ASM International NV (ASM) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ASM Second Quarter 2026 Earnings Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Victor Bareño, Head of Investor Relations. Please go ahead, sir.

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, Paul Verhagen. ASM issued its second quarter 2026 results yesterday at 6:00 p.m. Central European Time. For those of you who have not yet seen the press release, it's 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. For 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.

Thank you, Victor, and thanks to everyone for attending our second quarter 2026 earnings call. We will follow the usual agenda for today's call. Paul 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, Paul.

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 2026 amounted to EUR 1 billion, above our guidance of EUR 980 million. And 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 & Services continued to deliver a very strong performance with a 34% year-over-year growth in global 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. [indiscernible] 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 HVM-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 report for the full year '25, primarily explained by the phasing of shipments. We expect memory sales in the second half to be substantially higher than 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. All the power/wafer and analog revenue increased compared to 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 of 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 in constant currency in Q2. We continue to invest heavily in innovation to support customer road maps 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 percent 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 EUR 22 million in the second quarter compared to a translation loss of EUR 60 million in the second quarter of last year. As 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 A&P, amounts to $9 million in the second quarter, up from EUR 4 million in the year ago period. Let's now move to the balance sheet and cash flow. ASM's financial position remains on a strong footing, and we ended the quarter with a cash position of EUR 1.2 billion. Free cash flow increased to a record of EUR 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, although it will continue fluctuating from quarter to quarter. CapEx amounted to EUR 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 EUR 150 million to EUR 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'll turn the call back over to Hichem.

Thank you, Paul. As Paul discussed, we delivered strong results with quarterly revenue exceeding the $1 billion milestone for the first time, despite increasing strength 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'd like to thank our teams for their execution and tireless efforts 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 remained very favorable in the second quarter. Hyperscalers continue 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 has been 2-nanometer node remains the largest driver of investment activity, supported by the ongoing capacity ramps 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 in 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 FEMSA's nodes where ASM continues to hold a strong share of wallet. Looking ahead, leading customers are preparing for the industry's next major technology transition at 1.4 nanometers. Customer engagement remains high, and we continue to project the first contribution in the second half of 2026 as customers start investing in 1.4-nanometer pilot lines. This node is expected to deliver another mini fold 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 opportunities 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 millimeter to increase further as customers increasingly deploy additional process steps and performance-enhancing there 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 name both in ALD and in API. We are also very pleased by the recent wins for our modeling ALD offering at the 1.4 nanometer node. These trends position 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 assembly applications, particularly in China, demand remained strong in the second quarter, following the acceleration already seen in the first quarter. Customer appetite in the China market for capacity addition continues to supported by many of the same secular trends underpinning investments 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. [Audio Gap] DRAM market. And during the quarter, we were selected by another DRAM customer for our epitaxi solution. Looking further out, we remain very positive about the strategic opportunity in DRAM with the transition to 4 square cell architectures and FinFET-based peripheral sites, which are expected to move to production in the 2028, 2030 time frame. Since F-based peripheral [indiscernible] is expected to deliver further improvement in performance and speed, while the transition to [indiscernible] square cell architecture and vertical channel structure is targeted to enable a higher bid 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 transitions will increase our DRAM served available market by USD 400 million to USD 450 billion over the next 2 notes, supported by expanding customer R&D engagement in 4F Square and Finery, 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&D to help enable key technology transition, including next-generation gate all-round architecture and for 4S Square 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 Epitaxi, we continue to invest selectively in areas where we can bring differentiated technology to customers. One example is our plasma-enhanced CVD patterning solution that's gaining encouraging customer engagement due to its excellent gas sales 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 opportunities 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 EUR 1.1 billion. For the second half, we project revenue to be up by over 20% compared to the first half at constant currency. The 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 a 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 HB and 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 applications, 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 marginally offsetting the decline in mature logic/foundry. Looking beyond our outlook for the second half of 2026, 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 and customer visibility, we now expect our 2027 revenue to exceed the top end of the EUR 3.7 billion to EUR 4.6 billion range we shared last year.

Thank you, Hichem. Let's now move to Q&A. To accommodate many callers as possible, please limit your questions to no more than 2 at a time. Operator, can we have the first question, please?

[Operator Instructions] First question is from Sandeep Deshpande, JPMorgan.

My question is, you've indicated 2027 is now going to be above top end of your guidance, how should we be thinking of the granularity there? I mean when we look at your guidance in the fourth quarter, you're close or rather implied guidance in the fourth quarter you're looking at, say, EUR 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 one quick follow-up.

I'll take the question. So we are very positive on detail about our 2027 revenue projection. The reason why we are very positive is because of our interaction with our customer. And they have given us actually very early on their equipment plan for 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% in the first half, making your [indiscernible] our revenue was going to exceed EUR 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 EUR 3.7 billion to EUR 4.6 billion. The lower end doesn't make sense from that point of view because we're going to grow in 2027 and 2026 would be at EUR 4 billion. So that's really one of the reasons we mentioned we really wanted to make sure that you guys understand that we have to talk about this. And then, okay, we're talking about the higher range, the EUR 4.6 billion. 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. Well, it's very early to give really specific guidance, okay? But let's discuss the trends that we are seeing right now for 2027. So if you look into advanced logic and foundry, it's going to be really the key driver for us in 2027. This is supported by 2-nanometer node. And 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 really strong in 2027 because leading customer is preparing for high volume manufacturing in 2028. As we have all around said that 2028 will be the 1.4 nanometer HVM. So we see orders happening in -- for 1.4 nanometer into -- right now. We're shipping in the second half of 2026, and we're going to actually 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 customers really being very excited about that. But also, we see a strong growth in our memory business because customers are increasing their investment in new DRAM. They're 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. It's really starting, and we see it to continue in 2027. And this is really driven by power solutions 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, we expect 2027 to be a very strong year. And I think when we arrived in 2027, we probably will be able to give you more visibility on when -- what's the number greater than EUR 4.6 billion.

