to its excellent gap-fill capability relevant to many applications. Although still in the early stage of adoption, it illustrates how as a material discovery company, we can translate innovation in materials and process technology into future growth opportunity and gradually broaden our served market. Let's now discuss the outlook. As communicated in our press release, we expect Q3 revenue to increase to €1.1 billion. For the second half, we project revenue to be up by over 20% compared to the first half at constant currency. Key driver will be the advanced logic/foundry business including solid sales in the 2-nanometer node, the 3- to 7-nanometer nodes as well as the first meaningful contribution from the 1.4-nanometer node. We also expect our memory sales to show a substantial sequential increase in the second half. Supported by record high quarterly orders in the segment in the second quarter, with the phasing of shipments this year more second half weighted. We expect this increase to be driven primarily by advanced HBM DRAM and to a lesser extent by an improvement in memory demand in China. In the power/wafer/analog segment, we expect sales to increase in the second half from a lower base in the first half. Growth in this segment remains selective and is primarily linked to AI related application particularly technologies supporting the increasing power requirement of data centers. The only segment expected to be down is mature logic foundry, reflecting the first half weighted nature of sales in this segment this year, mainly from our customers in China as discussed last quarter. We nevertheless expect our overall China sales to remain at a solid level in the second half, with growth in power/wafer/analog, and memory, largely offsetting the decline in mature logic. Foundry. Looking beyond our outlook for the second half of 26, our confidence in the longer term growth trajectory of the business has continued to strengthen. Since our Investor Day in September 2025 market expectation for WFE spending has increased significantly. Supported by strong order momentum, customer visibility, we now expect our 2027 revenue to exceed the top end of the €3.7 billion to €4.6 billion range we shared last year.
Paulus Antonius Henricus Verhagen: Thank you, Hichem.
Hichem M'Saad: Let's now move to the Q&A. To accommodate as many callers as possible, please limit your questions to no more than 2 at a time. Operator, we have the first question please?
Operator: Thank you. This is the conference operator. We will now begin the question and answer session. First question is from Sandeep Deshpande, JPMorgan.
Sandeep Deshpande: Yes, hi. Thanks for letting me on. My question is, you have indicated 2027 is now going to be above the top end of your guidance. How should we be thinking of the granularity there? I mean, we look at your guidance in the fourth quarter, you are close to 1 point or rather implied guidance in the fourth quarter, you are looking at, say, €1.2 billion or so of revenues. Would this be going up sequentially into the first few quarters of the year? And how do you see that trending? And I have 1 quick follow-up.
Hichem M'Saad: I will take the question. We are very positive indeed about our 2027 revenue projection. The reason why we are very positive is because of our interaction with our customer. And they are giving us actually very early on their equipment plans 2027, and some of them actually even in 2028. So if you look into our revenue in 2026, We have said that the second half of the year is going to exceed 20% of the first half. Making your calculation our revenue is, we are going to see, €4 billion. So the projection that we have made before in the investor meeting in September where we said our revenue is going to be between 3.7 to 4.6. The lower end does not make sense. From that point of view because we are going to grow in 2027. 2026 would be at €4 billion. So that is really 1 of the reasons we mentioned. We really wanted to make sure that you guys understand that we have to we have to talk about this. And then we are talking about the higher range, the 4.6 I think based on the momentum that we see right now. Okay, We see 2027 to be a very strong year for ASM. And also for the industry. it is very early to give really specific guidance, Okay? But let's discuss the trends that we are seeing right now for 2027. So you look into advanced logic, and foundry, it is going to be really a key driver for us in 2027. This is supported by 2-nanometer node. As we mentioned just earlier, we also see 3-nanometer and 7-nanometer node to be actually strong. In 2027. In addition, we actually expect the 1.4-nanometer node to contribute meaningfully for ourselves, really strong, 1.4-nanometer is going to be strong. In 2027. Because leading customers begin preparing for high volume manufacturing in 2028. As we have all along said that 2028 would be the 1.4-nanometer