ASM International N.V.'s (ASMIY) CEO Charles Del Prado on Q1 2016 Results - Earnings Call Transcript

| About: ASM International (ASMIY)
This article is now exclusive for PRO subscribers.

ASM International N.V. (OTCQX:ASMIY) Q1 2016 Earnings Conference Call April 21, 2016 9:00 AM ET

Executives

Victor Bareño - Director of Investor Relations

Charles Del Prado - Chairman, President and Chief Executive Officer

Peter Van Bommel - Chief Financial Officer

Analysts

Peter Olofsen - Kepler Cheuvreux

Tammy Qiu - Berenberg Bank

Chetan Udeshi - JPMorgan

Philip Scholte - Kempen & Co.

Marc Hesselink - ABN Amro

Mathias Santos Silva - Morgan Stanley

Hans Slob - Rabobank

Jim Fontanelli - Arete Research

Stephane Houri - Natixis

Operator

Good day, ladies and gentlemen, and welcome to the ASM International First Quarter 2016 Earnings Conference Call. For your information, today’s call is being recorded.

At this time, I would like to turn the call over to Victor Bareño, Director of Investor Relations. Please go ahead.

Victor Bareño

Thank you, Betsa. ASM issued its 2016 first quarter results last evening. For those of you who have not seen the press release, it’s along with our latest investor presentation is accessible on our website, asm.com.

We remind you that this conference call may contain information relating to ASM’s future business or results in addition to historical information. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. These include, without limitation, statements relating to revenues, margins, cost reduction programs, liquidity, breakeven levels, strategies and economic conditions.

For more information on the risk factors that could affect results, please refer to the company’s press releases, reports, and financial statements, which are available on our website. All forward-looking statements are based on information as of today, April 22, 2016 and the company assumes no obligation to update these statements.

And with that, I will now turn the call over to Chuck Del Prado, President and CEO.

Charles Del Prado

Yes, Victor, thank you, and welcome everybody to today’s 2016 Q1 conference call. Thank you all for attending. Before I start with a review of the first quarter results, Peter Van Bommel, our CFO will first provide some explanations about our reporting and the change to IFRS. Now, Peter?

Peter Van Bommel

Thank you, Chuck. As we announced on February 23, we have changed the quarterly reporting as of January 1, 2016 from U.S. GAAP to IFRS. The main difference between the results reported under IFRS and U.S. GAAP is a research and development expenses. As you might know, under U.S. GAAP, the research and development cost, where expense has incurred, but under IFRS development expenses that meet certain criteria are required to be capitalized. The subsequent amortization and if applicable impairment of such capitalized development costs are included in R&D expenses.

In 2015, R&D expenses amounted to €19 million under IFRS and €95 million under U.S. GAAP. The difference in R&D expenses is also the main explanation for the difference between the operating and the net result in 2015 under IFRS and under U.S. GAAP. Excluding the write-off of the remaining 450 millimeter assets, which was €3 million under U.S. GAAP and €13 million under IFRS. The R&D expenses amounted to €92 million under U.S. GAAP and €77 million under IFRS.

The capitalization of development costs is included in the cash flow from investing activities. In 2015, capitalization amounted to €30 million. Free cash flow is the same under U.S. GAAP as well as under IFRS. And in the balance sheet, the main difference concerns the capitalized development across under IFRS, which stood at €72 million at the end of December 2015, which with a corresponding deferred tax liability of €11 million.

This year in 2016, we still publish comparable results under U.S. GAAP, which can be found also in the Annex of this quarter’s earnings release, where we also showed differences between the results under U.S. GAAP and IFRS. As from 2017, only result based on IFRS will be reported.

Charles Del Prado

Thank you, Peter. Let’s now review our first quarter financial results. Revenue in the first quarter amounted to €142 million, a decrease of 2% compared to €145 million in the fourth quarter, and a decrease of 12% compared to €162 million in the first quarter of 2015.

Revenue in the quarter was slightly above the midpoint of our guidance, which was a range of €135 million to €145 million. Our ALD business continued to be the key revenue driver. By customer segment, revenue in the quarter was led by memory, still building on the strengths in 2015, followed by logic and foundry.

The gross margin remained at a solid level of 43.9% in the first quarter, slightly down from the 44.8% in the fourth quarter, that’s up from 43.1% in the first quarter of last year. The slight variations in the gross margin are mainly explained my mixed differences. SG&A expenses decreased by 2% compared to the previous quarter. Reported R&D expenses decreased by 44% compared to the fourth quarter.

As Peter just explained, the main differences between IFRS and U.S. GAAP concerns the R&D expenses. The main reason for the sequential decrease in R&D expenses was the fact that the fourth quarter included impairment charges of €16 million, of which €13 million for the write-off of the remaining 450 millimeter assets. In the first quarters of 2015 and 2016, there were no impairment charges.

Amortization of capitalized development expenses amounted to €4 million in the first quarter. The capitalization of development expenses amounted to €7 million during the quarter. The total R&D expenditure, excluding amortization and impairment, but including capitalization of development expenses amounted to €24 million in the quarter, down 5% from the fourth quarter, and up 17% compared to the first quarter of last year.

