ASM International Stock

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ASM Third 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, everyone, and thank you for joining our Q3 2026 earnings call. With me today are our CEO, is Hichem M'Saad; and our CFO, Paul Verhagen, ASM released its third quarter 2026 results yesterday at 6:00 p.m. Central European Time. The press release is available on our website together with our latest investor presentation. .

Before we begin, I would like to remind you that today's conference call may contain forward-looking statements in addition to historical information. For further details on the risk factors relating to these forward-looking statements. please refer to our press releases and financial reports, which are available on our website. Please also note that during today's call, we will refer to profitability metrics, primarily on an adjusted basis. Reconciliations to the reported numbers are included in the press release and the investor presentation.

With that, let me hand over to our CEO Hichem M'Saad.

Thank you, Victor, and good afternoon, everyone. Thank you for joining our third quarter conference call. We will follow our usual agenda. Paul will start with a review of our third quarter financial results. I will then discuss the latest market developments and our outlook. After which, we will open the call for questions. Paul, over to you. .

Thank you, Hichem, and thanks, everyone, for joining our call today. So let me start with the financial performance. So revenue reached a new records of EUR 1.16 billion at the upper end of our guidance rate of a guided range at constant currencies. Compared to the same quarter last year, revenue increased by 44% at constant currencies, while sequentially, revenue was up 14%. The Equipment revenue increased by 48% year-on-year at constant currencies, led by strong ALD demand. Service products also delivered another strong quarter with revenue increasing by 31% year-on-year at constant currencies. This was supported by continued momentum in our outcome-based services together with strong spares demand as customer fab utilization remained at high levels.

In terms of customer segments, revenues led by the Advanced Logic Foundry segment. Sales-related 2-nanometer remained strong, while 1.4 nanometer made its first solid contribution as customers started investing in pilot line activity. 1.4 nanometer already represented a significant double-digit percentage of our advanced logic finery sales in the quarter. We also saw another healthy contribution from the 3 to 5-nanometer nodes. Mature logic foundry sales remained robust, mainly driven by the Chinese market. Memory increased strongly, both year-on-year and compared with Q2. The largest part of memory sales was related to high-performance DRAM for HVM applications.

We've also seen increased memory demand in China, albeit from a low base. Finally, power, analog and waste revenue remained stable at a relatively modest level. For the fourth quarter, we expect revenue in this segment to increase significantly. Gross margin came in at 52% in Q3, broadly stable compared with 51.9% in the previous quarter. The continued favorable customer and product mix, together with the gradual benefits from our cost efficiency managers supported the margin during the quarter.

For the full year, we now project gross margin to be around 52%. The increase in SG&A expense versus the previous quarter was mainly explained by higher head count and higher variable expenses related to increased activity levels and company performance. As a percentage of revenue, SG&A improved further to 7.6% compared with 7.9% in Q2, reflecting continued operating leverage and ongoing efficiency initiatives. For the full year, we now expect SG&A to be around 8% of revenue.

Total company head count increased by around 400 or approximately 8% compared to the end of the second quarter mainly to support the ramp-up in operations as well as continued expansion in R&D and our service organization. Gross R&D spending increased by 14% year-on-year to EUR 144 million. As we continue to invest in a technology road map and future growth. Net R&D expenses increased more strongly by 30%. The higher growth in net R&D compared with the growth spending was partly due to the lower capitalization of development expenses and also reflects a EUR 7 million impairment charge in the third quarter.

Operating profit increased by 54% year-on-year at constant currencies with the operating margin improving further to 33.4% compared with 33.0% in Q2. If you look at the main movements below the operating line, financial results include the currency translation translation loss of EUR 22 million in Q3 '26 compared to a translation gain of EUR 22 million in the previous quarter. Mainly explained by the weaker quarter and U.S. dollar against the euro compared to the end Q2. Our share of income from investments, reflecting our stake of 24.6% in Asian PT amounted to EUR 15 million in the third quarter, up from EUR 9 million in the previous quarter.

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 1.3 billion. Free cash flow remained strong at EUR 330 million -- EUR 313 million in Q3. This was below the record EUR 335 million in Q2, but significantly higher than the EUR 139 million generated in Q3 last year. CapEx increased to EUR 55 million in Q3. up from EUR 38 million in the same period last year.

We continue to expect full year CapEx to exceed EUR 250 million with the largest part related to our new Scottsdale sites. Despite the strong sequential increase in revenue, working capital remains broadly stable due to improved days of working capital, which dropped from 50 days at the end of June to 43 days at the end of September. Looking into Q4, we expect working capital to increase due to revenue growth as well as higher dated inventory as we prepare for higher activity levels in 2027. During the quarter, we executed EUR 150 million share buyback program, which was completed on September 14. And as most of you have probably seen in yesterday's press release, we also announced a new share buyback program of up to EUR 300 million. This reflects a strong cash position and financial performance as well as our continued commitment to return excess cash to shareholders. In summary, Q3 was another strong quarter. We achieved record revenue and a very strong level of profitability while continuing to invest in innovation.

And with that, let me hand it back to Hichem.

Thank you, Paul. Q3 was another strong quarter for ASM, as Paul just outlined. -- revenue reached a new record, increasing 45% year-on-year and coming in at the upper end of our guidance. This was achieved against a backdrop of increasing pressure across the supply chain and reflects the tremendous effort of our teams to ramp output in -- gross cooperation with our suppliers.

Our investments in referent years have provided us with substantial manufacturing footprint to support further growth. In terms of manufacturing space, we have the capacity in place to support approximately 3x our current sales level. Our focus today is, therefore, first and foremost, on the broader supply chain. We are working closely with our suppliers to secure the capacity and critical components needed to meet rapidly growing customer demand in 2027 and beyond.

We continue to see a very strong demand environment. the continued build-out of AI infrastructure drives significant demand for additional semiconductor capacity, particularly at the leading edge. Expanding semiconductor capacity requires significant time from SAP construction through equipment installation, qualification and production ramp up. in response to sustained demand growth, customers are planning further ahead and working with us earlier in the capacity planning process than in prior cycles. This provides us with a good level of visibility into their requirement through 2027 and in certain areas into 2028.

We see this as a positive indicator that customers are planning for sustained capacity needs, supporting a more durable growth outlook for the industry. Turning to advanced logic foundry. Demand remains very strong. Investment in 2nm-related continue at a high level as customers expand capacity and more advanced AI related and other high-performance computing applications moved to this node. We are also seeing increased investment activity across the 3-nanometer took 5-nanometer nodes, supported by strong demand for products such as CPU for Gentech AI, and base by application for HPM tax.

At the same time, momentum at the 1.4 nanometer note continues to build. Q3 was the first quarter in which 1.4 nanometer made a solid contribution to our revenue, primarily reflecting investments in customer pilot lines. We expect this contribution to increase further in the coming quarters and to become a significant driver for our sales in 2027 as customers start investing in high-volume manufacturing.

There are several reasons why we are particularly excited about the opportunity at 1.4 nanometer. First, the opportunity for ASM expands substantially. Both in terms of served available market and market share. With the first generation of gate all around that 2-nanometer, the focus was primarily on successfully making the transition to a new transistor architecture. At 1.4-nanometer, customers are increasingly focused on extracting more performance from that architecture driving demand for additional materials and ALD process steps. This plays directly into ASM's core strengths in materials discovery.

Epitaxy is another important growth driver. With the introduction of gate all around, Nanos channel Epi emerged as a significant new application, and we were very successful in capturing that opportunity. At 1.4 nanometer, we are building further from there, securing additional applications and increasing our share. Taken together, these developments are driving a significant increase in our served available market at 1.4-nanometer compared with 2-nanometer while also supporting further gains in ASM's market share.

Second, the wafer capacity opportunity at 1.4 nanometer looks highly attractive. The substantial improvement in performance and power efficiency enabled by 1.4 nanometer will be particularly important for the next generation of AI logic devices. Customer interest is strong. with some already talking about 1.4 nanometer potentially becoming a larger mode than 2-nanometer. And importantly, we see multiple customers actively working on this note further expanding the scale of the 1.4 nanometer opportunity for ASM.

Turning to memory. DRAM investment increased significantly in Q3. capacity remains tight, particularly in high-performance demand and higher customer spending supported strong memory sales during the quarter. Looking beyond the current capacity investment, we see a substantial multiyear opportunity for ASM. DRAM technology road map remains dynamic. While the industry transition to 4x square architecture may take longer than previously anticipated, development activity remains strong. What remains unchanged is the need to continue improving the speed and power efficiency of each new generation of high-performance DRAM.

What we are seeing as a result is that some innovation previously expected to come with 4 F square are being pulled forward to 6 F square. FinFET is a good example. -- customers are now introducing FinFET in the CMOS peripheral circuitry at 6 F square to improve performance. This drives additional ALD layers in the high-K metal gate stack as well as creating opportunities in other applications. We are already engaged in a number of applications for FinFET and other new innovations that enable these performance gains.

We are also seeing epitaxi becoming increasingly important in DRAM. New FDA applications are emerging as customers push device performance further and we have already qualified additional applications for upcoming nodes. So while the precise DRAM road map continues to evolve, the underlying direction is very clear. customers need more performance and achieving that requires more advanced materials, more ALD and more epitaxi.

For ASM, this creates opportunity to expand our served available market and increase our market share. In 2026, our growth is still driven primarily by industry capacity additions. Beginning in 2027 our new innovations will start to have a greater impact in 2028 and beyond. Another area where we see attractive long-term growth opportunities in advanced packaging. As AI systems become more complex, advanced packaging is becoming increasingly important, creating new opportunities for our materials and deposition technologies across a number of applications.

One particularly exciting area I would like to highlight this time is Photonics, which is growing very rapidly. -- as the performance and bandwidth requirements of AI systems increased photonics and co-packaged optics are becoming increasingly important. We have established a leading position in epitaxy for photodetectors, positioning us well to participate in this growth. Aside from Photonics, we are also developing a broader set of solutions across ALD, EFi, PECVD and preclean to capture the opportunities in advanced packaging. While we are starting from a relatively small base, we believe advanced packaging can become an important additional growth area over time.

More broadly, we continue to look for opportunities to leverage our materials discovery and chemistry expertise to expand into new growth areas. Last month, we launched XP8 Virtus flood carbon. It's the industry's first PECVD flowable carbon process technology and has already been deployed in high-volume manufacturing, developed around a novel ASM design molecule, flowable carbon addresses increasingly complex patterning challenges associated with advanced 3D logic and memory devices. While conventional carbon films have delivered significant value to the semiconductor industry for more than 2 decades. They were not designed for today's increasingly challenging 3-dimensional structures.

Flowable carbon enables carbon films to flow into higher spec ratio and reentered features while maintaining the load if activity critical to carbon patterning applications. In addition, thanks to its unique flowability, the field naturally creates a more -- less merited and uniform surface across different pattern density and across the wafer, reducing process complexity and the need for downstream CMP steps.

Global Carbon is a great example of how we can leverage our core capabilities to successfully expand into new growth areas and broaden our served available market over time. Let me finish with our outlook. As communicated in our earnings press release for the fourth quarter at constant currencies, we expect revenue of EUR 1.23 billion plus or minus 5%. Supply chain conditions are increasingly tight, and we continue to work closely with our suppliers and customers to support the planned ramp in shipments.

Based on our Q4 guidance, we expect full year revenue to grow by approximately 35% at constant currencies with equipment revenue growing even faster at more than 40%. Looking further ahead, the opportunities I discussed today give us a high level of confidence in continuous strong growth in 2027. Advanced logic foundry is expected to be the key growth driver. Within this segment, 1.4-nanometer is expected to become a very strong driver for our sales as customers start investing in high-volume manufacturing, while we also expect further growth in 2-nanometer.

In memory, we expect strong growth, supported by higher customer investment and our expanding ALD and epitaxy positions. We also expect the recovery in power analog wafer to strengthen further. Against this backdrop, we project revenue to exceed EUR 5.7 billion in 2027 at constant currencies. This means we expect to achieve the revenue target SFP for 2030 at our 2025 Investor Day 3 years earlier.

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

[Operator Instructions] The first question is from Jakob Bluestone BNP Paribas.

Firstly, can you maybe just comment a little bit more on the degree of visibility you've got into '27. So -- for example, how well covered is it out of your order book? And then the second question is you've obviously hit your CMD revenue targets 3 years early. So -- just sort of interested in -- I appreciate there's obviously been a lot more capacity expansion than anticipated at the time. But how should we think around the uplift in SAM per 100,000 wafer starts for 1.4 and the sort of DRAM transition as well. Are those SAM uplifts in your view still valid? Or do you think those numbers have moved up?

Let me first -- this is Paul speaking. Let me first talk about the degree of visibility. Yes. What we see today is clearly a much better visibility than what we've seen at least in the prior years. That's also 1 of the reasons why we came out with an early guidance for next year. Based on discussions with customers, the level of detail of the plans they share with us timing of what they need by when, et cetera, it is clear that they are working very, very closely with us to master they get what they need. -- and which can give us, of course, the confidence that the demand is real.