HVM So we see orders happening for 1.4-nanometer right now, We are shipping in the second half of 26 and we are going to ship even more. In 2027. Because customers are very serious about the 1.4-nanometer node Because as we have mentioned, the benefits for this node in efficiency, in power efficiency and performance are second to none. So we see customer really being very excited about that. Also, we see strong growth in our memory business. Because customer are increasing their investment in new DRAM They are putting more DRAM capacity online in 2027. Because of the very tight supply demand condition right now. We also expect benefits from our expanded position in DRAM. I mean, DRAM is good. And as you guys know, we are coming from a small base. But we have seen some good wins lately. And we have some wins. And because of that, we are very positive about DRAM. Progress for us in 2027. Also, in the power wafer analog, we actually expect a recovery. We see some recovery happening right now, really starting. And we see it to continue in 2027. And this is really driven by power solution for that Even silicon carbide, I mean, we also have seen the past couple of months some good activity in silicon carbide epi. From that point of view. So all in all, you know, we expect 2027 to be a very strong year. I think when we arrive in 2027, we probably will be able to give you more visibility on what the number greater than €4.6 billion.
Sandeep Deshpande: Regarding you talked about in the release about this moly win that you had Is this an expansion of your current position where you have already had some Logic wins in the molybdenum market? Or is this part of those wins you already had?
Hichem M'Saad: No. This is new. New wins. I mean, we talked before that we had some wins in Mali. Actually, the past quarter, we had actually new wins in Molybdenum. We feel very excited about this market. This is the first time that ASM is used for metal deposition market, and customers like the solution, we are really excited about the latest wins that we have. Thank you so much.
Operator: Thank you, Sandeep. Next question is from Nigel van Putten, Morgan Stanley.
Nigel van Putten: Hichem, thanks. Good afternoon. First question would be on the mature logic/foundry segment. Unlike all the other segments, I think the entire industry is not growing into the second half. And I guess interesting, the same trend we have seen last year, just trying to understand order behavior from those customers, would it be fair to say there is a seasonal pattern there? And maybe on that would it be fair to assume that revenue could or maybe should recover in the first half of 27? Or do you see a reason to caution against that? that is my that is my first question. Thanks.
Paulus Antonius Henricus Verhagen: Yes. Maybe on the mature logic/foundry and Nigel, there is Paulus speaking. What we see indeed in the first half, actually in Q1, we saw an acceleration. Strong acceleration. And although we never know for sure, we mentioned that this could be related to the new export controls that, of course, are being debated, but are so far still not clear if they will come and in what form or shape they will come. But for sure, we believe that plays a role why we see customers accelerating their orders. In the second quarter of this year, we saw actually again a very strong quarter. So basically, as I think already said in the Q1 earnings release, that we would expect a stronger mature logic/foundry in the first half compared to the second. that is exactly what we see now both in orders but also in, of course, in revenue that will follow. But the good news is that, as Sisham already indicated, that we see that actually compensated through growth, although both from a low base in memory in China and in power wave analog. For next year, I do not want to say too much because as you know, visibility on China is always low. But so far, it looks reasonably good, I would say. But yes, there is some level of uncertainty, of course, around export controls. China visibility is low, but based on everything we know today, it looks quite decent. But, yes, to be confirmed, of course, going further into the year.
Nigel van Putten: All right. Thank you. that is very helpful. And Paul, another question for you in terms of capital allocation. there is now €1.2 billion on the balance sheet, €900 million more in investments. I think it is fair to say the free cash flow will stay very positive in the next couple of quarters. So and the share seems to be trading at a discount both to the historical valuation also peers. So to me, the obvious decision would be to acquire shares in a meaningful way, but clearly, you seem to have a different opinion. So I guess my question would be, if you are looking at more sizable opportunities from an M&A perspective, perhaps in advanced packaging? And any color there would be helpful. Thank you.