The year-over-year growth in the total R&D expense –expenditure is next to currency movements, explained by an increase in customer requests for new applications and engagements, similar to last quarters. We generated operating income of €19 million in the first quarter with an operating margin of 13.2%. This compares to operating income of €17 million and an operating margin in the fourth quarter, excluding the one-off write-off charge.

Financing result in the quarter was €11 million negative and mainly consisted of translation loss. As a reminder, we hold a substantial part of our cash balances in U.S. dollars and the translational effects of currency changes is included in the financial result.

Looking at ASMPT, results from investments, which reflected our 40% share of the net earnings from ASMPT amounted to €6 million for the quarter, down from €13 million in the first quarter of 2015. In the fourth quarter of last year, the results from investment was €2 million and €4 million, excluding one-offs, including the ASMPT results that quarter, included the – excluding the one-offs that were included in the ASMPT results in that quarter.

So these figures exclude the ongoing amortization charge, which amounted to €7 million in the first quarter. For the full-year, this charge is expected to be approximately €27 million.

In the first quarter, ASMPT sales fell quarter-on-quarter by 2% to HKD2.9 billion, compared to the first quarter of 2015 sales fell by 6%. ASMPT reported bookings of US$409 million for the first quarter, an increase of 8% compared to the fourth quarter, and a decrease of 12%, compared to the first quarter of last year.

Now turning back to ASMI consolidated operations. ASMI’s net earnings on a normalized basis amounted to €12 million in the first quarter, down from €18 million in the fourth quarter. While operating profit improved compared to the fourth quarter, the net result was impacted by the €11 million translation loss on cash held in foreign currencies in the first quarter.

In the fourth quarter, we still recognize the translation gain of €6 million, and the fourth quarter result also included the tax gain of €5 million. Our new orders in the first quarter were €164 million, up 21% from the €135 million in Q4, and up slightly from the year – the level a year ago.

Orders were at the higher end of our guidance. The guidance was between €150 million and €165 million. Orders were mainly driven by our ALD business. In terms of the other product lines, the Vertical Furnace also had a decent contribution to the order intake during the quarter.

Looking at the breakdown in bookings by industry segment, logic represented the largest segment in the first quarter, and showed a strong increase compared to the fourth quarter, driven by demand related to the 10-nanometer technology node. The memory sector, which let our bookings in the last six quarters, represented the second largest segment in the first quarter, roughly on par with the foundry segment.

Orders in the foundry sector were also driven by demand related to the 10-nanometer technology node. And orders in memory, both in DRAM and NAND flash dropped compared to the fourth quarter.

Looking at our balance sheet and cash flow. At the end of March, the cash position decreased to €416 million, down from €447 million at the end of December. The decrease was mainly the result of €12 million negative currency effects on the cash position and €32 million in share buybacks, partly offset by positive free cash flow generated during the quarter.

Net working capital stood at €113 million at the end of March, up slightly from €111 million at the end of the first quarter. The number of outstanding days of working capital measured against quarterly sales increased slightly to 71 days at the end of the first quarter compared to 69 days at the end of December.

On the back of continued healthy profitability, we generated free cash flow of €5 million during the quarter. In the first quarter, we spent €32 million to repurchase almost 900,000 of our own shares, as part of the €100 million share buyback program that we announced last October.

As of last week, we completed approximately 48% of the program. The number of outstanding basic shares decreased to approximately 61.3 million shares at the end of March, down from 61.7 million at the end of December and 62.6 million shares at the end of the first quarter 2015.

As announced last February, we have proposed 20% increase in the dividend to €0.70 per share for approval at our AGM, which is scheduled for the 25th of May. This marks the 6th consecutive year that we pay a significant dividend to our shareholders.

Let’s look at the – our ALD business in a little bit more detail. ALD continues to be a strong and fundamental growth driver for our company. As mentioned earlier, the start of 10-nanometer investments in logic, foundry, strongly supported our bookings during the quarter. ALD is an important enabler for logic and foundry customers to make this transition.

Next to the High-k Metal Gate applications, customers require more precise and formal deposition for several critical steps, such as for certain spacers and liners to build these advanced and complex infrastructures. In addition, the shrink to 10-nanometer also drives demand for multiple patterning, with more of the critical patterning steps 10-nanometer requiring spacer-defined multiple patterning based on single wafer ALD.

In total, the number of ALD layers were 10-nanometer, for which we have been selected has increased substantially compared to the previous technology node. As customers have started to make the first investments in the volume ramp of 10-nanometer, our confidence has strengthened that with the continued solid and leading market share, we are well-positioned for a significant increase in a share of wallet with key customers in the logic, foundry segment.

In the memory market, we already have a strong track record in multiple patterning, where our ALD equipment has supported key customers in the ramp of several technology generations. Multiple patterning continues to be a key enabler for customers in the DRAM sector. At the next technology node, the 1x node, the number of layers that require ALD-based multiple patterning will further increase.