We know their fab. We know when they come on stream, et cetera, at least when they are planned to become a stream and we can use that information and towards our supply base. So as is clearly it doesn't mean that, that is all already covered into POs. Maybe it's maybe slightly better than other years, but still the level of disability based on backlog, based on POs is there not a hell of a little better, I would say. -- also because the specific configuration sometimes still continues the last minute.

Also really good in our backlog at year-end. We have mentioned that that 1 year, we disclosed backlog. So early next year, when we come Q4 numbers, you see that affected in the backlog. And on the SAM, is already talked about it. We're very excited about 1.4. It becomes a very solid on the company has become very solid content to revenue. And yes, this goes significantly increased in 2027. It will be actually pretty big. We see growth in 2-nanometer in 2027 compared to 2026. But 1.4 will actually be the biggest contributor in that year. So already bigger than already a big number for 2 nanometer, which is good.

And in addition, also 3 to 5, will have a healthy contribution but at a much lower level than 2-nanometer and 1.4. The SAM being communicated in the Investor Day is still fail, but we believe it's at the higher end of that range, what we see. So we guided for 450 million to 500 million boater starts. Based on overtime now today, we see today, we believe that's towards the higher end of that range. So all looking pretty good.

The next question is from Tammy Ku of Berenberg.

So the first 1 is your decision of guarding 2027 is quite early. Is that because of the customer commitment has improved significantly in the quarter to make you make that decision to give us a precise number at this point? .

Yes, I think that -- I'll take that question, yes, Tammy. We have a very good visibility, yes with customer for 2027. There was -- the visibility became better. the past quarter, you're absolutely right. And we feel that based on that visibility that we have in 2027 that we'll be able to provide with EUR 5.7 billion revenue in 2027.

And I just wondered, how conservative you are on that number? Because obviously, your lead time is about 6 months. So I guess a lot of moving parts potentially can happen in the second half '27 -- have you been based that 5.7% plus number on a very conservative estimation of maybe something will turn out to be not going on, et cetera, how conservative you are .

I think that if you look into how the industry is going to go in 2027. The growth is going to be over 30%. So if you look into the number of 5.7 compared to our revenue in 2026. That's about the same number, okay? So we -- from that point of view, we already have always mentioned that we're going to grow at least at the level of the market, if not higher. So the EUR 5.7 billion is actually a really mimics the wafer fab equipment increase in 2027. If you take further that our position in 1.4-nanometer is also very strong, both in ALT and epitaxy and the fact that the SAM has increased there. So we think that EUR 5.7 billion is a very good number to go at. .

The next question is from Francois Bouvignies, UBS.

My first question is on the -- is on this FinFET on the memory side versus planar move. I mean you mentioned in Centa maybe for Square could be later. My original idea was that FinFET for memory would be more '28-'29 time frame. So the fact that you have 4Square, may be pushing out or pushed out -- do you see like a pull forward of the [ 6 F square ] FinFET into '27 instead versus '28? And I thought that it would be in terms of ALD layers 2 or 3x higher than the planar structure. Is that the right ballpark?

Yes. Okay. Yes. Francois, thank you for your question. Yes, definitively, we see fintec being put in 2027. And we see that also the LD there in FinFET to be higher, 3x from that point of view. That really comes down to our confidence in the number that we project for our growth in 2027.

And maybe my follow-up would be on the shortages. I mean we hear more and more in the supply chain that some components are quite tight, and you seem to acknowledge that in the release. I mean, what area is particularly tight? I mean, because obviously, you have a big growth project. So I was wondering how much risky it is due to this components tightness? And what specifically is tight for you at this point?

I will take that question, Francois. Yes, the supply chain is for sure challenging, to say the least, and we're on top of it. So also going into next year, that's definitely a continuous point of attention. And there is certainly some risk. I would be lying if you would say there's no risk. We have people at that a few critical suppliers. We are qualifying new suppliers, and we were taking a number of actions to manage it as good as we can. So far, we've been able with pretty hard work to manage it properly.

But it will be definitely at our radar as an increase risk going into but we have quite a few actions ongoing to hopefully manage that. We -- I can tell you the precise components, but we don't want to talk about that specifically for a number of freezers. So I'm not going to go into which component specifically, we see shortage. There's a few ones where we where we see a lot of stress and that we are on top of. But we prefer not to go into detail which ones those are.

Next question is from Stephane Houri, ODDO BHF.

Yes. Actually, my question is -- my first 1 is on 2028 because I know you made an effort to give us guidance for 2027. But given where the industry is and the plans with the new fabs in advanced logic, but also in memory, -- do you already have a first view or discussions with your clients because some of your peers, not really competitors, but like in the same environment, already talk about 2029 and 2030 also. So where does your visibility leads you at the moment?

Yes. Thank you very much for your question, Stephane. To answer your question is that we see good growth continuing beyond 2027 into 2028. With some of our leading customer -- leading edge customer, they shared with us their road map for 2029 and even 2030. And even on 1.0-nanometer note, we also have that kind of visibility right now. So I think this -- we think that 2028 will be also a growth here. As you know, that 1.4 nanometer HVM production will happen. .

And that 2027 is only the pilot production from that point of view because the 1.4 nanometer as was mentioned by many of our customers, is going to be a bigger node than the 2-nanometer node. And because the 1 4 nanometer has more players than the 2-nanometer node, we expect continuous strong sales in 1.4 nanometer node in 2028 and beyond. Second, for us, the growth that we have experienced the past year and also in 2027 -- 2026 and 2025 in DRAM for high-performance DRAM has been based mainly on capacity addition. In 2020 -- by the end of 2027, and most importantly, in 2028, some of the DRAM layers would use more ALD and the application, which we have won this year. So we expect also to see further growth in our DRAM market in memory market in 2028 and beyond.

The third factor is also in the area of advanced packaging. We are just starting there. We talked about photonics -- we are very excited about photonics. We're using the photo dector, using our epitaxi. -- we see new areas of growth in also a trans packaging in PECVD, -- but most importantly, we see that we have more and more application beyond our core Epi and LD technology. So overall, what we feel is that, okay, that we have new growth area. Our service available market is expanding. We're gaining share in DRAM. So pretty much what would happen from 1 to the other that even if there is some economic effect and so on and so forth. I think the projection for us would be resilient and positively.

Second question is around gross margin and you've reached -- well, you said 52% for the year, which is really clearly above the high end of the guidance that you've given all the things that you're saying and you're also saying, if I'm correct, that power, it's going to recover, mature nodes are going to be supportive again next year. So is there a reason why the gross margin would go down from the 52% level that you have now?

I mean, I will answer this question this way. We would like to be able to continue to comment a high profitability for the company. And we -- and as you know, that the gross margin also depends on product next year, but also depends also on customer next year from that point of view. We're actually also having a very strong program to continue improving our gross margin. And some of it right now, I mean, I can even mention that okay, we have, in some cases, increase our pricing for the value that we're providing. But -- so we feel that will be aggressive in maintaining the gross margin that we have from that point of view.

On the other hand, I think the supply chain concerns, not concerned, but also the fact that the supply chain is also tight we see some also increase in some component pricing from that point of view. So the positive is pricing, more value you have better efficiency that would tend to improve your gross margin. But at the same time, component costs will go the other way around. But overall, we do believe that our -- the trajectory for our gross margin would be positive going forward.

The next question is from Didier Scemama of Bank of America.

I've got a couple of questions. Maybe first question for is on the PECVD to. I know you started to talk about that more prominently last quarter. Obviously, the CVD, which is bigger than PECVD I get it, the TAM is 3x the size of ALD. So I just wondered with that sort of differentiated PECVD system, what sort of market share do you think you could get and over what time frame? And I've got a follow-up. .

Didier, for a person who spent 15 years in PC tell you that for ASM, this is really a very small market share than the other big competitor. PCB is a huge business. We have been a small player in PCB for the last 20 years, mainly having some local films at a couple of customers, but that was it. So these -- so this PECVD firm that we have the flowable carbon is a decision that we have made that our expertise, our materials discovery expertise, we would like to expand it beyond and PECVD is 1 of those areas. And with that, we have developed a new molecule, designed a new molecule that will provide this PECVD cell, which we call global carbon that's enabling much better patterning for 3D structure.

And with that, we see a significant customer active acceptance of this technology because it provides much better yield of the devices. So from that point of view, in this part of the market, this is a new market for us, a new area for us in and we feel very good about where we stand from this point of view. On PECVD 2, there are also applications in advanced packaging. And in that, we have some new products that we have developed in PECVD for advanced packaging, and we'll be able to share with you in the next few quarters some of the wins that we have in this area when they happen.

Congratulations and best of luck with PECVD -- my second question is for Paul on OpEx. I think we saw like a pretty big uptick in OpEx in the quarter. just perhaps understandable given your growth rates on the top line. So I'm just wondering, given the guidance you've given for '27 How should we think about OpEx growth next year? .

Thanks for the question, DJ. Indeed, you saw an uptake. But to re extend at least in SG&A that's variable. It's variable expense based on the company performance and the growth, but still it's an expense. In R&D, we had an impairment of EUR 7 million. So also that number is a little bit inflated. But adding it all up, you get the numbers that you saw. We added 400 across the board and not only in R&D and obviously, the biggest part was actually in operations and field service engineers -- we added 400 people in the quarter to support the growth that we see. So also there, we are expanding. We also had some additional one-off, I say that benefits for our employees because it's happening almost across the industry. And that's also important to properly compensate our people and to make sure that we remain competitive in this industry where there's a war for talent going on. So all these elements also play a role, then come to '27. We guided for 2030, you might recall R&D at low double digits. And SG&A based on EUR 5.7 billion revenue or more below 7%. That guidance is now also valid for 2027. So R&D, we still target -- if we can achieve it, I don't know because we cannot even keep up with the growth to be very honest in R&D. So we might lag a little bit there, but we targeted these to be low double digits. And SG&A should come below 7% next year. .

The next question is from Timm Schulze-Melander, Rothschild.

Great. The first 1 is just trying to reconcile 2 things. I think you talked about a very strong book of client interest demand supply chain tightness. But I think you also mentioned that it hasn't converted to purchase orders. And I think that's something that's been echoed by some of your peers. Could you maybe just provide some color there? Is it the deposit rates that are being demanded? Why is that not flowing through? And then I had a follow-up, please.

That's a good question. Tim, why is it not followed through. I mean I guess, it's habit. I don't know. We -- this is how we work with our customers. Typically, we see 3 to 6 months of backlog and sometimes depending on time of or it can be a little bit higher or a little bit lower, but that's basically the trend that we've seen. That's how customers work with us. That is still the case. So they are not converting what they need immediate into POs partially also because we have quite some configurations are typically decided later in this process. We know what kind of tool, we know what kind of platform that we don't know the final configuration always that early. But what we do know is what I said in the beginning of this call, -- we have so much more granularity from customers compared to what we have seen in prior years, plus a much more committed tone, let's say, like that from our customers. So based on that and also based on the fact that their time demand is still higher than what they can supply. -- that's where we base this visibility on.

And of course, great visibility does not necessarily mean certainty. There's a difference between these 2. But yes, based on everything we know today, based on everything we see today, based on everything we hear from our customers, that has basically resulted in the disclosure for 2017.

And then just 1 quick follow-up. I mean the commentary around the technology delivery has been really impressive for a number of quarters, you referenced epi wins, you referenced Flowbarbon. So how come there's been a write-off in R&D? Maybe you could just give us some color about what that relates to. .

We have -- I don't know how many projects, but a hell of a lot really a lot, tens and tens, if not 50. So you will always have, and actually, we need to have, I would normally say. So now and then a project where the win is not there or the customer finally we start certain developments, but finally, the benefits that we would anticipate do not materialize, so the customer will not move forward with a certain development. So you need to have that because I actually don't stretch the envelope well enough. So I mean, this year, I think this is our first 1 on, maybe had a small one, EUR 2 million, I'm not sure if it was this year or last year, but given the amount of money we spend in R&D.

And if you have this amount of impairments, yes, I would almost applaud it. because we need to have that. So there will always be -- we don't have projects that say that require EUR 100 million development costs. We have projects that require EUR 10 million, EUR 15 million, EUR 5 million, EUR 25 million. But all much, much more. And sometimes, yes, project will not -- I say that will not result in a winning proposition and then you need to impair it. 1 project.

The next question is from Adithya Metuku HSBC.

Yes. Two questions, please. Firstly, just kind of coming back to the gross margins, Paul. Now you talked about an improving trajectory from here on for gross margins. Now if I look at your econ debt peers, they all recently updated their gross margin targets. They also gave targets at a similar time frame in 2025and now they're talking about 300 to 400 bps improvement in gross margins over the coming years. So would that be a reasonable assumption to use for you guys as well -- so essentially, your gross margins can go into the mid-50s, maybe with a 2- or 3-year view they -- your peers face the same issues as you face in the industry around supply costs going up, et cetera. and yet they're talking about these things. So is there any reason why you wouldn't see a similar level of increase, especially given you're on the leading edge web, you could arguably say you have more pricing power than your peers who have more broad-based exposure to WFE. So that's my first question, and I've got a follow-up.