Paulus Antonius Henricus Verhagen: Yes. We as you know, we continuously scan the market for opportunities in terms of M&A. But as we always said, it is not like that. there is a huge number of things that we believe are value creating for us. But if there are and if we will find them, we will act. 2, we also have announced our share buyback program, which we will start in the second half. it is not huge. it is €150 million, but at least it is what we communicated already with our Q1 result release or full year result release. So we will start that now. And then we will see going into next year how we deal with excess cash. But you are right, we are looking at M&A. And if we can find opportunities we will act on it. But there is nothing now at this moment that I can talk about.
Operator: Much appreciated. Thanks. Thank you, Nigel. Next question is from Didier Scemama, Bank of America.
Didier Scemama: Yes, good afternoon, gentlemen. Thank you for taking my questions. My first question is really for Hichem. Can you help us understand how you think about ASM revenue growth over the course of 2027 and 2028 relative to WFE? I think consensus expectations are for around 30% WFE revenue growth over the next couple of years. Would have thought that given your idiosyncrasies around 1.4-nanometer with high ALD and epi layers your new wins in molybdenum metallization, and maybe in 2028, the beginning of a benefit in 4F², you would be comfortable to be at least in line. Wanted to hear your thoughts around that. I have got a follow-up. Thank you.
Hichem M'Saad: Yes. Okay. Thank you very much for your question. I think that based on what I mentioned really earlier, we are very, very positive about 2027. We really are. So wherever the market is going to grow, we are at least going to grow at that market even higher than that. I think that we are very positive about the our position in the leading edge logic and foundry. Our expanding market share in 1.4-nanometer was actually happening in 2027. We are very excited about our growth in DRAM with new application and wins in both ALD and PITAXI. What can I tell you? If the market is going to grow 30%, then we are at least going to grow at that level. there is no question about it.
Didier Scemama: Makes sense. Thank you. The other question was about 4F2. So it might be a bit early to talk about but I think at least some of your customers are really investing in 4F transition towards the end of 2028 for maybe 2029, 2030 type of accelerated ramp. Some people talk about even more optimistic assumptions. But what I wanted to hear from you, Hichem, is how should we think about your market share in ALD and EPI in the transition to 4F²? Historically, as you mentioned, you have got a weaker competitive position in DRAM versus leading edge logic foundry. Obviously, you have a very strong position in single wafer ALD and taking share in Epi. So would it be fair to have something in between these 2 market share? Or do you think you can even hope to get at a single wafer ID or IT market share consistent with leading edge logic?
Hichem M'Saad: I think time will tell. But what I can tell you here, from this point of view is that we have a very strong interaction with all the memory customers for 4F² for both our ALD and epi technology, but even more than that in some of the CVD technology that we have customers really working with us on these application. We understand that for us, will start at 2028. continue to 2030. So we are-- yes. We are coming from very small market penetration. But we are really excited. I mean, if I am looking to ALD, I mean, definitely, there is more ALD layer happening in the FinFET. I think 4F² with 4F², also, there is gonna be more FinFET. We are very excited also about the architecture for us to have architecture. Which needs some ALD, both terminal ALD and PELD. Epi, definitely. We have gained share. And we think that our solution is being accepted by our customer. We are already in HBM. In HP with 1 customer, and we are getting there with the with the other customers. So overall, you know, things are very positive from that point of view. Right.
Didier Scemama: Can I just squeeze in a quick 1? I wondered, you mentioned the strength of ASM in precursor technologies. Which I think is really underappreciated by the market. Where or how far away from the market away from your competitors or ahead of your competitors Do you think you are in sort of mass mastering chemistry and precursors? Because my mind as we move into 1.4, you know, next generation gate around and also for F2, you know, those material based enhancement technologies will require the best precursor technologies. I just wondered how you feel about your competitive position versus your peers?