We’re well-placed to serve these increased patterning requirements of our DRAM customers. While DRAM spending for the industry as a whole is projected to be weak this year, we expect to benefit as soon as customers will invest in the 1x node transition, which we currently assume to start in the latter part of 2016.

In NAND flash, customer investments are increasingly geared towards 3D NAND. As we explained in previous calls, ALD-based patterning requirements are substantially less in 3D NAND compared to Planar NAND. At the same time, we are strongly focused on long patterning applications in 3D NAND and we expected these applications will increasingly contribute to our revenue in the second-half of 2016 and going into 2017.

As we already discussed with the release of our the – of our full-year results, in 2015, the ALD market increased again at a solid double-digit rate. Gartner and VLSI have recently estimated that the ALD market grew in excess of 20% in 2015, putting it among the fastest-growing market segments within the WFE market.

We believe, the ALD market, the market for single-wafer/mini-batch ALD remains on track with our forecast to double over three to four-year period. And that that is from more than US$600 million in 2014 to, at least, US$1.2 billion by the 2017/2018 timeframe. In summary, the prospects for ALD market in the coming years continue to be strong. And as a market leader, we believe we are well-positioned to benefit.

Next, I would like to spend a few words on Intel’s Preferred Quality Supplier or PQS Award. We were one of the companies that received this prestigious award last month, and we received this for our performance during 2015, as a supplier of ALD PECVD and Diffusion equipment.

Intel’s PQS achievement requires outstanding performance in quality, cost, and availability, technology, customer service, as well as corporate responsibility aspects. Next to our long-standing technology partnership, this achievement reflects many years of focus on operational excellence across all key areas of our business. And we were very honored to receive this award from this very well-respected customer in the industry.

At several occasions in the last couple of years, we already highlighted, in particular – particularly the actions that we have taken in the areas of manufacturing and the supply chain. But we also made substantial progress in other areas, such as the product development process, customer service, and talent management, which all contributed to our improved capabilities and results.

Going forward, operational excellence remains the key focus. And we expect that ongoing improvements in this area will support us in further broadening our engagements with key customers in this industry.

Looking at the semiconductor end markets, conditions continued to be mixed during the quarter. With continuing worries about the macroeconomic environment, softness in the busy [ph] end markets, and slowing growth in smartphones, the semiconductor industry recorded negative year-on-year growth in the first quarter.

On the positive side, for the industry in total, the excess inventory position seem to have improved. Against this backdrop, market watchers such as Gartner and VLSI currently predict a low to mid single-digit decrease for the wafer fab equipment market in 2016. Technology transitions are a key driver behind that we have been spending this year.

Looking at the different segments, it is expected that the spending in the Logic/Foundry segment is healthy in 2016. Key drivers in this – key driver in this segment will be the transition to the 10-nanometer node.

As far as the DRAM sector is concerned, market watchers still expect significant double-digit drop in spending or this calendar year compared to the strong level in 2015. Compared to a weak first-half, we assume customers to start initial 1x DRAM investments in the later part of the year. Although visibility for our overall DRAM spending in the second-half at this moment in time is still limited.

NAND flash spending is forecasted to be up in 2016 with the majority of spending focused on 3D NAND. So let’s now look at the company outlook, as we shared with you all last night a European time as part of our Q1 press release. So for Q2, we expect sales between €130 million and €140 million, while we expect an order intake of somewhere between €145 million and €165 million, both on a currency comparable level.

Based upon the current visibility, we expect a much stronger second-half, as compared to the first-half of 2016. And the revenue outlook for Q2 is a €10 million lower compared to the outlook we gave on Q2 with our full-year earnings release in February, and the decrease relates to some shifts in revenue between quarters. We consider the underlying trends at the same time unchanged compared to two months ago.

At this time, we’re happy to answer any questions you may have.

Peter Van Bommel

All right, Victor. We are ready for the first question.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We’ll take our first question from Peter Olofsen with Kepler Cheuvreux. Please go ahead.

Peter Olofsen

Yes, good afternoon. Chuck, I wanted to go back on two things you mentioned in your introduction. First, on the 10-nanometer ramp in logic/foundry. You highlighted some of the driver for increased ALD intensity. Could you maybe quantify the impact how much will be number of ALD steps increase compared 16-nanometer FinFET? And with regards to DRAM reflect the possibility we may see some initial 1x investments towards the end of this year. Well, DRAM pricing is pretty weak right now. So what gives you the confidence that we may actually see these investments in DRAM picking up again?

Charles Del Prado

Okay. Peter, yes, thanks for your questions, okay. So on 10-nanometer ramp to quantify that, yes, like we shared before, we do see a very healthy traction in the Logic/Foundry segment based on a few factors. First of all, we see, as a result of more complex FinFET structures, we see additional demand for ALD. And second to that, as we mentioned before, we see a strong, basically demand occurring now in patterning – for patterning on single wafer ALD in the Logic/Foundry segment, and that was not the case until 16 – 14-nanometer segments.

So as a result of that, we see, let’s say the amount of layers that we are involved in and differentiated a little bit by customer that we see that increasing with, well really more than a handful of layers, really more than a handful of layers going from 1 node to the next.