Yes. Okay. Let me -- so is already mentioned that, of course, the trajectory should -- I mean our target is always to improve, let's say it like that. So we'll end this year with 50%-- there will be pluses and minuses next year, also based on the said in terms of sales prices, cost inflation, et cetera, and look we want to repeat that. There will be defficiencies in the supply chain that we're working on in terms of -- we call -- we mentioned many times, this emerging transit initiatives that we are developing and that we are gradually rolling out in our products and platforms. We have efficiencies. So -- and there's also a positive structural benefit from operating leverage, although not a lot, but every year, 0-point-something percent is added there given the growth of the company. So it starts add up -- could we move higher. I'm not going to say, yes, I'm not going to say no, but what I do want to say is that for next year, our starting point is where we are today.

And of course, we will try to see how much we can improve -- and then I would expect that during next year's Investor Day, which is very likely somewhere in the second half of the year. New guidance will be provided whatever that will be. I think it's too early now to already give you a new range, but I'm pretty sure that, that will happen during Investor Day next year. But for now, you can Yes, basically, I said is that our trajectory should be good, and that's our target.

And then just a quick follow-up on the photo detector point you made earlier, Hichem. You talked about epitaxy wins. Can you talk a bit about what materials are you looking at? Is this Guardium as night indium phosphide or something else -- any color you can provide on that? And what are the metrics that are allowing you to win versus the incumbents in that space? Any color you can provide there would be great.

What I can tell you about the firms that we're running is that it's a group for element, epitaxy. I'm not going to say exactly what it is, but group 4, you can look at the element table of elements to what kind of elements are there. So from that point of view, this is really where we stand. And we have seen significant acceptance of our technology from our customer because -- when you do a photodetector, you need to have a very good detection ability. And for that, your FTEs has to be super pure, okay? And actually, we have some technical advantage in our technology, whereby we can achieve very, very, very high purity detector layer, which provide us with the leading share that we're having right now. .

I take it it's germanium, but I won't push you on that.

The next question is from Sandeep Deshpande of JPMorgan.

My first question is, I mean, you've now given 2027 growth based on current guidance for this year is about 34%. This year, you are growing faster in the equipment market than in your spares and services, et cetera. So should we assume that sort of trend that the equipment growth will be better than the spares and services growth in 2027 as well. And that would seem to indicate you continue to gain share in the WFE market, and that would probably because of the points you made earlier in the call?

And then my second question is probably to Paul, which is to do with the overall backlog that you have, have you been taking deposits for these orders that you're reporting into FY '27. And has there been price increases in some of the tools that you are shipping into next year?

Okay. So thank you very much for your question. So the -- we see a continued strong growth in our equipment sales in 2027. - And we expect that growth in equipment sales in 2027 to exceed our growth in service products, which really tells you that what we have been saying in the conference call that we're gaining share in equipment and market share, and we're very excited about that. For the second question, I'm going to let Paul answer that question.

Yes. So on the backlog, and I don't know we see deposits where we see actual for quite some time, deposits is what we call what is accounted for in deferred revenue. These are mainly -- these are voice revenue, but deferred, so invoice and paid but deferred for the customer request because tools have not yet been delivered or spare parts have not yet been way or whatever the deliverable is against the credits. So for that part, a big chunk of that is paid for. Other than that, maybe a little bit, but no, nothing, nothing material, Sandeep. except the first.

The next question is from Ruben Devos, Kepler Cheuvreux.

I got 2 remaining. I just 1 on China. -- in July, you talked about some ordering ahead of possible export controls, though not excessive. If we strip that out, what does underlying Chinese demand look like for '27-- and maybe could you also talk about the mix between sort of mature logic memory and power in China, I think you talked about not yet seeing aggressive participation in Chinese DRAM ramps, but has that changed at all in the meantime?

Yes. So China this year is actually very strong. We've seen very good growth in China, in particular, in mature logic foundry, which is now actually gradually coming down from the high that we've seen maybe in Q1, not a lot, but at least it's coming down a little bit, but still good. But that's fully compensated by growth in memory from a low base and also growth in Power wafer analog. For next year, And as you know, visibility in China is always a little bit more difficult. We have -- we talked about good visibility that is true. But in China, that's still different compared to some of the large customers that we have. But still for China, let's say, is still relatively good visibility.

We still see continued good demand, strong demand, similar to this year, I would say. We don't expect a lot of growth there anyhow, but that's not what we see today, but it remains at a good robust level. the growth that we will see next year and the growth that we talked about, that's all coming from advanced logic foundry and from, let's call it, advanced memory for now and that is not so much the case in China.

Then of course, the uncertainty for China is the Magat yes, we've said before, it's -- it will have impact, but we're not going to speculate on how much. It's just impossible given the discussion that is going on and given potential changes that might still come in and matter or not, the bill will make it. But that's an uncertainty related to China. -- if I forget that for a second, park that for a second, we expect still a good strong China next year, but Yes, based on everything we know today, not a lot of growth, very similar, I think, to this year. That's the best what I can give you now.

Okay. Great. Just a second 1 on land actually. I mean we're seeing investment pick up there as well. We've seen new fabs approved in Korea. I think some of your peers have included it in their growth outlook for next year. I mean I understood and it's typically a smaller part of your business, right? But how relevant may it become again for you? And maybe could you talk about some of the relevant or ALD layers here.

Yes, I can take this question. Yes, definitely, we see increase in 3D NAND -- capacity and purchases for 2027. This is a significant actually increase in that. But for us, it's coming from a very small basis. Where we play in 3D NAND is mainly actually in mainly for layers like Gati for higher spec ratio layers, liners and patterning applications.

Next question is from Lee Simpson of Morgan Stanley.

Most of my questions have been answered, but maybe if I could ask a clarification question. I think you were kind enough to say that 1.4 nanometers were about double digit of the advanced logic foundry business. Just wondered if you could clarify that. And then I think you said this will be bigger in dollar terms next year versus 2-nanometer Am I right to assume those 2 clarifications.

Yes. I think what we said on the double-digit for advanced logic foundry for this year, that is correct. -- relative to -- for the advanced logic/foundry revenue next year. And by the way, that was specifically for Q3. I should not forget to add that. But as it's a meaningful solid contribution already and also the same we expect or even better for Q4.

Next year, we expect a significant increase where I already mentioned that names already strong and will -- is expected to grow next year compared to this year, '27 versus '26, there will be growth. But even with the growth in 2 nanometer, we still expect 1.4 to be stronger. So 1.4 really contributing a lot next year. But already this year, it's a very solid contribution in the second half of the year.

Great. Very clear. Maybe just if I could ask a follow-up on China. Following on from the earlier question, indeed, the dynamics here are for slower growth, let's say, relative to other parts of the business. Does this introduce some mixed headwind risk on the margin next year?

Everything else speak yes. So China is typically is accretive. So less China or relatively less China is relative to the total would not be positive to margin. That's correct. But of course, we're not standing still. As I said already, we are basically making improvements on many fronts. That, of course, should also support margin and hopefully offset and maybe even do better than whatever we lose because of relatively lower China sales. But yes, everything else equal, if we would sell exactly the same mixes this year. We have exactly the same prices, but just less China, yes, margin would be impacted. It would be a little bit lower than -- yes, and we're not going to say more than that. It would be a little bit lower Yes.

Operator, as we are running out of time, can we please move on to the last caller in the queue. We still have a few more in the queue. So if you didn't have the chance to ask your questions reach out to us after the call, please. .

So the last question is from Robert Sanders, Deutsche Bank.

Yes, just coming back to the supply chain dynamics. When you look at what's constraining your most important subsuppliers like mass flow controllers, for example, when you look at what's scaling them up faster, is it the company's own mature chip supply? Or is it other non-semiconductor factors? And do your customers get involved with sorting that out and prioritizing your demand over other OEMs? I have a follow-up.

So I'm not sure I fully answer the first part of the question, Robert, on the last I can say, at least no customers don't get involved in sorting out supply chain for us with us. So there can be pretty straightforward. -- but I'm not sure if there was another part of your question.

When you look at what's constraining them in the past, if you remember, in '21, it was not enough mature chips like microcontrollers, et cetera. Is that the kind of chew? Or is it something else? .

No, it's something else.

Okay. And then in terms of how to secure capacity as you ramp up with the sub suppliers, are you prepared to pay down like payments or even sign take-or-pay type agreements to secure capacity? Or is that not something you're considering?

We will do what is needed to secure our supplies and sometimes it might involve indeed some payments, but so far, not will also be very honest. But if that would be needed to secure supply that we need to be for so we'll seriously consider that, yes.

Okay. Thank you all for attending our call today, also on behalf of Hichem and Paul. Goodbye. .

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

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.

Okay. And then just as a follow-up. Some of your peers have been talking about potential delays to the 4F Square transition, partly because your memory customers want to focus on adding capacity at 6F Square to meet the very strong demand that they're seeing. And the worry being that if you transition to 4F Square, you might have yield issues initially at least. Is that something you've also heard from your customers? Just any color on what you're seeing there on that transition. And if that's going to the plans that people had in place 6 to 12 months ago? Any color there would be helpful.

Yes, Adi, 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 issue for the transition to 4F Square. But for us, to be honest with you, this is not consequential or from that point of view because even in the 6F Square right now, technology customers want to have performance and we see penetration both in both ALD and Epi taxi right now in the 6F Square technology node.

So performance is needed. To be honest with you, maybe sometimes you need it more before we transition to second generation. I mean if you're not getting the benefit from architecture, you need to get benefit from materials. So it's good for us either way.

Next question is from Stephane Houri, ODDO BHF.

Yes. Actually, my first question is about the 1.4 nanometer and the moly recent win in ALD that you have discussed. And I'd like to understand if we're talking about something that could be sizable already in 2027. And if you can maybe come back on your global market share at 1.4 nanometer, if it's just a small improvement or something more significant? And I have a follow-up.

So what I -- thank you for your question, Stephane. I mean the way to answer your question is that first, we -- yes, we have incrementally won a couple of more applications the past quarter in molybdenum, which we are very excited about. And this is going to happen in the 1.4 nanometer technology nodes. As I mentioned that in previous calls, I mentioned that molybdenum is going [indiscernible] is going to happen gradually from gen 1 generation to the other. And because metalization you have tens of layer. So I mean -- so when you win these ones in antis there, yes, it's very good. It's beneficial. But it's not a very huge market. For us, it's really significant because this is a market that we've 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 in 2028. So overall, this is an exciting time, but also at the same time, molybdenum just starting in the industry. And with more and more generation, we're going to see more and more implementation and proliferation of molybdenum into the load.

So incremental, this is incremental benefit for us. and it's going to add to our revenue. And I mean, this is really -- for me, this is very exciting. I think that's our strategy to move into metalization. Metal deposition is working. And we also feel very positive in the future. We were developing also new precursor, new technology for moly, which is going to be even more and more differentiated in the future. And we're working with our customers for this. So things look good from that point of view.

Okay. Okay. 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've 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 didn't talk about the price increase in the market because the market was so hot that they wanted to benefit a little bit more from the 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 increase that would help the gross margin.

Thanks for the question, Stephane. On the margin, you've seen it in this quarter, we guided around 51%, which indeed is at the high end of the range. It could be slightly higher, could be slightly lower, but around 51%. And -- 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 from our supply base. So as a minimum, we want to pass that on into supply chain.

Two, yes, we still do value-based pricing. We still believe for the medium to long term, it's the best way to do it. But what you see is one of the reasons why the margin is so good. It's not only China. China is definitely still a part of it. It's accretive, but also because we have a relatively high share of advanced products, which typically, not always, but typically have higher margin, which is value-based because the more complex certain deposition layers become, the more complex that tools becomes the higher the value we can offer. We, of course, trials reflected in our pricing. That's another reason why we have been actually at the higher end or 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 of platforms on merchant transit. So we also put a lot of focus and effort on becoming more efficient and working on our costs. So that's 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're not changing the guidance other than that we said for this year, we will be around 51%.

Next question is from Jakob Bluestone, BNP Paribas.

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?

Okay. So to answer your question, I think that, yes, we heard the news about DTV in China. We also -- we have -- we also know that with the competition in China from different players. We -- in China, actually, we're working on -- like we mentioned, we're working on mature logic node and also we work on memory and power/wafer/analog. And not, of course, we don't ship tools for the leading-edge devices. We see our position to be good in those markets. I mean the competition is there. But I think we've been -- we see some wins and continue to really to do well from this point of view. I think by keeping really continued on innovation, which we are doing uncertainty for -- to really compete in the China market, which is very cost competitive from that point of view.

So we have to improve our cost of ownership, and we're using innovation, technology and process innovation to really achieve a lower cost of ownership and we've been able to win in that area. And I mean, that's really one of the reasons that in the mature node, which is you can think of it as very, very cost competitive from that point of view. We're still holding our own, and we see -- we 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 -- China players, there are many China players coming in from that point of view. But if we continue to innovate and which we have done both in technical benefit and also in cost of ownership reduction, I think we should be able to continue to do well.

Understood. And just a quick follow-up. Paul, I think you mentioned export controls potentially earlier. Just interested, are you seeing any sort of -- or are you currently seeing in the ordering extra inventory build because of that? I'm not sure if that's a thing you can comment on?