Regarding -- you talked about on 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?

No, this is new wins. I mean we talked before that we had some wins in moly. And actually, in 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 looking for metal deposition market. And customer likes the solution, and we're really excited about the latest wins that we have.

Next question is from Nigel van Putten, Morgan Stanley.

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've seen last year, so just trying to understand order behavior from those customers. Would it be fair to say there's 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's my first question.

Yes, maybe on mature logic/foundry, and Nigel, this is Paul speaking. What we see unique 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 potential 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 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's exactly what we see now, both in orders but also, of course, then revenue that will follow. But the good news is that Hichem already indicated that we see that actually compensated through growth, although both from a low base in memory in China and in [indiscernible].

So 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, is you're looking at more sizable opportunities from an M&A?

And then we'll see going into next year how we deal with excess cash. But you're right. We are looking at M&A. And if we can find opportunities, we will act on it. But there's nothing now at this moment that I can talk about.

Next question is from Didier Scemama, Bank of America.

So my first question is really for Hichem. Can you help us understand how you think about ASM revenue growth over the course of '27 and '28 relative to WFE. I think consensus expectations are for around 30% WFE revenue growth over the next couple of years. I would have thought that given your increases around 1.4-nanometer with high ALD and Epi layers, your new wins in moly metalization and maybe in 28, the beginning of a benefit in 4S Square, you'd be comfortable to be at least in line, just wanted to hear your thoughts around that. And I've got a follow-up.

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 whatever the market is going to grow, we actually is going to grow at that market even higher than that. I think that we are very positive about the -- our position in leading edge logic and foundry. Our expanding market share in 1.4-nanometer was actually happening. And in 2027, we are very excited about our growth in DRAM with new applications and wins in both ALD and Epi taxi. What can I tell you? If the market is going to grow 30%, then we are at least going to go at that level. There's no question about it.

Makes sense. The other question was about 4S Square. So it may be a bit early to talk about that, but I think at least some of your customers are really investing in 4S Square transition towards the end of '28 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 4S Square? Historically, as you mentioned, you've got a, let's say, weaker competitive position in DRAM versus leading logic/foundry. But obviously, you have a very strong position in single-wafer ALD and taking share in Epi. So would it be -- it's fair to have something in between these 2 market share? Or do you think you can even hope to get, let's say, single-wafer ALD or Epi market share consistent with leading edge logic?

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 customer for 4S Square for both our ALD and Epi technology but even more than that in some of the leading technology that we have. Customer really working with us on these applications. We understand that for 4S Square will be started in 2028, continue through 2030. So we're -- yes, we're coming from very small market penetration, but we're really excited. I mean if I look into ALD, I mean, definitely, there's more ALD layer happening in the FinFET. I think 4S Square -- with 4S Square, also there's going to be more FinFET. We're very excited also about the architecture for the architecture, which needs some ALD, both terminal ALD and PLD happy definitely. We are -- we have gained share, and we think that our solution is being accepted by our customer. We're already in HVM in Epi with one customer, and we're getting there with the other customers. So overall, things are very positive from that point of view.

Right. Can I just squeeze in a quick one. I wondered you mentioned the strength of [Audio Gap] started since 1998. We have a very good understanding of precursor and chemistry and because ALD depends on that benefit. But also some of these materials that we do are actually providing some benefits, for example, energy efficiency. We're taking also our material 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'm very excited. I think we're using our core competitors which we have for ALD in precursor knowledge and so on, and we extend it to other parts of our business, and we see significant acceptance of that from our customers.

Next question is from Francois Bouvignies, UBS.

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's mostly volume-driven capacity increase driven. Now in the last 2 quarters, you interestingly announced 2 new Epi customers on the DRAM side. So I was wondering when do you think these layers will come through will be visible, Okay, and which application, just...

Yes, I think that -- I think we're not going to talk really about really the implications because it's really customer specific. But let me tell you, it's a large application.

Okay. And my follow-up is a bit a 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're going to grow 35% at constant currency, most likely, which is above most likely this year, which is quite remarkable given the memory lower exposure you have. Now if I put all of that together for next year and you described many times, these AP layers now you're just that you will have to ramp up next year with 1.4 nanometers. Is it fair to say that -- I mean, it's not at least we are talking about it, the gap, the outperformance of 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 a fair representation? Or am I missing something?

I think you're not missing anything, and you just heard me say that I'm -- WFM are very optimistic and positive about 27% and beyond. We're really excited about...

Next question is from Adithya Metuku, HSBC.

My first question is just on the performance you talked about in the last couple of answers. WFE numbers, if you look at it, depending on whose numbers you look at. You're basically looking at 30% to 40% growth in '27, potentially another 20% after that in '28. So if I follow on from the answer you gave to the previous question, you're essentially talking about potentially maybe 40%, something like that in terms of revenue growth in 2027. I just want to understand, I can do mathematics correctly, how you're thinking along similar lines. And I've got a follow-up.

Yes. What we've said, Adithya, is that as a minimum, we expect to grow in line with WFE and most likely more Isis explained the trends that we see in I'm not going to do the math for you, yes. There's 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. As I just mentioned to, I think it was Nigel's question. But at the same time, there is low visibility. So things can still change. But overall, I can only repeat what we've said already. We are very positive. We had some nice wins. The 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 26x 1.3 something. So you're correct, yes.