So that is an important driver. And based on that, we expect logic and foundry business to be even stronger in the second-half than in the first-half. So that is very, very nice to see from a revenue point of view. So that’s – I trust that this provides you a little bit more color on the logic/foundry side.

On the DRAM side, yes, we – yes just based on the dialogues with our customers in DRAM in general, I think in the first-half, there’s still some spending that we benefit from in the 20 – the 20 node, the 2x node in the Q1 and Q2 timeframes. And that is going to reduce significantly. And so we expect that towards the end of 2016 that really the industry will have to start investing in the D1X node.

But that is an assumption we make at this moment in time, based on our assessment of the market. And the only thing we can say is that, we have, yes, that we in all of our product development, our – positioning of our products has been focused on that upcoming ramp. Yes, we view that we are well-positioned as soon as customers start to invest there. And that’s – all those assumptions have been the basis for our statements on the forecast for the year.

Peter Olofsen

Okay. And I think you also mentioned that memory was leading in Q1 in terms of sales, we have still some DRAM spending in Q2, will memories still be the largest sub-segment than in Q2 in terms of sales?

Charles Del Prado

We’ll – could you repeat that one more time, Peter?

Peter Olofsen

Well, you mentioned that memory in terms of sales was the leading segment in Q1? And you also said that there will still be some DRAM spending in Q2 related to 20-nanometer. So does that mean that in Q2, memory will still leads in terms of sales contribution?

Charles Del Prado

No, no. We – I meant to say, it’s basically, if you look at the first-half of the year, the center of gravity lies in Q1. And as of Q2, we really – our view is that the logic/foundry will really start to lead the momentum.

Peter Olofsen

Okay. That’s clear. There maybe on the ALD market, do you have any idea, where you ended up in 2015 in terms of market share?

Charles Del Prado

Yes. That’s an understandable question. Yes, I think, we – ALD is likely – our market share has gone down somewhat in percentage wise. And this is we have been very consistent on that message all along that based on competition stepping up in the ALD market that we expect our percentage market share to go down somewhat. So that, I think, that’s – I think that is reflected in the market research data that is being shared on the ALD markets.

And as such it is not a surprise to us. There is some unfavorable currency impact in that number. But if – so maybe if you would take that out, the market share loss would likely be a little less than what the way it shows now, but still varies on market share loss. But that is in line with how we, yes, how we predicted the market – the competitive landscape to develop it.

Yes, we do think that our fundamental position in the market has not changed our fundamental opportunities. Also for the next few years, as a leader in ALD, have not changed as a result of that reporting. And what you also have to keep in mind that, we are still the broadest ALD provider in the market as a whole. There is competition here in that specific segments, specific customers, specific applications of the market, we – that we are still by far the leader in terms of the broad number of applications that we have.

And next to that, if you look at the ALD market to single wafer, ALD market for 2016 then, yes, we do expect that – yes, the biggest driver for single wafer ALD in 2016 could very well be logic/foundry. And if that really becomes true then likely our market share will increase in 2016.

Peter Olofsen

Okay. That sounds quite positive. Then my final question on the outlook for the full-year, in the presentation on your website, you referred to Gartner forecasts, which show a 2% decline this year for the wafer fab equipment market. While you have guided for a much stronger second-half, do you think your second-half will be strong enough for ASMI to, at least, perform in line with the overall wafer fab equipment market?

Charles Del Prado

Yes. Well, we are – I think, yes, there basically two questions, because first one is, how confident are we on the stronger second-half. And the second one is, on the resulting WFE market share. But, I think, just to provide you a little bit more color, clearly, you have seen a strong increase in our backlog in Q1. Based upon our guidance has provided for Q2, we expect the further increase of the backlog in Q2. And with that, we expect to start the second-half with a higher order backlog than we had at the beginning of the year and we had – have at this moment in time.

So combined with this, we expect the logic and foundry business to be stronger in the second-half than in the first-half. And our assumption now also is that, memory also will increase sequentially in the second-half. First of all, NAND flash, we expect that in the second-half and going into 2017, we expect the revenue contribution of 3D NAND flash to increase,and the level with which it will happen depends on the speed, let’s say, yield ramp up at specific customers in higher stacks. And, yes, we made also certain assumptions on first investments in 1x node in DRAM as we just discussed.

So taking that all into account, combined with the fact that memory orders on average tend to come in relatively late, mostly in the time – in the quarter that they also need the equipment. All that taking together has made us give the guidance – give you the guidance on the second-half. And so that provides a little bit more color on how we came to our longer-term guidance.

And so, yes, in terms of WFE market based – yes, overall, we are confident that that we have the potential to – in the next couple of years to grow our position and share of the WFE market. For the 2016 calendar year, specifically, as we said, we expect our market share in ALD, we would not be surprised, if our market share in ALD would be higher than in – would end up higher than in 2015.