Hichem M'Saad: I think, you know, because of our ALD experience, that started since 2 thousand we have a very good understanding of precursor and chemistry. And because ALD depends on that. Okay? And actually, because ALD is the best technology to develop new material. So with to develop new materials, use ALD. And with that, you know, we have the experience and the expertise within the company to develop new precursor. And we have used this expertise all along to develop a new LD processes. But also, mean, for that, okay, we call ourselves a materials discovery company. We are discovering new materials actually every day. And these materials, have used them to for ALD for high performance because ALD provides high performance benefit. But also, of these materials that we do actually providing some benefits. For example, energy efficiency. We are taking also our material tech know how and expanded not only to ALD, but also to other parts of our business. Like epitaxy and pECVD, and we see significant benefit for us. So what can I tell you? I am very excited. I think the we are using our core competency which we had for ALD and precursor knowledge and so on. And we extended to other parts of our business. And we see significant acceptance of that from our customers. Yep. Thanks very much.
Operator: Thanks, Vijay. Next question is from Francois-Xavier Bouvignies, UBS.
Francois-Xavier Bouvignies: Thank you very much. I just wanted to come back on the memory comment. Hichem, you said that H2 memory will accelerate in the second half of the year, but it seems that it is mostly volume driven, capacity increase driven Now in the last 2 quarters, you interestingly announced 2 new epi customers on the DRAM side. I was wondering when do you think these layers will come through, will be visible and for which applications would that be specifically? Thank you.
Hichem M'Saad: Okay. I am gonna have Paulus answer your question.
Paulus Antonius Henricus Verhagen: Yes. So Francois, you are right. In H2, it is mainly capacity driven. The let's say, the acceleration in memory that we see, especially compared to H1. For the new win that we announced actually in this earnings release, we see the first revenue actually meaningful revenue in 27. Maybe 1 or 2 tools this year. But meaningful revenue in 2027. So there as a result of that, you will see further growth as well in 2027. On top of capacity expansion.
Francois-Xavier Bouvignies: Okay. And which application?
Hichem M'Saad: Just-- yeah, I think that I think we are not going to talk really about really the applications. Because it is really customer specific. But let me tell you, it is it is a it is a large application. Okay. Thank you.
Francois-Xavier Bouvignies: And my follow-up is a bit follow-up to Didier's question and digging a bit more on 27. So if I look at 26 and your guidance, even if I take a conservative numbers, you are going to grow 35% at constant currency, most likely. Which is above WFE most likely this year. Which is quite remarkable given the memory lower exposure you have if I put all of that together for next year, and you described many times this Epi layers now you just said that you will have to ramp up next year with 1.4 nanometers. Is it fair to say that, it is not-- at least we are talking about. it is the gap, the outperformance of the WFE should be much wider in the next 2 years given the mix is going more into your favor? And on top of that, you have the memory layer count boosting on top. So is that is that a fair representation, or am I missing something?
Hichem M'Saad: I think you are not missing anything, and you just heard me say that I am we, AFM, are very optimistic and positive about 2027 and beyond. We are really excited about our position. Great. Thank you.
Operator: Next question is from Aditya Metuku, HSBC.
Adithya Metuku: Yes. Good afternoon, guys. Thank you for letting me on. My first question is just on the outperformance you talked about in the last couple of answers. WFE numbers, if you look at them, depending on whose numbers you look at, you are basically looking at 30% to 40% growth in 2027, potentially another 30% after that in 2028. So if I follow on from the answer you gave to the previous question, you are essentially talking about potentially maybe 40% something like that in terms of revenue growth in 2027. I just want to understand, I can do the mathematics correctly, are you thinking along similar lines? And I have got a-- Yes.