Yes. We -- as I said, we see actually very strong demand in China, and we believe that one of the reasons is in the export controls. And yes, we also see some accelerated ordering. It's not excessive, but there is some of that. but not excessive in any way or form. But yes, that there is speculation on new controls that typically supports acceleration of orders and delivery towards Chinese customers. So there's some of that but not excessive.

Next question is from Timm Schulze-Melander, Rothschild & Co Redburn.

First one, I just wanted to talk about was just on the technology road map and sort of capital allocation. I think, Paul, you talked about maybe looking for some further acquisitions. You've done silicon carbide P, CMP as a tuck-in. I just wanted to ask, is there strategically an asset or a capability that you don't have right now that you think would fit very well? And number two, just an update on how the integration of those is going? And then I had a follow-up.

Is there a strategic capability? Yes and no. What you've seen in the past mainly is that we accelerate access to certain technology. 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 in organic. You might see that in the future as well. On the last acquisition, CMP, one of the reasons is there's a lot of complementarity with some of the deposition that we do, but also it helps us in our strategic objectives to grow in advanced packaging. So there was another reason to do it. But again, there was also a clear leverage with some deposition that we do. So it's always important. So we have typically a choice to do things organic, but of course, doing things organic takes a longer time. But yes, if we don't see, let's say, the right inorganic opportunities, we will -- we might start actually some inorganic -- sorry, some organic development for certain, let's say, capabilities or certain technologies that we want or think would be supportive to our gross strategy. That's I think how you have to see it.

Very clear. And then just looking at the revenue mix, I mean, I can't imagine it's 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. So you talked about flowing through the revenue guide, surely a very strong tailwind on gross margin for '27, '28, 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? 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?

Yes. So you're right. I mean the trends that we see in the market and our position in that market looks really good as Hichem talked about it. You name one by one, so I don't 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's not always even not in this environment because when you gain share, we still have to compete. And you can imagine that some of our competitors are -- they don't put this on -- they don't, 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, depending on the value that we deliver. So there is some of that.

Yes, 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 yes, today, it looks good. But yes, you'll see what will happen there. We don't know. So overall, things look pretty good. I mean, I cannot say it otherwise.

Next question is from Tammy Qiu, Berenberg.

Sorry, technical issue. So firstly, on your 1.4 nanometer outlook, did you see more customers getting more aggressive on 1.4 nanometer from a time line 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 has?

I think that it's very clear that for the 1.4 nanometer node, it's already public, but there's more than one supplier for that node. And as such, the -- and that's number one. Number two, we mentioned again that the 1.4-nanometer node is a node that's significantly better in both performance and energy efficiency, which is the name of the game right now for all these AI application and data center, if you can reduce energy usage, your hero. So based on that, based on the fact that you get more performance. And will be one of the first tools that you need to order in a fab from the point of view since it's on the transistor lever that you see that. So we have good visibility. And with our very strong position there, we are very confident about what's going on the 1.4 nanometer node.

And maybe on China, Tammy, what we see today, I mean, first, maybe the disclaimer because China, there's always low visibility. So the more details we go, the more swings you will see. But based on we see today, what we expect next year is, again, the build will be mature. Henry, but yes, there will be further growth in memory somewhat, but from a low base. We're not very strong in memory in China so far. But yes, we expected -- we would expect it to grow. Yes, baring unforeseen circumstances, again, a potent you never know. And we would expect the same in Poway 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. -- 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 and maybe other than that maybe it has increased a little bit overall. But no, no, we're working with all customers as is already said, and that already was known also last quarter.

Final question is from Robert Sanders, Deutsche Bank.

I was just wondering about your supply chain and whether your backlog, in particular, as to 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 than clea room availability? And have a follow-up.

On supply chain, it's a good question, Rob. It's definitely we see the stress levels increasing there. We already talked about it last quarter because we have a shared supply base and the whole industry is 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. We are, of course, needed also developing dual and triple sourcing. We have people at suppliers where there is stress. So far, we can manage it. But yes, there is definitely a level of stress there, but so far manageable.

Can I squeeze one 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?

Yes, I would not talk about it gradually today. We don't 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's coming, we haven't seen it yet in our projections.

There are no more questions registered at this time.

Okay. Thank you, everyone, also on behalf of Hichem and Paul for attending our call. Goodbye.

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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ASM First 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 Q1 earnings call. With me today are our CEO, Hichem M'Saad; and our CFO, Paul Verhagen. ASM issued its first 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 is 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 this call, we will refer to profitability metrics, primarily on an adjusted basis. Reconciliations to 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 first quarter 2026 results conference call. We will follow the usual agenda for today's call. Paul will begin with a review of our first 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, everyone, for joining our call today. Let me first walk you through the Q1 financial results.

Our revenue in the first quarter of 2026 amounted to EUR 863 million, which was at the high end of our guided range of EUR 830 million plus or minus 4%. On a constant currency basis, revenue increased by 16% year-on-year and by 26% compared to Q4 '25. Equipment sales increased by 14% at constant currency and were led by ALD. Spares & services continued to deliver a very strong performance with a 23% year-on-year growth at constant currency. This was the result of continued expansion of our outcome-based services and strong spares demand in an environment of elevated set utilization rates.

In terms of customer segments, revenue was led by logic/foundry, which accounted for the clear majority. For the full year, advanced logic/foundry sales are expected to show significant growth this year. However, due to quarterly phasing, they were down from the very strong first quarter last year. Mature logic/foundry for the large part from customers in China increased compared to Q1 last year and rebounded strongly compared to the relatively low level in Q4.

Memory sales showed sequential growth compared to Q4 last year and also expected to grow significantly for the full year, mainly in DRAM. Sales in the memory segment were predominantly driven by applications for high-performance DRAM in HBM-related applications. Sales in the power analog wafer segment increased compared to the first quarter of last year, mostly in silicon-based solutions but from a low base.

Gross margin in the first quarter amounted to a strong 53.3%. This was virtually unchanged compared to 53.4% in Q1 of last year, up from 49.8% in Q4. Gross margin was supported by a favorable product and customer mix including an increased sales contribution from China, which rebound strongly compared to the lower level in Q4. The gross margin also benefited from a gradual impact from cost reduction programs that we have been implementing over the past few years. We expect the gross margin to be at the higher end of the target range of 47% to 51% for the full year.

SG&A expenses increased by 8% year-on-year at constant currency, mostly due to higher variable expenses, but dropped slightly as a percentage of sales, demonstrating our ongoing focus on cost control. For the full year, we continue to expect SG&A as a percentage of sales to drop below 9%. Net R&D increased 11% year-on-year at constant currency in Q1. We continue to step up R&D investments to support customer transitions to next-generation nodes and to advance our expanding pipeline of opportunities.

For the full year, we intend to keep the net R&D within our target range of a low double-digit percentage of revenue. Operating profit increased by a solid 21% year-on-year at constant currency, and the operating margin reached a new record of 33.1%. If you look at the main movements below the operating line, financial results included a currency translation gain of EUR 10 million in Q1 '26 compared to a translation loss of EUR 40 million in the first quarter of last year.

As a reminder, we hold a large part of our cash in U.S. dollars and the related translation differences are included in our financial results. Our share of income from investments, reflecting our stake of approximately 25% in ASMPT amounted to EUR 7 million in the first quarter, up EUR 2 million in the year ago periods.

Next, the balance sheet and cash flow. ASM's financial position remains [ solid ], and we ended the quarter with a cash position of close to a EUR 1 billion. Free cash flow was EUR 48 million negative mainly reflecting the working capital outflow in the quarter marked by a sharp ramp in activity levels. Days of working capital increased to 69 at the end of March, up from 45 at the end of December. The main driver for the increase was higher accounts receivable due to strong sales increase compared to the relatively low level in Q4 as well as back-end loaded distribution of sales during the quarter.

CapEx amounts to EUR 38 million in the first quarter, up from EUR 30 million in the same quarter of last year. And for the full year, we expect CapEx to be around or to be somewhat above the higher end of the guided range of EUR 150 million to EUR 250 million, with the largest part related to the construction of a new site in Scottsdale, which remains on track for completion in Q1 2027. And with that, I'll turn the call back over to Hichem.

Thank you, Paul. Let's now continue with a review of the market trends. The first quarter, again, confirmed that AI is the main driver of semiconductor demand. Customers continue to add capacity to support the ongoing expansion of AI data centers and the broader infrastructure build-out.

This is keeping demand strong in the areas where we are most exposed, especially logic/foundry and we saw this demand strengthening further during the quarter. We have also noted a continuing proliferation and diversification of the AI workloads into the CPU and the power markets. For this reason, we see AI driving strength in all segments of our business: advanced logic/foundry, mature logic/foundry, memory and especially DRAM and, to a lesser extent, power, wafer, analog market.

Looking ahead, our strategic view remains unchanged. As AI adoption broadens and demand continues to scale, compute capacity is increasingly the limiting factor. In semiconductors, this is translating into tighter capacity needs for advanced logic/foundry and memory devices, driving higher investment intensity and increasing the urgency of tool deliveries.

Against this backdrop, our focus is on execution as we continue to support our customers' expansion plans. The pace of demand is putting additional pressure from the supply chain. But so far, we have been able to manage these rising challenges in close cooperation with both suppliers and customers, reflected in the sharp step-up in our quarterly sales from EUR 700 million in Q4 of last year, to a level approaching EUR 1 billion projected for Q2.

Turning now to customer segments. Logic/foundry again led our performance in Q1 supported by continued strength at the advanced nodes and a sequential rebound in mature logic/foundry demand. Our view is unchanged that logic/foundry will be a strong driver of our sales in 2026 and also going into 2027. The structural outlook for this segment remains strong.

AI-driven compute requirement and the ongoing shift to more complex 3D device architecture and new materials continued to increase ALD and epitaxy and density. As we progress through the year, we expect momentum to build further with ongoing capacity additions as the 2-nanometer technology node accounting for the largest part of advanced logic/foundry sales in 2026.

This first generation of gate-all-around device technology is shaping up to be a large node, enabling new applications in high-performance compute, including AI as well as advanced mobile and other leading applications. We continue to benefit from the step-up in our served available market at 2-nanometer supported by a broader position in Epi and sustained strong market share in ALD.

In addition, we have seen a healthy uptick in demand related to the nodes from 3-nanometer to 7-nanometer, driven by agentic AI. The demand is outstripping supply which has led to renewed capacity investment. Looking ahead to the industry's next node transition to 1.4 nanometer, we expect pilot-line investment to begin later this year. We are deeply engaged with key customers as they prepare for that transition, and we expect the first meaningful contribution to our sales in the second half of 2026.

As we have highlighted before, we expect the SAM uplift at the 1.4 nanometer to be even larger than what we saw at 2-nanometer node. At 2-nanometer, the industry's main priority was to get the first generation gate-all-around architecture and to high-volume manufacturing with gate-all-around now in production and ramping, customer have more room to include additional performance boosters.

And for ASM, that translates into more functional there in the transition stack to further optimize power and performance, including additional dipole layers to enable Multi-Vt options. Alongside the higher SAM opportunity, we have already secured several key product penetration which supports our expectation for a higher ALD market share in the 1.4 nanometer node, public disclosure from some leading customers suggest that the 1.4 nanometer node is designed to deliver clear improvement in performance, power efficiency and density versus today's 2-nanometer node.

This is well aligned with ever increasing AI token demand and the associated compute and power constraints in data centers. As our customers move toward higher volume manufacturing in 2027 and 2028, we expect 1.4 nanometer to become a meaningful driver for ASM.

Next, looking at memory. Demand in Q1 was solid, with robust momentum in the most advanced DRAM technologies used in HBM-related applications. Continued investment in AI infrastructure is keeping demand for high-performance memory strong and supporting ongoing expansion of advanced DRAM capacity. For the full year, we continue to expect healthy growth in our memory business.

Looking further out, DRAM remains a meaningful and strategic opportunity for ASM. From a technology perspective, our customer R&D engagement in memory continue to expand, including development work around new ALD and epi applications that support the transition to 4F² and very fantastic DRAM. As we highlighted at Investor Day, the transition to 4F² is expected to drive a step-up in ALD and Epi intensity and expand our served available market by approximately USD 400 million to USD 450 million based on 100,000 wafer start per month capacity.

Turning over to power, analog, wafer market segment. The contribution in Q1 remained relatively low, reflecting the soft market condition in broader parts of automotive and industrial. That said, we have seen some pockets of strength in selected areas, particularly in power applications for AI data centers. For 2026, our view is unchanged that this segment should recover gradually from a low base. We remain well positioned to benefit once demand conditions improve more broadly.

Moving on to China. The increase in Q1 was largely driven by the mature logic/foundry segment, where we saw higher activity across a broader set of customers, reflecting improving market conditions and to a lesser extent, the power, analog segment. In addition, I'd like to highlight ASM's ongoing success in winning new positions which also contributed to our strong performance in China. This demonstrated the continued competitiveness of our solution and the strength of our local team. Based on current visibility, we expect sales in China to increase for the full year with a stronger contribution in the first half.