And – but how our performance relative to the WFE market as a whole looks specifically at the end of this calendar year, that depends, of course, on the exact timing of investments, of specific industry segments, and the timing of specific customers. But the bottom line for us is that, we are as confident as we were at three months and six months ago of – along the strategic position of the company and its product. And that will – yes, that will give us a good opportunity over the next couple of years, not specifically in one, two, or three quarters, it gives us a greater opportunity to our go-to-market.

Peter Olofsen

Okay. That’s very helpful. Thank you.

Operator

We will now take our next question from Tammy Qiu with Berenberg. Please go head.

Tammy Qiu

Hi, guys, thank you for taking my question. First of all, I would like to get some clarity on the foundry trend, because it will indicate the momentum of the other guys, which is strong in logic and foundry industry

Foundry order has been leading the trend over the past two quarters. But from a node perspective, I remember last quarter you were talking about, I mean, the older momentum wasn’t really driven by foundry, it was mainly driven by memory and followed by logic – the foundry and logic. And this quarter you were saying, the order momentum is driven mainly by logic than memory, than foundry.

So from your perspective based on current visibility, is next quarter going to be a massive foundry quarter, or is it something happening after, and how should we view this trend going forward?

Charles Del Prado

Yes, we – well, the short answer is we will – we do expect foundry to be much more visible in the next couple of quarters in terms of revenue and also in terms of bookings.

Tammy Qiu

So from foundry…

Charles Del Prado

And also I can tell you that compared to, let’s say, two months ago, our – yes our visibility on the Logic/Foundry segments potential for the whole year has significantly improved. And based on that, we are – well, we have become even more confident on their spending for the calendar year 2016.

Tammy Qiu

Okay. And do you think that 10-nanometer spending from the foundry perspective will impact your order, mainly from potentialy Q3 and throughout beginning of 2017, or is it too optimistic?

Peter Van Bommel

Well, well I don’t want to give too much guidance, but there is a little bit – it’s clear that logic kicked in – the logic momentum in 10-nanometer kicked in a little bit earlier than the foundry momentum, and that’s both in terms of bookings, as well as in terms of revenue. But you see that now in the course of the year, foundry is – will catch up, that’s all I would like to say about.

Tammy Qiu

Okay. And last question is that from foundry perspective, because and also logic I would say, you have been seeing competitors try to penetrating this market. From the current visibility or feedback you have from customers, do you think they are using your competitors ALD tools because of – they just try to see what they’re offering just for a diversification purpose, or they are seriously thinking about buying the tools from an alternative supplier?

Charles Del Prado

Well, I think they – we have seen activity and as we had just said on earlier calls, we have seen activity in memory and we have seen a clear activity in logic from competitors, and let’s say, in memory. So on clear penetration from competitors happens at the 2x node already, and that – and you see partly reflected in the market share – ALD market share numbers that were published by research firms.

In the Logic segment, it’s very likely that in the 10-nanometer node, yes, there will be some penetration from competition in, yes, in certain areas. But at the same time, as you know, as we shared before, our number of applications and our number of layers engagement is going to significantly increase going from 16, 14, to 10. And that is as a result of as we shared when discussing the overall ALD market size, there’s room for more players to benefit.

And so we don’t necessarily suffer in terms of growth from competitors picking up some opportunities in the Logic segment going to 10-nanometer. We’re not that worried about that. We are focused on the successes that we are making towards 10. And based on that building on those increased – that increased penetration level at 10 towards 7, that’s what we are focused on. But for sure, there will be some successes claimed by competitors in 10, so that’s fine.

Tammy Qiu

Okay. Thank you, Chuck [ph].

Charles Del Prado

Yes, you’re welcome.

Operator

We will now take a question from Chetan Udeshi with JPMorgan. Please go ahead.

Chetan Udeshi

Yes. Hi, Chuck, a few questions from my side. You are talking about second-half to be much stronger than first-half. But do you think you can – the strength in second-half will be strong enough to have flat to sales for the whole year, as consensus looking for at the moment?

And the second question is, on your market share in ALD, which I found quite interesting that you are saying you expect market share to be higher this year versus last year. What is driving that? Is that new applications, where you’ve seen greater adoption than some of your peers on logic side, or is it on memory side, if you could give us some more information on that could be very helpful. Thanks.

Charles Del Prado

Yes, Chetan, yes, I told the first question, yes, I tried to provide already some caller on how – on our guidance for the second-half earlier in the Q&A. So, the one thing is, I – again, I’m not going to give anymore quantitative guidance on the second-half, because we’re just not usually doing that.

The only thing I can repeat in a shorter version is that, based on the backlog in Q1 and the guidance we gave for Q2, you can expect that we may – we’ll start the second-half likely with a higher order backlog than we have now. So that provides opportunity for growth in the second-half compared to the first-half.

Secondly, we expect logic and foundry to be stronger in the second-half, and yes, we made certain assumptions on memory for the second-half. Again, we see NAND flash developing traction in the course of the year and the engagement we have with customers in higher stacks.

But, of course, the volume depends on how quickly they can develop their yields to acceptable levels. But we see definitely in the course of 2016 and going into 2017, that that developing. And then, again, if it’s two or three months earlier or later, that’s just too early for us to tell at this moment in time.