Paulus Antonius Henricus Verhagen: But what we said for this year is that as a minimum, expect to grow in line with WFE and most likely, more recently explained the trends that we see in 2027. I am not going to do the math for you yet. there is also other let's say, elements that play a role. I talked about China, although today we are still positive about China. Based on everything we know today, it looks actually quite good. I just mentioned to I think it was Nigel asked the question. But at the same time, there is low visibility. So things can still change, but overall, I can only repeat what we have said already. We are very positive We have some nice wins trends are looking good, are looking in our favor and yes, indeed, if we grow more than 30%, then you can do the math, You take 26 times 1.3 something. So you are correct.
Adithya Metuku: Okay. And then just as a follow-up, some of your peers have been talking about potential delays to the 4F² transition partly because your memory customers want to focus on adding capacity at 6F2 to meet the very strong demand that they are seeing. Then the worry being that if you transition to 4F², you might have yield issues initially at least. Is that something you have also heard from your customers? Just any color on what you are seeing there on that transition? And if that is going to the plans that people had in place 6 to 12 months ago, any color there would be helpful.
Hichem M'Saad: Adithya, I will take this question from you. Yes, Whenever you transition to any new technology, node architecture, you might see some hiccups and so on and so forth. Yes. We are very close to our customers, and we see some of them having some issues for the transition to 4F². But for us, to be honest with you, this is not consequential or from that point of view because even at the 6F² right now technology node, customer want to have performance And we see penetration in both ALD and epitaxy right now in the 6F² technology node. So performance is needed. And to be honest with you, maybe sometimes you need it more before you transition to the second generation. I mean, if you are not getting the benefit from the architecture, you need to get the benefit from materials. So it is good for us either way. Got it. Thank you.
Operator: Thank you. Next question is from Stephane Houri, ODDO BHF.
Stephane Houri: Yes. Hello, good afternoon. Actually, first question is about the 1.4-nanometer and the Moly recent wins in ALD that you have discussed. And, you know, I would like to understand if we are talking about something that could be sizable already in 27. And if you can maybe come back on your global market share at 1.4-nanometer, if it is just a small improvement or something more significant? And I have a Thank you.
Operator: So I mentioned thank you for your question.
Hichem M'Saad: Stephane. I mean, the way to answer your question is that first, yes, we have incrementally won a couple of more application. The past quarter in molybdenum, which we are very excited about. And this is going to happen in the 1.4-nanometer technology node. As I mentioned that in previous calls, I mentioned that molybdenum is going to happen gradually from 1 generation to the other. And because metallization, you have dozens and dozens of layer, I mean, so when you are winning, you know, these onesies and twosies there, yes, it is very good. it is, beneficial. But it is not a very huge part of market. For us, it is really significant because this is a market that we have never-- we have never been there. And every layer that we qualify is very exciting for us. Especially at the 1.4-nanometer node because this node is going to be very significant starting 2028. So overall, this is exciting time, but also at the same time, molybdenum is just starting. In the industry. And with more and more generation, you are going to see more and more implementation. And proliferation of molybdenum into the node. So, incrementally, this is an incremental benefit for us, and it is going to add to our revenue and I mean, this is really for me, this is very exciting. I think that our strategy to move into metallization, metal deposition is working. And we also feel very positive in the future. I mean, we are developing also new precursor, new technology for moly, which is going to be even more and more differentiated in the future. And we are working with our customers for this. So things look good from that point of view.
Stephane Houri: Okay. Okay. Thank you. And the second question is about the gross margin trajectory because you have always been a bit conservative with your pretty wide guidance from 46% to 51% and you have been more or less constantly above So you explained this with the size of China, which is quite easy to understand. But when we heard the conference call of ASML, they did talk about, you know, the price increases in the market because the market was so hot that they wanted to benefit a little bit more from added value extracted from this market. So are you thinking about expanding your gross margin above the high end of the current guidance, which is 51%? And are you thinking about price increase I mean reasonable price increase, but still price increases that would help the gross margin? Thank you.