Now let's talk about advanced packaging. As we have discussed during the Investor Day, we are looking into advanced packaging as another midterm growth area for ASM. We believe that this market is ripe for disruptive solution in new materials and interface engineering playing into ASM's strength. We are engaged with multiple customers on advanced packaging, and we are seeing some encouraging traction for our innovative solutions.

That brings me to the outlook. At current currency, we project revenue to increase in Q2 2026 to EUR 980 million plus or minus 5%, and we continue to expect revenue in the second half of 2026 to be higher than in the first half. As mentioned, China sales are expected to be first half weighted. This means that our other business segments are expected to strengthen from the first to the second half, including continued solid momentum in advanced logic/foundry higher sales in memory and a gradual recovery in power analog.

While it's too early to provide specific guidance for the full year, based on our guidance in Q2 and a further increase in the second half, it should be clear that 2026 is going to be a strong year for ASM. And with that, we have finished our introduction.

Thank you, Hichem. Let's now move on to the Q&A to ensure that everyone has an opportunity to participate please limit your questions to no more than two at a time. Operator, we are ready for the first question, please.

[Operator Instructions] First question is from Andrew Gardiner, Citi.

Hichem, just sort of pick up on the point you were making at the end of your prepared comments there. You're saying you will have growth in the second half of the year versus the first half, but obviously, the visibility is perfect to quantify it for us yet. Previously, you've been willing to talk about your performance relative to the wafer fab equipment market broadly and that ASM would outperform that. Clearly, WFE expectations are moving quite rapidly as well at the moment. Could you give us an update on how you see the broader market in terms of WFE? And can you confirm that you will still outgrow that in 2026?

Thank you very much for the questions. Yes, we talked about that in our previous conference call that we're going to at least perform as good as the wafer fab equipment market or better. Yes, we have seen improvement in the WFE market. I mean we follow very closely what Gartner and VLSI are talking about. And we can reconfirm again that our growth in our market, in our revenue in 2026 will at least outgrow the WFE market again. So as I mentioned, we see strength in the market and our revenue is strengthening, and we are very confident that we'll be able to at least grow at least at the WFE market or beat that in 2026.

Okay. And just a clarifying question, the point you were making on China. In the second half, so is that China down second half on first half? Or down year-on-year or perhaps it's both?

No. I think China is really up year-on-year. So the -- what we talked about that we see right now that China is lower in the second half of 2026 versus the first half of 2026, saying this, and I want to repeat it again. China visibility is not that great as we talked about it, okay?

So from that point of view, if there is anything, that second half China business that we see right now might also increase eventually. But right now, what we see very strongly that the second half would be a little bit slower than the first half. But again, that might strengthen in the second half. We don't know.

Next question is from Nigel Van Putten, Morgan Stanley.

I want to follow up on the previous question on China. Perhaps for the full year, there are some limited visibility. But can you provide us a revenue or China revenue as a percentage of overall revenue for the first half at least? And how that maybe compares to the full year '25 when you said it's going to be -- or it came in a little bit over 30%. That is my first question?

Nigel, thank you for your question. Nigel, maybe there's a misunderstanding that about the visibility -- low visibility of China. Right now, okay, our visibility for 2026 is very good, okay? China or no China, okay? Because I mean, it's really clear everywhere in our market, okay? So that's why we are really confident about the market. If there's anything in China, the revenue is going to increase further in the second half, okay, from where we see it right now. So, but China business has been good, and we feel very confident about it.

So maybe to add to what Hichem is saying, what we see in is now, at this moment, at least, is an accelerated demand. And in China, we have a higher H1 expectation. And H2, which might still change, we don't know, as Hichem has indicated. Possibly, that is because of concerns on export controls, we don't know.

One thing is for sure that the overall sentiment is very good, like in the rest of world, also AI related. That's itself positive. Two, we also won some more layers in itself is a positive. But yes, there is clearly an acceleration going on, which, of course, customers are on tariffs, but which could be triggered by concerns around export controls and how that will develop further, I think, at this stage, and nobody knows. Then on the full year, based on everything we know today, I think the equipment revenue as a percentage of total sales will be similar to last year. But again, it's really too early to tell, so this might change because for all the reasons that we already mentioned.

Got it. That's really helpful. Then now maybe switching to the advanced logic customers which I understand are providing increased visibility maybe 8 quarters on a rolling basis. Question would be, do you see any sort of broadening on the horizon, sort of it's clear that the main customer remains very strong, but how are the other two doing maybe today? And how do you see that developing into the second half of the year?

No, I think, Nigel, I think we see -- we're working right now with all customers in advanced node for both of the 2-nanometer node and 1.4 nanometer node. And then we see that gate-all-around is a technology that's going to be adopted by more customers. And we feel very confident that that's going to be the case. Of course, okay, some customers have better yield or performance than the other ones. But we think that gate-all-around is going to be really a broad technology node and for a variety of customers.

Next question is from Didier Scemama, Bank of America.

Just a follow-up actually to the previous question on the boarding of the customer base in advanced logic. Obviously, your largest customer is doing terrific. On the two smaller ones, is that supposed like expected to strengthen in Q2? Or is that more of an H2 driver? And I've got a follow-up.

Yes, let me take that question. I think what I can say on that. I don't want to be specific on Q1 and Q2 or Q3 when it comes out both down to customers. But what I can say is at least that based on current visibility that all those customers are expected to grow year-on-year. And of course, there is a significant difference with regard to the size of the various customer and the absolute amount of growth as a result of that. But we expect all three for the logic part, all three of them to grow year-on-year.

Okay. And for my follow-up for Q2, would you expect China to be up sequentially or flat? Or how should we think about that relative to your overall sequential growth guidance?

What we've said indeed is that for next quarter, we expect EUR 980 million plus or minus 5%. We also said that for H1, we see an accelerated demand for China coming in for various reasons I just discussed in the call before. So I think it's reasonable to assume that also Q2, China will be pretty good.

Should we expect, therefore, the gross margins in Q2 to remain at sort of above the long-term guidance given the mix?

You know that I'm not going to specifically guide on a quarterly basis for the margin, but the margin will be good that I can say China is accretive, as you know. But also, I think what is also not unimportant. I also want to highlight that is that the other product mix that we've seen actually in the last few quarters has been very strong.

So that also helps. And last, but not least, the structural cost improvements that we're working on, which will every year add a little bit also play a role. But having said that, yes, higher share of China typically is accretive, yes.

Next question is from Francois Bouvignies, UBS.

I have a question for 2027, actually. So if we look at your '26 growth drivers. I mean if I look at the different drivers, I don't see much layers increase in '26 as a growth driver, because I think it's mostly capacity, [indiscernible] was already adding a lot of capacity last year. So from a year-over-year point of view, you don't have a lot of incremental layers.

Now if you look at '27, it looks like you will have a lot of layers opportunity that you laid out at your Capital Markets Day. So I was wondering, if we think about this dynamic of layers increasing, is it fair to say that '27, if we assume the same capacity increase that '26, that should be a higher growth than '26? You have more drivers on top of the capacity in '27 than you had in '26. Is that the right way to look at it, if you understand my question?

Yes. I think we understand your question. I think it really depends both on the end demand from that point of view. But we -- as the technology node transition from 2-nanometer to 1.4 nanometer, we see the adoption of 1.4 nanometer starting in the second half of 2026. And we see the 1.4 nanometer bias to increase in 2027 for final production in the first half of 2028. And with the 1.4 nanometer node, there's more ALD and more Epi. And as we mentioned, these ALD layers are mainly in the front end of line for performance level. And that's where we have many more -- a lot of strength, and that's where we're going to have many more ALD layers.

So we are really very happy with -- we'll be very happy with the 1.4 nanometer transition, because of the higher ALD intensity. Also, we have more ALD layers in molybdenum. I think that as we mentioned in our last press release that we are very happy to be in production, high-volume production at the 2-nanometer node with our moly ALD. And with the transition to the 1.4 nanometer, we also have won some process of record layer in molybdenum. So overall, the transition to 1.4 will be very accretive to us, and we'll be very excited with that transition in the future.

And the memory side -- Yes, go ahead.

I think you said it, but I want to make it a little bit more explicit that just for you guys to be clear that already in this year with the pilot for 1.4, which is also, of course, increased layers, as you know, we already see a very, very meaningful contribution of 1.4. So that's not only in '27, but it's already starting in '26.

Good to know. And maybe you didn't address maybe the memory layers and maybe for '27. And then you mentioned market share higher in A14. So can you maybe explain a bit the higher share here? I mean, is it because just your time is getting higher than the others? Or you just have more layers than you expected? -- more than before?

Yes. So the 1.4 nanometer, what's the difference between the 1.4 nanometer node and the 2-nanometer node. So they are both gate-all-around. But for the 2-nanometer node, that's an architecture change. So customers didn't want to be very aggressive in putting many functional layers because of the change in architecture. But once we move to 1.4, they have added many goodies, which we call performance layers. And those layers are really mainly ALD layers. And they are all in the front end of line, where we play significant. That's where our strength is. Yes. So definitely, we see more ALD layers in 1.4 nanometer.

Second thing, as you shrink, those -- and with the gate-all-around structure, as you shrink those layers become much more difficult because of the 3D nature and the shrinking. And with that, the since every layer becomes much more difficult, that also slows down the process. And with that, you need more equipment from that point of view. The other thing we see is that also there is a higher epitaxy intensity going forward. So overall, that's very positive.

Next question is from Stephane Houri, ODDO BHF.

Yes. To come back on the Q2 guidance, which is about EUR 100 million of what the consensus was expecting. So I'm just trying to understand what led to this acceleration, if it's more advanced logic or memory. And if you could comment also on the lead time at the moment if they are increasing? And is there a difference between the two different segments? And I have a follow-up.

I think that the acceleration is happening in mainly in the 3-nanometer to 7-nanometer node. in addition to the gate-all-around node. So what we have seen lately is that Agentic AI is becoming more important. And with that, that tends to favor using the CPU instead of GPU. So the 3 to 7-nanometer node is really mainly driven with CPU. And we see much more demand from our customer in that node, and that's really happening super fast at this point in time. We also see strength in memory continuing. So overall, the market is really strong in the leading edge, both logic and mainly logic and foundry, that's really the highest part of the market. Second is really also DRAM is also increasing.

And about the lead time, sorry.

So regarding the lead time, I mean, lead time has increased because of the supply chain constraints right now. I mean there's a huge demand everywhere. So yes, the supply chain has increased, and that's really the customer specific. We've been able to expect that to happen. That's why we can -- we have increased our capacity to from like EUR 700 million per quarter in Q4 of last year to about EUR 1 billion per quarter this year. And it's going to continue to increase in the second half, as we have mentioned.

Okay. And that's exactly my follow-up. I mean you're going to be at least EUR 1 billion per quarter in the second half run rate and there's probably some additional growth coming in 2027, given what you said and what we see in the market. So at what point will you fill all your plants and notably the Singapore plant and that you will have to again increase the capacity?

I think our manufacturing capacity is -- can take care of our business. I think we have expensive manufacturing capacity in Singapore and Korea. So we're ready for much higher volume. I think what's limiting -- if there's any limit is really the supply chain that's limiting the capacity than anything else. But I think that we'll be able to manage that in the second half. So that's why we're confident of increased volume in the second half of 2026.

Next question is from Sandeep Deshpande, JPMorgan.

Maybe you can give a comment on what has changed in your customer behavior versus what you were -- you had seen from your customers the last time you reported in -- reported your results. Has something substantially changed given your very strong guidance into the second quarter? And then I have a small follow-up.

I think that the market is really strong all over. Has there been any significant change? I think the change that we have seen is really on the PC part where for -- on the CPU part where it used to be that AI is mostly driven by GPU, but we see that CPU part becoming more important than before. And we see that's the strength we see in the 3-nanometer to 7-nanometer node, which was not there before. So that's really the strength we see. It's mainly the CPU-driven part for artificial intelligence.

And then when you look at the WFE, I mean you had said 15% to 20% at last results. I mean, given your guidance for the second quarter and your indication on the second half of the year, it looks like you're going to grow well over 20%. So what is your perception on WFE at this point for this year? And I mean, despite your lower exposure in the memory market, you are growing incredibly well. And so is this mainly associated with the second half ramp also with 1.4 nanometer where your content is growing, your number of layers you have is growing very substantially. So this is essentially share gain in the WFE market?

Yes. Let me take that, Sandeep. So yes, to give you a very short answer, that's part of it, absolutely. But also basically, I think as Hichem already said, but maybe in different words, we're firing in all cylinders. Every segment of the market is growing significantly. I mean, advanced logic/foundry, mature logic/foundry, memory of which, in particular, DRAM, we see a high growth and even power with analog for power-related AI data center applications from a low base, but as a percentage, still high growth. And of course, also pilots 1.4, that I started with, adds a decent amount for this year already, yes.

Next question is from Adithya Metuku, HSBC.

Firstly, I wanted to talk about 2027. I know you gave these targets of EUR 3.9 billion to EUR 4.6 billion, top line at a EUR 125 billion WFE number. So call it EUR 4.2 billion midpoint. If you look at WFE numbers now, people are depending on whose numbers you take 40% to 50% higher than that EUR 125 billion in 2027. So my first question is, should we assume that, that EUR 4.2 billion could be maybe 40% to 50% higher from 2027? What are the nuances we need to keep in mind when we think about where WFE is going and how your revenues might go in 2027, you've clearly talked about outperforming WFE, I presume that will continue.