But for you and for us, the only thing would – that should matter ultimately, is this the company positioning itself well? Because based on that, we should look at this company, and in that respect, we feel good. And also for DRAM, again, the exact timing that we made certain assumptions, but it could differ one or two months earlier, it could go two, three months out, we don’t know.

The key thing that matters to us, that should matter to us all is, whether the company is well-positioned for the 1x node, with its equipment and has the right competitive position. And there we feel that we have done our homework. And, yes, so that’s all I can say on the outlook for the year. And our market share on ALD 2016, maybe my answer was not clear enough early on, it’s based on the fact that, we assume that in the single wafer ALD space, the biggest driver for ALD even in NAND in 2016 will be logic/foundry.

And in logic/foundry, our engagement is significantly increasing going from 16, 14 to 10. So based on those two observations, we would not be surprised ultimately at the end of the year, our ALD market share in single wafer ALD will have gone up, yes, because the relative spending in memory is expected only to increase towards the end of the year in the single wafer ALD space. So that’s the reasoning behind our statement, Chetan.

Chetan Udeshi

Thanks for that.

Charles Del Prado

Okay. You’re welcome.

Operator

Our next question comes from Philip Scholte with Kempen. Please go ahead.

Philip Scholte

Yes, good afternoon, everybody. Following up on the overall, you’re confidence on your ALD share you stated your company is about – your strategic position has strengthened. Can you talk a bit about why that exactly is that? Is that and is that actually driven or related to specific segment like logic/foundry, or memory, or is it just actually across the board, can you imagine maybe with specific designs, or yes, our production tools that specific decisions have been taken. So can you talk maybe a little bit about that?

And my second question is regarding the outlook you’ve provided for the second-half of the bookings outlook you gave for the second quarter is actually still over the 10 modest in that respect. And how can we reconcile those two?

Charles Del Prado

Yes, Philip, I think, it’s – thank you for your question. It’s difficult to add much more, because you said, yes, our strategic positioning and we tried to give color earlier in this call on how we view our position in logic/foundry. We are building a position in V-NAND, as we shared in this call and also shared in earlier calls. And we view to be well-positioned for in the next investment cycle in DRAM. So based on that, our view is that, we have a good position as otherwise I’m going to repeat everything.

And then on the second quarter, you – yes, the guidance on the second quarter you were – yes, you said, and if I look at the second quarter order guidance, I cannot completely recognize. Yes, while we tried in our opinion, it’s most important, not to only focus on, let’s say, the guidance for our Q2 orders, but to focus on the bigger picture that we tried to, yes, give in answering the questions that were raised earlier. Yes, it’s difficult for me to add much more.

Philip Scholte

Okay. Thank you.

Charles Del Prado

You’re welcome, Philip.

Operator

We will now take our question from Marc Hesselink with ABN Amro. Please go ahead.

Marc Hesselink

Yes, thank you. Maybe firstly as a – maybe is that on the guidance question, if I somewhere that – this is correct that you say that logic/foundry will be stronger in the second-half of the year and NAND will be stronger in second-half of the year, and DRAM will also be stronger in the second-half of the year. But then on, let’s say, the memory segment, it’s a bit still uncertain like how it’s really going to turn out given the shorter lead times, is it correct if I assume like that?

Peter Van Bommel

Yes, Marc, I think revenue wise, I think, it’s fair to say logic and foundry is expected to be stronger in the second-half than in the first-half. We do based on our current visibility, we do expect DRAM to be stronger in the second-half and in the first-half from a revenue point of view.

And from a NAND flash point of view, yes, likely revenue will be higher, but that depends a little bit on the timing. It depends a little bit on the timing of how well – how quickly our customers can get their yield improvements on track for the higher stakes. So that influences the timing of the NAND improvements in terms of revenue.

In terms of bookings that it could show a little different pattern, but it’s too early to tell that. So I trust that answers your – provides you a little more color, Marc.

Marc Hesselink

Yes, it’s very clear now.

Peter Van Bommel

Okay.

Marc Hesselink

Then maybe the other question that I have is, you’re still increasing the applications of ALD. Do we also expect that – also the R&D costs will continue to move up?

Peter Van Bommel

As we already here said earlier, Marc, we’re managing our R&D costs in the – as an average in the low to mid-teens. And when we see opportunities or when our Christmas come back to us with rigorous then for sure, we’re going to facilitate that. So we expect that – that’s part of possible to reason why we have said, okay, when – even – also in our sales increasing, we expect that R&D will gladly go up.

Marc Hesselink

Okay, thanks. And then final question is on looking beyond 10-nanometers in your current discussions, what do you expect for 7-nanometer? Do you expect to the level of multiple patterning in that stage, or still a bit early to tell?

Charles Del Prado

Well, based on what we know is that multiple – you mean in logic,/foundry, ah?

Marc Hesselink

Yes, yes.

Charles Del Prado

Yes, in logic/foundry while we don’t foresee that dramatic reduction or so in 7-nanometer for our multiple patterning, because I assume you were referring to EUV.

Marc Hesselink

Yes, that’s correct.