Paulus Antonius Henricus Verhagen: Yes. Thanks for the question, Stephane. On the margin, you have seen it in this quarter, we guided around 51%. Which indeed is at the high end of the range, could be slightly higher, could be slightly lower, but around 51%. You have a few questions. Are we let's say, implementing price increases? The answer is yes. Where possible. We have some targeted price increases amongst orders also to deal with some of the cost inflation that we see happening in our supply base. So as a minimum, we want to pass that on into the supply chain. 2, yeah, we still do value based pricing. We still believe for the medium to long term, the best way to do it. But what you see is 1 of the reasons why the margin is so good is not only China. China is definitely still a part of it. it is accretive. Also because we have a relatively high share of advanced products, which typically not always, but typically have a higher margin, which is value based because the more complex certain deposition layers become, the more complex our tools become, the higher the value we can offer. We, of course, try to also have that factored in our price. that is another reason why we have been actually at the higher end, so maybe even above the higher end of the range. So that you should also take into account And last but not least, we talked about a number of initiatives in prior calls on the standardization platforms on merchant transit. So we also put a lot of focus and on becoming more efficient and working on our cost. So that is another element. So if you add it all together, you get what you see now. And of course, we will try to continue to do that and see if we can get it structurally at a higher level. But for now, we are not changing the guidance other than that we have set for this year. We will be around 51%.
Operator: Thank you, Stephane. Okay. Thank you very much. Next question is from Jakob Bluestone, BNP Paribas.
Jakob Bluestone: Hichem, good afternoon. Thanks for taking the question. Earlier this week, we heard about China making progress in DV. So I was wondering if you could maybe give us a little bit of an update on what is the state of Chinese local competition that you currently face? Thanks.
Hichem M'Saad: Okay. So to answer your question, I think that yes, we heard the news about the DUV in China. We also we have we also know that with us, we have competition in China from different players. We in China, actually, we are working on, like we mentioned, we are working on mature logic node, and also we work on memory and power wafer analog. And not, of course, we do not ship tools for the leading edge devices. We see our position to be good in those in those markets. I mean, the competition is there. But I think we have been we see some wins and continue to really to do well. From that point of view. I think that it can really continue on innovation. Which we are doing incessantly to really compete on the China market, which is very cost competitive from the point of view. So we have to improve our cost of ownership. And we are using innovation technology and process innovation to really achieve a lower cost of ownership. And we have been able to win in that area. And, I mean, and, I mean, that is really 1 of the reason that in the mature nodes, which is you can think of it as very, very cost competitive from that point of view. We are still holding our own, and we see we are still we are still very competitive, and we like what we see right now. So right now, everything is from that point of view, we are competitive. We see our competitiveness be there. We understand that China market is Chinese players. There are many Chinese players coming in from that point of view. But if you continue to innovate, which we have done, both in technical benefits and also in cost of ownership reduction. Think we should be able to continue to do that. Understood.
Paulus Antonius Henricus Verhagen: And just a quick follow-up. Paulus, I think you mentioned export controls potentially earlier.
Jakob Bluestone: Just interested, are you seeing any sort of or are you currently seeing in the ordering extra inventory build because of that? Not sure if that is something you can comment on.
Paulus Antonius Henricus Verhagen: Yes. We as I said, we see actually very strong demand in China, and we believe that 1 of the reasons is indeed export controls. And yes, we also see some accelerated ordering. it is not excessive, but there is some of that. But not excessive in any way, shape, or form. But yes, that there is speculation on new controls that typically supports acceleration of orders and delivery towards Chinese customers. So there is some of that, but not excessive. Understood. Thanks.
Operator: Thank you, Jakob. Next question is from Timm Schulze-Melander, Rothschild and Redburn.
Timm Schulze-Melander: Hichem, hi there. Thanks so much for taking my question. First 1, I just wanted to talk about was just on the technology roadmap and sort of capital allocation. I think, Paulus, you talked about maybe looking for some further acquisitions. You have done silicon carbide EPI, CMP as a tuck in. I just wanted to ask, is there strategically an asset or a capability that you do not have right now that you think would fit very well. And number 2, just an update on how the integration of those is going? Then I have a follow-up. Thank you.