So just any pointers you can give around how we should think about these targets you gave at the CMD 40% higher, 50% higher? And I've got a follow-up.

Yes. Let me take that. So indeed, I think we said EUR 3.8 billion to EUR 4.7 billion at CMD, where we assumed EUR 120 billion WFE, which today's view is indeed significantly higher, but there's one big difference. The assumption that we took at that time, which was somewhere September last year on the composition of the mix is very different from what we see today. So we had by far the largest part of the total WFE basically logic/foundry, while now the relative share of memory is significantly larger than what we assumed.

And although we grow a lot in memory, but still our relative share of memory in our business is still relatively small. So that's why you will not see the full benefit of that increased WFE dripping down into our numbers. Having said that, based on everything we see today, we believe that '27 will be a strong year. But adding 40% to 50%, I would not recommend you to do that. That would give some distorted figure. At the same time, it's a very wide range, EUR 3.8 billion to EUR 4.7 billion is almost EUR 1 billion range. So also even within that range, there's still a lot of room to maneuver. And more than that, at this stage, I don't like to say.

Got it. Okay. We'll leave 40% or 50% of side go with 30% then. And just quick follow-up. On the MATCH Act, can you give us some color on how you're thinking about any potential impact for you guys as you think about your China revenues? Yes. Any color you can give around how you might be affected? I know it's hard to quantify numbers, but any qualitative color would be great.

Yes. So the MATCH Act indeed is being discussed as we speak. If it will happen or not is uncertain. It might or it might not. In what shape it will happen is also uncertain because at the end of the day, it is important, literally the point and the commerce are very important there, especially in relation to how to interpret what is exactly restricted. We're in, of course, discussion with relevant authorities, as you can imagine. So it's very hard, and I would love I could give you some more color to give decent color at this stage. Obviously, if something like that were to happen, it's not a positive, that might be clear. But how much, I'm really not in a position yet. It's too -- it's literally too unclear and too uncertain still on what might happen. So I don't like to speculate on that.

Next question is from Tammy Qiu, Berenberg.

So the first one is regarding your very strong short-term momentum. You mentioned that just now it's all driven by the CPU-related incremental demand. I just want to confirm that, have you seen any customer from both logic and memory perspective, pulling forward? Are you asking you to accelerate the shipment of equipment because end market demand is coming so dramatic in the short term. So therefore, it's like a pull forward from 2027 at all?

I think every customer wants the tools now instead of tomorrow. I think the demand is really high. And for us, it's which customer we ship to first than the other one. So I think like we mentioned, we are fully booked for this year. From that point of view, we have a strong demand in all parts of our business, really every part of our business very high demand. And yes, we see customers the demand is even increasing. So I mean, we -- our book is full. So we have to do our best to be able to satisfy the demand that we're getting right now.

Okay. And the second one is, last quarter, we discussed that the 1.4 nanometer is mainly driven by one customer versus others have been having discussion with you, but still a bit distant away from pilot production, et cetera. I'm just wondering where is the status of those remaining customers? Are they getting closer to make the decision on pilot production? Or are they still further down the line?

So as we mentioned that we see -- we are working with all customers to the 1.4 second generation with a 1.4 nanometer technology node. And we see that business strengthening in all the customers from that point of view. Some of them is at a marginal increase and the other have a higher increase, but I'm not here to speculate on which customer, which, but we see at least a marginal strength in some and a significant strength in other customer. But saying this, I think more likely, like I mentioned that 1.4 nanometer would be more than one customer.

Just to confirm, have you seen any progress during the quarter, i.e., all of them have moved forward or just one of them moved forward comparing to last quarter.

Can you repeat your question, please?

So basically, the time line of the 1.4 nanometer, last quarter, you mentioned that one is active preparing for pilot production, remaining two is still in discussion firmly at this stage. I'm just wondering, this is three months after, have you actually seen other customers together with a leading customer or moved forward in the time line for 1.4 nanometer? Or just one customer has moved forward instead of all three of them?

I'm going to repeat my answer, where we see 1.4 nanometer strengthening broadly with some strengthening marginally in some customers and significant increase in other customers.

Next question is from Jakob Bluestone, BNP Paribas.

I want to come back to Adi's question around your ability to sort of take part in growth in memory. And my question is, when do you anticipate the transition to 4F² and FinFET for the cell periphery in DRAM to impact your revenues? So is this something that would impact in '27? Is it '28? Or do you think it's further out?

I can take that question. Yes, I think because I think last time already, we mentioned that the pace of adoption customer by customer is different. There might be even a customer that might completely skip it. We don't know yet, but that's to be seen. And I think for us, based on what we see and think we know today, I think you should take into account '28 as the first year where we start to see a positive contribution related to 4F². [ Might ] -- maybe a little bit earlier, I don't know yet, but I would -- I mean time line is still a little bit uncertain and very different from customer to customer. So I think the best color I can give right now is in '28.

So add to what Paul has mentioned here, we see a strength in memory in 2026 and also increasing for us in 2027 and beyond. The biggest increase for us will happen really in the move into 4F², where we have more ALD layers and more also Epi intensity. But also we've seen some customers put in FinFET in their node in their road map. And with that, we're working with them and we might -- and since we have been very prominent in our FinFET technology in logic. So that we see some customers really pulling in that technology node. And with that, we probably will get some more layers as customer put in their FinFET technology node. So the biggest increase would be '28 and beyond, but also we see some increase in 2027.

Understood. If I can just ask a quick follow-up as well. You mentioned a few times the sort of pickup in 3 to 7-nanometer transition, and I don't know if you can give any color on whether that's your largest customer or kind of more broad-based?

Which transition, are you talking about, sorry?

3 to 7?

Yes, I think it's really broad based. That's really broad-based. It's not only one customer, it's very broad-based.

Next question is from Ruben Devos, Kepler Cheuvreux.

I just had one on Epi in HBM. I believe you talked about significant Epi engagements with another HBM customer and expect good news this year. So of course, curious whether two months on has anything firmed up on that additional qualification? And would that be, let's say, fully incremental to your memory plan in '26?

Okay. So to answer your question, yes, we talked about that, and we are engaging with our customer on epitaxy. There's really nothing else to say right now, but we'll let you know if there's any news from that point of view. It's really working with customers on a couple of customers on epitaxy. And hopefully, we can share some good news with you in the next investor call meeting.

Okay. And then second one, really to just get a feel of maybe the aftermarket sales, right? I mean you've had a stretch of very good performance in the last few quarters, again, 23% up the past quarter. Outcome-based is about 25% of the mix. So it looks like, I mean, the target you said at the Investor Day of 12% CAGR is becoming more of a floor.

I was curious whether you could talk a bit about, yes, the extended visibility you might have now in aftermarket sales. And I can imagine a margin uplift to realize if you manage to make a transition more towards outcome-based. But also besides that, are you able to sort of have the customer pay more per tool for the servicing packaging in general?

I think that for service market, okay? What I mentioned, the service market is really good as you transition in a newer technology node because of process complexity. It's very important to -- a customer need more support from us and for the more advanced node. And with the advanced node also, we see a transition to much tighter specification on wafer-to-wafer and also repeatability on chamber-to-chamber matching and also on system-to-system matching. And with that, we have to provide a new solution to customers to improve the uptime and the availability. So we are very really -- we think that the surface business is going to increase in the future as you transition to tighter and tighter technology node.

And we see that happening in the area of automation, in the area of robotics, in the area of optics. And those are really the solution that we're providing our customers. So the growth is going to be good in that part of the market. You mentioned that 12% growth. To be honest with you, right now, every part of the market is growing a lot. This year, the market is growing over 20%. I mean, latest, you see Gartner talking about 25%. So everything is great. It's really just spending my time, okay, to make sure that we can execute on getting customers the tools in time and make sure that the availability and the execution is top notch.

Next question is from Timm Schulze-Melander, Rothschild & Co Redburn.

First one for Hichem, please. Just looking at the technology execution and just trying to scale maybe how much upside there is to that? If I look at your long-term revenue guide, the high low range is kind of 20%, 25% between the low and the high. Obviously, part of that is the strength of the cycle. Maybe part of that is also conversion of existing evaluations and layer wins. Maybe could you just share how much of that is upside potential from layer wins? So if you could just think about that in the context of your go-forward revenues? And then I had a follow-up.

You said the percentage I didn't hear you well on the percentage, which percentage are you talking about, please?

Yes. So if we look at your EUR 3.8 billion to EUR 4.7 billion revenue guide, so part of that is going to be cyclical. Part of that's going to be your execution in terms of technology wins. I'm just trying to think is that half off, but some kind of scale of that?

If you look into the business and where we are, one thing I can tell you, I'm really very excited about our technology road map. I think that things are going in our direction. If you look into logic, you see more and more layers coming in with 2-nanometer and also with 1.4 nanometer. ALD intensity is increasing and [indiscernible] intensity is increasing, and we're winning share in that part of the market. If you look into memory, memory is moving more and more into FinFET more and more in 4F², which needs more Epi, needs more ALD. So we're going to have more layers, and we feel very confident about it.

And if you look into logic -- if you look into power, wafer, analog, we are really -- if you look at the power, wafer, analog, the power part of the market is the only part of the power, wafer, analog that's strong right now. And that's being driven by data centers, power devices for data center.

If the wafer part and the analog part goes up, it's going to be even accretive to us. So the service business is also good. In the service business, we're going more and more by automation. And we really -- we're getting some -- getting into even robotics and that customer and leading customer, we're even selling them, okay, some robots to improve the system availability and so on.

If you look into advanced packaging, that's an area that we mentioned that we have entered last year. It's a new area for us. I can tell you that we have so many -- believe me, so many interactions with customers. And we have to prioritize which one to do and some customers tell them, guys, maybe we don't have -- we cannot really help you there. And -- but with the customers that we're really engaging right now, I can see that they really like to work with us as a company because we're looking into the advanced packaging through a different option.

We're looking into that as, okay, what can we do to disrupt the technology? What can we do to provide a solution that's better than what it is right now. How can we -- a solution to make sure that, okay, we reduce the -- to reduce the thermal mass on advanced packages coming with a new material that improve thermal conductivity.

We're working with customers to make sure that we can seal the devices much better. So there is no moisture going in the packages. We're working with customers to actually improve the speed of connection between one chip to the other one, working with them on some innovative photonic layers.

So I'm sure that with all of this really, we feel very confident where things are are going to go from that point of view. And depending where the market is going to go, I'm very confident that we're going to at least match the WFE market growth or actually have a higher growth than WFE. It's a great time for ASM right now. And we -- I see customers really want to work with us. I think our execution has improved. I think our competitiveness is getting even better than before. And what I can tell you, it's the best time to be in semiconductor.

A very impressive runway. Maybe just a quick follow-up for Paul, just some housekeeping, actually. You talked about rising utilization rates, but actually Q1 aftermarket sales were down sequentially. And on your guide, I think last quarter, your guidance range was plus minus 4%. This time, you've widened that range to plus minus 5%, which doesn't maybe sit that well with a sort of improving visibility. Just wondered if there's any color you could share in terms of what you're seeing.

Yes. So actually, the range is, I think, already referred to is related to supply chain challenges. So far, we've been able to manage it. But at the same time, we have to be on top of it to make sure that we get what we need to deliver what we need as per our customer preferred COD customer request date. So that's a little bit where the range comes from, Timm. It's not so much demand. It's more what can we deliver on time given the supply chain constraints that so far manageable again. But yes, we have to be on top of it and nothing can go wrong here.

So that's what was in the aftermarket in Q1 and maybe there's some catch-up in Q2?

I don't know if there's catch-up in Q2. I mean I think had a very good Q1. I think we delivered more or less what we wanted to deliver, and we will target to do the same in Q2.

Thank you, Timm. We still have a number of participants in the queue, but we are running out of time. So let's take one final question. Operator, can we have the last caller?

Final question is from Javier Correonero, Morningstar Equity Research.

In the interest of time, I will just ask one. So your Axus acquisition 3 months ago, it is small, but I think there is a lot to unpack there when you think longer term. So Axus is specialized in silicon carbide processing. So I was wondering if you could explain a little bit more what's the rationale of the acquisition here? Is it like more silicon carbide content as we move into the 800-volt data center? Or is it TSMC potentially adopting silicon carbide interposers in the next few years or both? And of course, it is very early and small acquisitions, but do you have an estimate of what service of addressable market this acquisition could open once it is properly integrated with ASM [indiscernible]?

Okay. So thank you very much for the question. So yes, we have acquired this company called Axus Technology, which is -- we're very excited about the acquisition in CMP. They have a very great CMP technology and very innovative, to be honest with you. And the -- like we mentioned, we have acquired this for the advanced packaging market because advanced packaging is -- needs more and more CMP layer, many, many, many more CMP layer. So there is room for another player. Also, it's a technology that's all about interfaces. And I think that we have some -- we do have some knowledge in interface engineering so that we will be able to really put our print there. It also CMP helps us with our new materials that we're developing for advanced packaging that I just talked about a few minutes ago because I mean, you deposit the film, but also you need to CMP. So we want to understand what's the interaction about the material that we're depositing the new material that we're depositing and the CMP, because CMP also has a slurry.