Charles Del Prado

Yes, EUV could best case hit the market at 7, but if it hits the market, we – the overall expectation from everybody is that the impact will be limited, if at all, at 7-nanometer, and that – a stronger influence could happen at 5-nanometer. But as we said before then you should compare that not with the level of the patterning market today, but with the level of the patterning market at the moment in time, but that’s way too early to assess now.

Marc Hesselink

Okay. Thank you.

Charles Del Prado

Yes, you’re welcome.

Operator

We will now move to Mathias Santos Silva with Morgan Stanley. Please go ahead.

Mathias Santos Silva

Good afternoon. Thank you for taking my questions. So do you expect 2016 to be slow year for the ALD market in general compared to 2014 and 2015? And what are the main negative factors behind the developments? And also the second question, so if we look towards 2017, what you believe would be the main drivers in terms of 10-nanometer, DRAM, or 3D NAND, or Planar NAND? Thank you.

Charles Del Prado

Yes, well, okay. Yes, well, on the ALD market as a whole, how will 2016 develop, as we try to share before logic/foundry will be likely the most important driver for the ALD market in 2016, which likely contribution towards the end of the year of DRAM, and a gradual – gradually increasing contribution from a vertical NAND.

Yes, at – so the logic/foundry number one, and DRAM and V-NAND likely increasing towards – contribution towards at the end of 2016. And in 2017, yes, 2017 is going to be an interesting year, because we expect the 10-nanometer ramp not to be finalized in 2017. And we expect the memory markets to develop. We trust the memory markets will then develop in a more meaningful way compared to 2016.

So – but of course in this industry a lot can change in six to nine months, but that is the current assumption that’s being made of the market. The 2017 will be a stronger year for the industry, for the industry as a whole, and as such likely also for ALD in 2017 compared to 2016. Is that clear or not, Mathias?

Mathias Santos Silva

That’s clear. Thank you very much.

Charles Del Prado

Okay, you’re welcome.

Operator

We will now take a question from Hans Slob with Rabobank. Please go ahead.

Hans Slob

Yes, thanks for taking my question. Firstly, do you expect that 3D NAND can be already a clear contributor to your second half of the four months? And could you elaborate a little bit more on the number of 3D NAND applications you are developing and your large share? And secondly, how is ALD technology positions for the 3D H1 technology and when could this be impacting let’s say order intake?

Charles Del Prado

Yes, I think, yes share of wallet and number of applications, yes I understand the question from your point of view whether it’s too early to elaborate on that in public? But what we can say is like we said before in the NAND market, our engagement in Planar was strongly focused on patterning related applications, now going to vertical NAND and the amount of patterning layers is significantly going down and our focus over the last couple of years in our R&D engagement with customers has been strongly on developing traction in non-patterning related business. And we trust that that is going to pay.

The customers that we are engaged with really there, we’re working on multiple layers of non-sacrificial layer penetration as these customers will develop volume at higher stacks. And that indeed again depending on the timing of their ramps, it – the business volume, the dollar volume will increase towards the end of the year and going into 2017.

You were also referring to some developments on exploring cross point emerging memory. Yes, it’s too early to make let’s say business comments. P&L related comments on that. The only thing we can say is that we are engaged in those developments with our customers and it really depends on when the customers of our customers will really, yes make this – these markets take off. And so far the visibility on that is still limited. But again our R&D engagements are there. So from that point of view, yes we have done our homework and are ready to engage as soon as our customers’ products get traction in the market.

Hans Slob

Okay, thank you.

Charles Del Prado

You’re welcome, Hans.

Operator

We will now take a question from Jim Fontanelli with Arete. Please go ahead.

Jim Fontanelli

Yes, hi good afternoon. I guess we’re coming to the end of your time now. So I’ll keep it some reasonably quick. You talked a little bit about NAND engagement and kind of renewing revenue opportunity for 3D NAND to 48 layer? Is it too early to talk about the relative opportunity side between 48 and 64 layer given that clearly Samsung is going to be moving to 64 by the end of the year? It will be useful if you could maybe not at quantitative level, but certainly at a qualitative level, give us an idea of how you see the broad ALD opportunity 64 layer versus 48 as a starting point?

Charles Del Prado

We do expect in general, not on specific customers. But we’re going from 48 to 64 that that is going to increase the potential market for us.

Jim Fontanelli

And is that – you talked about within logic, you gave us a little bit of sort of constant guidance and talking about more in a handful of increase in your opportunities between 14, 16 and 10. Is that – how do you think about the magnitude of opportunity between 48 and 64?

Charles Del Prado

Yes, Jim, that’s a very good question. It’s too early for us to provide you color on that. We are learning a lot through our intense engagement with our customers now. And I think also – let’s say to final word is not out, because quite a few customers are making now these current stacks work. And so we know what kind of engagements we have, let’s say, for the next stack node. But it’s far too early, not only for us, but also for our customers to decide what they will finally insert it into their final products.

Jim Fontanelli

Okay, fair enough. For DRAM 1x, as you mentioned, there’s one customer moving to 1x over the second-half, I guess, there has been process look down on that, right? You now have a clear idea of what laser exposed to for 1x, or is that still in decision?