Paulus Antonius Henricus Verhagen: Is there a strategic capability Yes and no. What you have seen in the past mainly is that we accelerate into certain technologies. Quite a few things we could have done ourselves, but for a number of reasons, because there was an opportunity, we decided to do it inorganically. You might see that in the future as well. On the last acquisition, CMP, 1 of the reasons is there is a lot of complementarity with some of the deposition that we do. Also it helps us in our strategic objectives to grow in advanced packaging. There was another reason to do it. But again, there was also a clear leverage with some deposition that we do. So that is always, always important. So we have we have a choice to do things organically, but of course, doing things organically takes a longer time. But yes, if we do not see let's say, the right inorganic opportunities, we might start some organic development for certain, let's say, capabilities or certain technologies that we want or think would be supportive to our strategy. that is I think how you have to see it. Very clear.
Timm Schulze-Melander: And then just looking at the revenue mix, I mean, I cannot imagine it is ever been any better. Than it is right now in terms of just the strength in these key segments that are all showing incredibly strong growth into next year. You know, as you talked about blowing through the revenue guide surely a very strong tailwind on gross margin for 2027-2030, just given the size of those numbers. What are the offtakes? Because I mean, you talked a lot there about productivity. Is there anything in the supply chain, lead times of suppliers, and anything that we should think about this is going to sort of curtail the enthusiasm for the gross margin trajectory on a kind of 1 or 2 year view? Thank you.
Paulus Antonius Henricus Verhagen: Yes. So you are right. I mean, the trends that we see in the market and our position in that market looks really good. Talked about it. He named them 1 by 1; I do not have to repeat that. At the same time, I talked about cost inflation. So there is definitely cost inflation that we need to offset through pricing. It sounds very simple. it is not always easy, even not in this environment because you gain share, we still have to compete. And you can imagine that some of our competitors are yeah. They do not put this on a they do not, let's say, give it away. They will fight for it. So at the same time, increasing prices is not always easy, but sometimes we can, again, on the value that we that we deliver. So there is some there is some of that. The whole product mix, of course, is important. But given how the market is developing, you will see a lot of advanced products, ALD, as an example. Which is typically good for the margin. There is some operating leverage, not a lot, but still every year that we grow, there is some of that. And if you add it up over a number of years, it also starts to count I talked already about China and export controls. There could be some of that. There is some level of uncertainty but today, it looks good. But yes, we will see what will happen there. We do not know. So overall, things look, yes, look pretty good. I mean, I cannot say otherwise. Thanks very much.
Operator: Thanks, Timm. Next question is from Tammy Chu, Berenberg. Can you hear me? Tammy Qiu, your line is open.
Tammy Qiu: Hichem, sorry, technical issue. Thank you for squeezing me in. So firstly, on your 1.4-nanometer outlook, did you see more customer getting more aggressive on 1.4-nanometer from a timeline and volume perspective comparing to last quarter? And also the second question is, can you talk about your China business mix potentially into 2027 I. E. Mature edge foundry logic has been very strong driving China in this year. Do you see memory in China picking up and sustain the strong momentum China had?
Hichem M'Saad: I think that it is very clear that for the 1.4-nanometer node, it is already public that there is more than 1 supplier for that node. And as such, and that is number 1. Number 2, we mentioned again that the 1.4-nanometer node is a node that is significantly better. In both performance and energy efficiency, which is the name of the game right now. For all these AI application and data centers, if you can reduce energy usage. You are a hero. So based on that, you know, based on the fact that you get more performance and energy efficiency, the investment in the 1.4, and the fact that, okay, you know, also the 1.4-nanometer, there is publicly more than 1 supplier. Yeah. We see investment in that node right now. From that point of view, and yes, that is happening. And, you know, I mean, to be honest with you, I mean, we I mean, we play in the front end of line of the devices and things from that nature in the transistor, in the gate that are on. So we are the-- we might be the first company that see and have visibility to what is going on from that point of view because, I mean, Epi is 1 of the first tools in the fab, and ALD would be the 1 of the first tools that you need to order in a fab from the point of view since it is on the transistor level that you see that. So we have good visibility. And with our very strong position there, we are very confident about what is going on. The 1.4-nanometer node.