There's a new -- with a slurry that means we're talking about new chemicals and so on and so forth. So it would help us also develop better materials in ALD, but at the same time, also good polymerization, which is extremely important for advanced packaging. So that's really why we made that acquisition. And then we're working right now on developing the product for advanced packaging, and it's going to increase our SAM absolutely. It is going to increase our SAM and we're in the process of doing R&D and so on in this part of the market.

Okay. That concludes the Q&A. Thank you all for attending our call today, also on behalf of Hichem and Paul. Thank you. Goodbye.

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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ASM International Fourth Quarter 2025 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 Q4 earnings call. With me today are our CEO, Hichem M'Saad; and our CFO, Paul Verhagen. ASM issued its fourth quarter 2025 results yesterday at 6:00 p.m. Central European Time. For those of you who have not yet seen the press release, it is 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 related to such forward-looking statements, please refer to our press release and our financial reports, all of which are available on our website.

Please also note that during this 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'll now turn the call over to our CEO, Hichem M'Saad.

Thank you, Victor, and thanks to everyone for attending our earnings call. I'll start with a few of the highlights. Even with the revenue at a lower level, results in Q4 remained solid, and the quarter marked a reacceleration in demand. For the full year, our sales increased 12% at constant currency, our ninth consecutive year of double-digit growth and operating profit increased by 17%. Strategically, we strengthened our position with key customers with the current generation of gate-all-around going into high-volume manufacturing and with strong traction in R&D engagement for the next nodes.

To power ASM's next phase of growth, we continue to invest in our people, our global footprint and in innovation. I want to thank all our people for their relentless dedication and collaboration, which contributed to another successful year for ASM. As for the agenda today, it's the standard format. Paul will start with a review of our financial results. I will then discuss market trends and provide our outlook followed by the Q&A session.

With that, I'll hand it over to Paul.

Thank you, Hichem, and thanks, everyone, for joining our call. Let's start with the review of the fourth quarter results. Revenue in the fourth quarter of '25 was EUR 698 million as preannounced on January 19. This represents a 7% year-on-year decline at constant currency, but came in above the guidance range of EUR 630 million to EUR 660 million, which we provided with the Q3 results.

Logic/foundry was our largest customer segment in the fourth quarter. Within this segment, advanced logic/foundry accounted for the majority with sales approximately flat compared to the third quarter and somewhat down from a very strong level in Q4 of '24. Mature logic/foundry sales, mostly from the Chinese market dropped sharply as anticipated, both compared to the prior quarter and to Q4 of '24.

Memory sales were relatively steady, both year-on-year and compared to Q3 with solid advanced DRAM sales, offset by lower NAND. The contribution from the power analog wafer segment remained at a fairly low level overall. Our spares and service sales were up 22% year-on-year at constant currency. This represents a very strong performance, especially considering the tough comparison with Q4 '24 when sales grew roughly 50%, driven by accelerated demand in China.

Gross margin of 49.8% in the fourth quarter was down from 51.9% in Q3, but still at a solid level, supported by a favorable mix. SG&A expenses were down 1% year-on-year, while net R&D expenses increased by 6%, largely due to phasing of R&D investments. Operating margin dropped to 25% in Q4, explained by lower revenue and related gross margin, partially offset by lower OpEx. The results from associates increased to EUR 26 million in Q4, which was for a large part, explained by a one-off benefit in ASMPT's results.

Our Q4 net earnings dropped compared to Q3, mainly as that quarter included a noncash reversal gain of EUR 181 million related to the recovery in the market value of ASMPT. Our new orders in the fourth quarter amounted to EUR 803 million, up 19% year-on-year and also better than indicated Q3 results. This was driven by very strong advanced logic/foundry orders. Mature logic/foundry orders from Chinese customers were relatively soft, but showed an acceleration in demand towards the end of the quarter.

Memory orders were steady compared to Q3. Power, analog and wafer orders showed some recovery and reached the highest level in '25, but we're still at a relatively soft level. Please note that starting in 2026, we will discontinue reporting of quarterly bookings. This change reflects the high volatility of quarterly orders, which has been driven more by timing effects than by underlying demand trends.

We will continue to disclose the year-end backlog as part of our Q4 results. In addition, beginning in '26, we will report sales by key customer segments, logic/foundry, memory and other on a half yearly and annual basis. Let's now have a look at the full year results. At EUR 3.2 billion, our sales increased 12% in constant currency to a new record high. In terms of customer segments, logic/foundry accounted for the largest part of equipment sales.

Within this segment, advanced logic/foundry represented the clear majority. Gate-all-around related sales increased very strongly as customers stepped up in investment in 2-nanometer high-volume manufacturing. Mature logic/foundry sales, mostly from the Chinese market also increased but at a more modest pace compared to the leading-edge segments.

In memory, sales dropped to 16% of total equipment sales, down from 25% in '24. Advanced DRAM for HBM-related applications continue to be solid and accounted for the large majority of memory sales. However, this was offset by a normalization of memory-related sales in China. As discussed in previous quarters, memory in China is typically a small market for ASM. But in 2024, it showed an unusual high demand.

The overall drop in memory sales was also explained by lower 3D NAND sales, which were still at a relatively higher level in '24. Power, analog and wafer sales dropped for the second consecutive year. As part of this, silicon carbide sales, which were still resilient in '24, dropped by more than 50% in '25, reflecting the sharp deteriorization in this market. At constant currencies, equipment sales increased 10% in '25, primarily driven by strong double-digit growth in ALD. Spares and service sales grew 18% at constant currency, an excellent performance, which was driven by strong growth in our outcome-based services.

Gross margin for the year increased further, rising from 50.5% in '24 to 50.1% in '25. This improvement was primarily driven by a stronger product and customer mix, including a resilient contribution from the Chinese market. Additionally, the margin benefited from the gradual impact of cost-saving initiatives such as more move to common platforms and ongoing cost optimizations across our manufacturing and supply chain operations.

Gross R&D increased 9% in '25, reflecting the continuous growth in our pipeline of new opportunities. As a percentage of revenue, net R&D expenses increased slightly to 12.5%. Our target remains to keep net R&D in a low double-digit percentage of revenue. SG&A expenses decreased 7% in '25 on the back of disciplined cost control as well as the benefits of earlier investments made to scale the organization for growth. As a percentage of sales, SG&A decreased from 10.6% to 9.2% in '25. For 2026, we project SG&A to show a further decrease as a percentage of sales.

Operating profit increased 17% in '25, thanks to improvements in revenue and gross margin, SG&A discipline and with continued growth in R&D investments. The operating margin increased from 28% to a record 30.2% in '25.

Now turning to the balance sheet. ASM's financial position continued to be in good shape. We ended the year with a cash slightly north of EUR 1 billion and no debt. Excluding M&A-related cash payments totaling EUR 181 million, free cash flow increased 12% to a record of [ EUR 615 million ] in '25. This growth was driven by improved profitability and lower working capital, partially offset by higher CapEx.

Working capital decreased to EUR 347 million at the end of '25. This was mainly due to the phasing of revenue during the year with Q4 2025 sales at a relatively lower level, together with very strong cash collection. CapEx increased from EUR 168 million to EUR 280 million in 2025, fully in line with our guidance range of EUR 200 million to EUR 250 million. This increase is for a large part driven by spending related to the completion of our new Korean facility and ongoing construction of our new facility in Scottsdale.

2026 will be a year of continued investments for a large part related to our Scottsdale site, which remains on track for completion in the first quarter of 2027. Regarding cash spent on acquisitions, in December '25, we acquired Axus Technology, a provider of CMP solutions for EUR 81 million, net of cash acquired, along with a potential earnout up to EUR 30 million tied to performance targets over '26 and '27.

In addition, we paid EUR 100 million in earn-outs as part of the earlier LPE acquisition and as already communicated with the Q3 reporting. In terms of shareholder remuneration, we spent close to EUR 300 million in cash on dividends and share buyback in 2025. And with our Q4 press release, we announced a new share buyback program for an amount of EUR 150 million as well as a proposed dividend of EUR 3.25 per share, up from EUR 3 in the prior year.

And with that, I'll hand over to Hichem.

Thank you, Paul. Let's now review the trends in our markets. In 2025, the semiconductor market continued to be driven by AI, reflected in a wave of new AI data center and infrastructure expansion plans from hyperscalers and other leading industry players. This drove solid capacity investment in leading-edge logic/foundry and in advanced memory, areas where our ALD and Epi technologies play an increasingly central role. At the same time, several other end markets, including smartphones, PCs, automotive and industrial remained relatively soft due to persistent macroeconomic and geopolitical uncertainties.

Looking ahead, the fundamental technology drivers remain firmly intact. Demand continues to rise for faster, more power-efficient semiconductor devices capable of supporting the massive growth in data and compute intensity. This will further accelerate the industry's transition towards more complex 3D device architectures and the introduction of new materials. These trends increase the number of ALD and Epi layers required at future nodes, supporting healthy long-term growth in our key markets.

The main engine behind our growth in 2025 was the continued strong momentum in leading-edge logic/foundry. Our gate-all-around related sales rose substantially as customers ramped 2-nanometer capacity and started to move into volume manufacturing. At our Investor Day, we reconfirmed the significant expansion of our served available market by about $400 million in the transition to first-generation gate-all-around. We also highlighted the increase in our Epi layer share from 22% to 33% and the reinforcement of our leadership position in ALD.

Our product penetrations included new applications such as moly ALD and area selective deposition entering high-volume manufacturing at the 2-nanometer node. In 2026, we expect customers will continue investing in 2-nanometer expansion, supported by rising end market demand across AI, high-performance computing and advanced mobile applications.

Based on public commentary from several of our customers, the 2-nanometer technology node is expected to be large and long-lasting. While 2-nanometer will continue to represent the majority of leading-edge logic/foundry investment in 2026, we have also seen an uptick in 3-nanometer related demand. The pace of innovation is not slowing down, and customers are already advancing toward the 1.4 nanometer node with pilot line investments expected to start in the second half of 2026 and volume production in 2027 and 2028.

This transition is projected to expand our served available market by a further USD 450 million to USD 500 million. A significant driver of this increase is the rising importance of functional layer in the transition area, which is a core strength for ASM. As also highlighted during Investor Day, we expect these transition-related layers to increase to roughly 60% of all ALD layers at the 1.4 nanometer node, up from about 50% at the 2-nanometer node.

Based on the breadth of R&D engagement and the production tool of record selection secured so far, we expect to gain further market share as the industry moves to the 1.4 nanometer node. Let's now talk about memory. Our sales in the Memory segment decreased in 2025. And as discussed, this reflected a normalization in China after an unusually strong 2024.

At the same time, momentum in the advanced segment of HBM-related DRAM remained robust. AI-driven data center investments continue to require high-performance DRAM. And in this segment, ALD high-k metal gate has become essential to achieving the performance and power efficiency levels customers demand. During the year, we strengthened our position with new ALD wins for layers that are expected to ramp in 2026 and 2027.

And we also recorded our first Epi win in the DRAM segment. We expect healthy growth in our DRAM sales in 2026, even though memory is likely to remain a smaller share of our business than logic/foundry in the coming years. Looking forward further out, DRAM scaling presents a significant long-term opportunity. The transition to the 4F2 architecture will require more complex 3D channel structure and additional ALD and Epi steps, expanding our served available market by USD 400 million to USD 450 million.

Let's now look at the power/analog/wafer. In 2025, the power/analog/wafer market remained in a cyclical downturn. In 2026 and based on the early signs of stabilization, we expect for this segment a modest sales improvement. This recovery will be limited to silicon-based power and analog applications. The silicon carbide market will take longer to recover, but we remain well positioned with a strong portfolio, including our PE208 platform for 200-millimeter applications.

China remained an important market in 2025. After 2 years of exceptional growth, we had anticipated a period of normalization. Revenue from China did decline in 2025, but the decrease was milder than expected and mostly supported by continued robust activity in the mature logic/foundry segment. Sales softened in the second half of the year, particularly in Q4, but we saw demand accelerating towards year-end. Based on this momentum, we now expect higher sales in China in 2026, an improvement from our earlier forecast of a double-digit decline.

As Paul already discussed, we continue to invest in R&D and CapEx to capture the opportunities ahead of us in logic/foundry, in DRAM and also in new areas such as advanced packaging. In 2025, we completed our new expanded innovation and manufacturing center in Downtown, Korea. Combined with our key manufacturing sites in Singapore and ongoing efficiency improvement in our supply chain model, we believe we have sufficient capacity in place to support our growth well into the next decade.

I'm also excited to see the progress at our new Scottsdale facility, which will enable substantial expansion of our ALD and Epi product development activity in the coming years. And last but not least, in December, we announced our intention to invest in a new site in the Netherlands, which will house our new global headquarters and a state-of-the-art clean room. In December, we also acquired Axus Technology, a provider of differentiated equipment for chemical mechanical polishing focused on markets such as compound semiconductors and more than more manufacturing.