Charles Del Prado

Well, I think, we have a reasonable visibility on what, likely the needs are for 1x, but we have ultimately the evidence comes when POs are there. And – but we – of course, our customers are from a technology point of view are already pretty far…

Jim Fontanelli

Yes.

Charles Del Prado

…in their development cycle, as some announcements in the market already have shown.

Jim Fontanelli

And do you think you can hold share from where you were at – where you are at 20 to 1x? You talked about relative share opportunity in foundry and logic, and increasing your share there. How do you see that for DRAM, as we move to 1x and 1y?

Charles Del Prado

Yes, well the only thing I can say is, as we said earlier in the call that there’s some healthy competition in the memory market. And we do expect competition will be there also down the road. But we view that we have a good opportunity to get a healthy chunk of the decision in that node. Yes, I would like to leave it with that.

Jim Fontanelli

Okay. And then maybe very quickly just on a couple of potential opportunities outside your traditional areas of business. One, if you could give us an update on where you think the roadmap is and sort of the commercial – the potential commercial implementation of selective deposition, and whether you’ve seen any increase confidence in that maybe over the last quarter or over the last half?

And then secondly, whether you’re looking at some additional ALD opportunities outside of semi, say for example, OLED encapsulation is an obvious one, whether thats something that you’re spending any R&D money on?

Charles Del Prado

Yes. Yes, Jim, I think, we are – I don’t want to go too deep into, let’s say, repeating on our specific R&D programs. But I think you have – both your questions are very good. General answer I can give is that, our primary focus is semiconductors, that is our – the primary focus of the company.

And yes, you were also asking some question on selective. And so I don’t want to go into too much detail in Investor conference call on specific R&D programs. I trust that, yes, that you do respect that. Although I also very much respect your deep knowledge of the industry, yes.

Jim Fontanelli

Sure. And then – I can understand. Do you think generally…

Charles Del Prado

Sorry, sorry. We have to move onto the next.

Jim Fontanelli

Yes, fair enough.

Charles Del Prado

Okay. Hey, Jim, I propose that maybe further question do you have, you follow-up with Victor, offline.

Jim Fontanelli

Yes, I appreciate your time. Thank you.

Charles Del Prado

Okay. Thank you.

Operator

Our last question today comes from Mr. Stephane Houri with Natixis. Please go ahead.

Stephane Houri

Hello, can you hear me?

Charles Del Prado

We can hear you very well, Stephane.

Stephane Houri

Okay, thank you. So actually I’ve got two questions. The first one is a kind of a housekeeping question. We’ve seen some negative impact on 4x in Q1 on your net cash position, because it’s – where you have the same kind of impact going forward? That’s the first question.

And the second question would be a bit different than as before about the full-year guidance. What is the kind of level of maximum general – you can generate with your current organization on the quarterly basis? Thank you.

Charles Del Prado

Well, I – let’s start Stephane with your – with the last question. We don’t at this moment in time view that there is a – our belief is that this moment and there is no constraint in terms of capacity to meet let’s say any potential demand this year or next year, yes, but let’s focus on this year. We don’t see that that could be constrained, yes for the company. So that’s on the second question. Well, first question, Peter?

Peter Van Bommel

Let me answer that question, Stephane. As you might remember from previous call, so we have said several times that we are basically a dollar company report in euros that is one of the reasons why we keep most of cash in U.S. dollars. And as you might recall, what has happened in past quarter? The average development of the dollar as compared to the fourth quarter was relatively stable and that’s the reason why when you look to our sales and our result then was – which we account for that against the average dollar development that’s not the case with balance sheet position.

So the balance sheet position, especially for the cash hold in dollars. We saw that U.S. dollar against euro was developing towards the end of the quarter, less favorable. So while we had in dollar, euro at the end of December last year of 109, we had now dollar – euro at the end of March of 1.14. So you have done the translation difference then you book that as a result and that that has been loss of €11 million and that could fluctuate often time.

So when I had to do the accounting today then you might recall that dollar is little bit more favorable, so that is positive thing. We think that given the sort of company as we are that we have to keep that cash in U.S. dollars, so that will show movements quarter-on-quarter and got it simply the translation difference. I trust that answer the question.

Stephane Houri

Absolutely and the last point, could you give us the quick update if you can on your position and the 40% stake you have in this entity. Thank you.

Peter Van Bommel

There is no change in the position of the company with respect to our stake entity.

Stephane Houri

All right, that’s very clear. Thank you very much.

Peter Van Bommel

Okay, you’re welcome.

Operator

As we have no further question, I would like to hand back the call over to your host for any additional or closing remarks.

Charles Del Prado

All right, well I would like to thank you all for the extensive amount of questions that we – that they were today. I trust that we were able to answer them as well as we could. And of course as always thank you very much for attending today and please feel free to contact us through Victor Bareño or any further questions that you may have based on the goal or on any other information as part of the press release as we share overnight. So thank you, again and I trust we stay in touch. Okay, have a nice day. Bye-bye.

Operator

This will conclude today’s conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!