Paulus Antonius Henricus Verhagen: And maybe on China, Tammy, what we see today is-- I mean, first, maybe the disclaimer because China, there is always low visibility. So the more detailed we go, the more swings you will see. But based on everything we see today, what we expect next year is, again, the bulk will be mature logic/foundry. But yes, there will be further growth in memory somewhat, but from a low base. We are not very strong in memory in China so far, but yes, we expect it we would expect it to grow unless yeah, bearing unforeseen circumstances, say, again, expert controls, you never know. And we would expect the same in power/wafer/analog where we see now, let's say, also the start of a recovery still from a low base, but we would expect that to continue into next year.
Tammy Qiu: Okay. Thank you. Just to confirm, is that 1.4-nanometer in incremental customer in addition to your estimation from last quarter? Or that is always in your number anyway?
Paulus Antonius Henricus Verhagen: In the previous quarter, we already knew that we already knew which customers we would, let's say, ship 1.4-nanometer. So nothing changed, maybe other than that maybe it has increased a little bit overall. But no, no, we working with all customers, as Hichem already said, and that already was known also last quarter. Okay. Thank you.
Operator: Thank you, Tammy. Final question is from Robert Sanders, Deutsche Bank.
Robert Sanders: Yes. Hichem. Thanks for taking my question. I was just wondering about your supply chain and whether you your backlog in particular, sort of how much of your 18-month deliveries over the next 18 months are kind of already sold out And is your supply chain now a potentially bigger limiting factor then clean room availability? And I have a Thanks.
Paulus Antonius Henricus Verhagen: On supply chain, it is a good question. it is definitely we see the stress levels are increasing there. We already talked about it last quarter because we have a shared supply base and all industries are ramping. We are doing everything we can to work with our suppliers to make sure that we get the allocation that we believe we should get And we are, of course, what we needed also developing dual and triple sourcing. We have people at suppliers where there is stress. So far, we can manage it, but there is definitely a level of stress there, but so far manageable.
Robert Sanders: Of your backlog today, I mean, how much of that is covering next year's revenue? Is a large portion of next year's revenue are already in the backlog?
Paulus Antonius Henricus Verhagen: As Hichem said, we get very good forecast from our customers. There are some accelerations in orders, but our order book typically is 6 to 9 months. So that did not really change. Maybe it is a little bit better than normal, but what has changed is let's say, the commitment, although it is not yet a formal order, but the level of commitments and transparency that we get from our customers, that is definitely yes, more firm than what have maybe seen in prior years. So that is that is what we see. But as you said in the press release, orders in Q1 were sorry, orders in the first half were very strong We also expect strong orders in H2. And on the back of that, yes, that is what we said about our confidence level in 2027.
Robert Sanders: Can I squeeze 1 last question just on the very aggressive ramps in China and DRAM next year? Are you going to be able to participate in a meaningful way in those ramps? Or is it still a bit early days? Thanks.
Paulus Antonius Henricus Verhagen: Yes. I would not talk about the press release today. We see that yet. We do expect further growth, again, from a low position in memory in China, but it goes too far to say that, that would be an aggressive growth. If that is coming, we have not seen it yet in our projections.
Operator: Mr. Baragno, there are no more questions registered at this time.
Victor Bareño: Okay. Thank you, everyone, also on behalf of Hichem and Paulus for attending our call. Goodbye.
Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.