CMP fits well with our capabilities in chemistry and interface engineering and plays an increasingly critical role in emerging technologies such as 3D integration. In 2025, we made further progress in accelerating sustainability, which remains one of ASM's strategic priorities. We maintained 100% renewable electricity for the second consecutive year. We also deepened collaboration across our value chain, including a new initiative to support suppliers with energy efficiency improvement and renewable energy adoption.

In addition, we continue to advance product sustainability through initiatives that improve the energy efficiency and precursor consumption of our tools, contributing not only to reduction in Scope 3 emission, but also helping our customers lower operating costs.

Let's now look into the outlook for 2026. Let me recap the key points of our guidance as included in yesterday's press release. We expect advanced logic/foundry to be our strongest business in 2026. In memory, we anticipate healthy sales growth. In power/analog, we expect a modest recovery from a low base. And for China, we expect sales to increase in 2026. For the first quarter, we expect revenue to increase to a range of EUR 830 million, plus or minus 4%, with a further increase projected in Q2 compared to Q1. And we anticipate our revenue in the second half to be up from the first half.

With that, we have finished our prepared remarks. Let's now move on to the Q&A.

Thank you, Hichem. We'd like to ask you to please limit your questions to no more than 2 at a time, so that everyone has the opportunity to participate. Operator, we are ready for the first question.

So the first question comes from Tammy Qiu of Berenberg.

So first one is on 1.4 nanometer. So I remember that last time when you said you are expecting to ramp up pilot production in the second half of the year, you were talking about only one customer, but hoping for another one. I'm just wondering what is the progress? Did you get more interest of more customer ramping up 1.4 nanometer than just one?

Okay. Thank you for the question. I think that 1.4 nanometer is a technology node that all key customers are looking for. And right now, I cannot really be more specific on whether 1 or 2 or 3 customers are ramping up the 1.4 nanometer node, but we see interest from all leading suppliers for the high-end logic and foundry to work on 1.4 nanometer. So we are very excited about the opportunity, and we see our customers really continuing to increase their investment in the next-generation gate-all-around. The other thing that we see is that the customers are very serious about going into HBM in the 1.4 nanometer node in 2027 and 2028.

Okay. And the second question is on China. So your peers also talked of China comparing to their expectation from Q3 last year. But your comment from down year-on-year to growth year-on-year. And also, we all know that China has been a lower visibility market comparing to the rest of the market. Is that something you've seen -- significantly changed over the past few months made you to have this call at such an early stage of the year? Or is that just basically customer conversation has been giving you the confidence that it will happen?

I think that -- I think what we have mentioned before, it was very tough for us to really give a very clear projection for China. We mentioned very, very often that it was very tough because of many factors. One of them is the changing trade restrictions and also the funding releases, which really are very unpredictable from our customer.

But we did see that at the end of -- actually at the end of the year that the customers are becoming -- Chinese customers are becoming much more bullish about their business in 2026, which really was very exciting to us, and that's why we feel that 2026 is going to increase with us. For us, we see visibility with them, and we see a strong momentum from that point of view.

The next question is from Andrew Gardiner of Citi.

Sort of related one on China, but really as it pertains to your business mix and how you think that will shape up over the course of 2026. If I go back to how you were framing things in October and indeed at the Capital Markets Day in September, you had cautioned us that business mix as it pertains to gross margin would deteriorate in 2026 and the decline in Chinese revenue was going to be a large part of that.

Today, as you just mentioned, China is going to grow, maybe not quite as quickly as the advanced logic demand, but still it's going to grow. And so your mix isn't going to deteriorate as much as you had previously suggested it might. How should we, therefore, take that into consideration when looking at gross margin for 2026?

So I think for our gross margin, it's -- like you mentioned, it really depends on product and also customer mix. And China would actually help our gross margin. So with the change in the mix, then the gross margin will also depend on that. And we see that in 2026, I think we have made -- I think we have made in 2025 and 2024 significant improvement, not only in -- actually, we made significant improvement in reducing our cost structure in our tools with the commonality.

So we have initiatives to commonize more and more of our products, giving us economies of scale and more leverage with our supplier base to reduce cost. And I think with the way 2026 will materialize, I mean, if the customer mix goes further and further positive on the China-wise, then yes, we expect our gross margin also to be positive from that point of view. But I think overall, I think that we have made improvement in our basic gross margin in the past few years with better cost control. And I think China also would help in gross margin in 2026.

Just so that I'm clear, Hichem, so -- I mean, you're suggesting with less of a change in customer mix year-on-year and with those structural improvements you've made, maybe we shouldn't see much change at all in gross margin relative to last year.

Yes. Let me take that, Andrew. Basically, confirm what Hichem said. So the mix, given that China is now better than what we anticipated before is, of course, a positive plus all the structural measures that we've taken. I think it goes too far to say that it will be the same as this year or maybe even higher at this stage. But I think what is -- what we're confident to say at this point already is that it will be at the higher end of the range that we guided for. And you know that we guided for is 46% to 51%. So at the higher end of that range, I think, is a reasonable assumption to take given what we know today.

The next question is from Didier Scemama of Bank of America.

I've got 2 questions. First, I think if we take the sort of baseline WFE growing 15% to 20% constant currency, are you comfortable to tell us that you will at least be in line with that at constant currency? Or do you see any reason why it should be better?

So I think that -- okay, thank you, Didier, for your question. I think that for our market -- WFE market in 2026, we see that our growth will be at least at the level of the WFE growth. So if the market is going to grow by 20%, WFE, then we grow at least at that level at the 20% level. We are very, really upbeat about our position and our growth this year and actually in the future.

Didier, as you already mentioned in your question, but I want to repeat that because there is quite a difference, of course, between the current rate that we, of course, project going forward and, of course, the average rate of last year. So the question was right at constant currencies.

And sorry, I don't want to use a follow-up for that. But Paul, since you opened the door, can you tell us what your average was in '25 so that we know what the starting point is?

Yes, I think it was around 112.

112. Okay. My follow-up is, I think -- there is a bit of confusion in the market as to what you're actually trying to say when it comes to the outlook for '26 because it feels like you're saying, yes, foundry/logic or advanced foundry/logic is going to be the key growth driver for the business. And then memory is going to have healthy growth. So implicitly that memory will grow less than advanced logic/foundry. So I guess, is that the right way to interpret that? And if that's the case, why wouldn't memory outperform given how bad it was in '25 and given that DRAM WFE looks pretty healthy, at least from a top-down perspective?

Yes. Let me take that question, Didier. So basically, what we said is that we expect growth almost on all fronts, to be honest. But the base from which the growth starts is very, very different. And I think that's the key. So of course, by far, our largest business is logic/foundry. And within logic/foundry, the largest part is advanced logic/foundry and then in China, in particular, mature logic/foundry. So especially advanced logic/foundry, we continue to see strong investments supported by investments, continued investment in 2-nanometer, but also 1.4 pilot, as we mentioned mature, you just heard our comments on China, we expect to grow. So that's a positive.

Memory from a much smaller base, in particular DRAM, we also expect good growth, but it will still be the much smaller part of our overall business, as you've seen also in '25. And in addition to that, although it's still also from a lower base and modest, we also expect this year a modest improvement in power/wafer/analog, excluding silicon carbide. Silicon carbide is still -- that will still take longer, as Hichem already explained, but also power/wafer/analog, which is partially in China, by the way, and partially outside of China.

Okay. So your commentary was based on euro incremental growth as opposed to percentage of growth. Is that correct?

That's correct. I think that's really what we're trying to say here, Didier. Logic is a higher base. But in percentage-wise, the growth in DRAM is higher than -- percentage-wise than logic/foundry. Percentage-wise, DRAM is higher, but we're starting from a very much lower base.

The next question is from Francois Bouvignier of UBS.

My first question is, Hichem on your comment on the AP, you mentioned an AP win on the DRAM side. Can you give more color on what this win is, when it's going to start kicking in? And was it competitive? Just more color on this comment, that would be great.

Okay. Thank you very much for the question. I think that we're really excited of getting win in DRAM, and this is really in HBM, which we have realized in 2025. And it's going to be incremental to our revenue starting this year in 2026.

And is it going to be for multiple customers or just one?

So it's -- as I mentioned, okay, so we had the win in 2025 for this particular customer, but -- and HBM is happening this year. But at the same time, we have significant engagement with other customers in high-bandwidth memory with epitaxy, and we expect some good news also happening hopefully in this year, too.

Great. And maybe on the advanced logic side, I mean, as the pilot line is getting in order this year, I just wanted to check your market share. You mentioned some moly ALD and area of selective deposition design wins as well potentially. Can you maybe give some color on your market share here? I mean, on the pilot line, how do you think it's trading? Is it higher? Is it similar? And selective deposition, I mean, I thought it was something a bit later on. So I was a bit surprised to see selective deposition in your comments. So just is anything happened? Did anything happen on the selective ALD front to accelerate the road map?

Okay. So let me answer your question first about ASD and then talk about molybdenum. So if you look into ASD or area selective deposition, I mean, to be honest with you, we are -- myself, I'm very pleased that we got some win in area selective deposition in the gate-all-around area. And the reason we saw this win is because actually it's higher yield that's experienced by customers. So I think the simplification of the process flow and the reduction in the number of process steps have given rise to improvement in yield.

So we see that happening. And actually, we see that also going to happen more and more into the future, and I see even acceleration in that. A very exciting area, I mean, and there's lots of possibility going on in this realm. And when we talk about the moly, we're also excited about winning HCM capability at the 2-nanometer node. I think we have mentioned very often that the moly adoption in the industry is going to happen, but it's going to be happening in a very slow pace.

We mentioned that it started with 3D NAND. The second logic adoption is happening. And third is going to happen in DRAM. The change in the -- for us, this is penetrate -- this win is the first time that ASM has moved into the metal deposition area. So we're very excited about it. It's an area that we have -- we didn't have any experience about many years. We didn't have any experience because we didn't know what -- how to integrate metal layers. We don't know how to characterize that.

But right now, I feel this win shows that, okay, yes, not only we can develop this new area, but actually, we can achieve HVM capability at the customers. So we're building the expertise within our development team and our teams, and this is something that really is exciting for us. But as I mentioned, the moly adoption in logic is going to take a while. And I mentioned before, it's going to start a little bit at the 2-nanometer. You're going to have a little bit more at 1.5 4-nanometer node, a little bit more at 1.0 nanometer node, but it's not going to be at the level of what tungsten and copper is. But this is really exciting for us, to be honest with you.

The next question is from Adithya Metuku of HSBC.

So I had a couple. Firstly, just on the CMP acquisition, I just wondered, Hichem, if you could give us some color on which end markets you want to focus on, what sort of applications and end markets and whether you intend to have any partnerships with your CMP tool, especially when it comes to advanced packaging. There's a lot of debate there. So any color there will be helpful. And then secondly, I wondered, Paul, if you could give us some color on how you're thinking about your OpEx growth in 2026 with a focus on R&D and SG&A.

Yes. So thank you for the question. We have -- when it comes to CMP, we when we looked into this market, okay, we talked in our Investor Day that we have focused on also some M&A and especially in an area where it can do 2 things for us. It's an area that's strategic to ASM and it's an area where we can add value to it. And also, we mentioned, okay, that when we do some M&A, we really want to make sure that there's some technology component to it. And this is really what we saw in this CMP acquisition. The company has a very good technology, very exciting technology to be honest with you. That's very unique by itself.

They have a great footprint and also very good cost of ownership, very competitive cost of ownership. And we think that this technology, CMP is actually -- is complementary to our strength in interface engineering. As you know, that when you do the bonding at the end of the day, it's really to put -- it's like to bond interfaces together. So after you do polishing, you have a new surface. And if you can make the surface better and more -- you can actually control the engineering of the surface, that can help you also do the bonding. And also, it's also complementary to our deposition technology. I mean we have CVD deposition in advanced packaging and CMP would be also complementary to that.

So from all this point of view, we think that we can add value to this technology. We are going to see how it works for us in the future. This is a very small acquisition, about EUR 80 million acquisition. And we're going to test it. We mentioned that we're going to test it in the advanced packaging area, and we'll see how it materialized. But definitely, the technology is differentiated. We like the tool architecture. And we think that also cost-wise, it will be very competitive.

Yes. And then on the OpEx, what I can say is that let's start with R&D. We will continue to invest in R&D. So that will grow further. And our net R&D will grow at a higher pace than our gross R&D simply because of the increased amortization expense because more and more films that we have been working on in the last few years have entered into HCM. So we start to amortize those. But I think net R&D at constant currency again, because also I'm not going to give you a percentage now, but a decent chunk of R&D cost is also dollar-based and another decent chunk is also euro-based.

So net, around 10%, I think, is a good guidance to take into account and gross will be slightly below that because net will grow faster than gross. On the SG&A, we will continue to be very strict on SG&A. There will be some increases, of course, annual inflation, merit, but also we invested in -- as you know, we are the global big bang of our new ERP system that costs under IFRS need to be capitalized. So we will start amortization of these costs as well. We might have some higher variable expenses in '26. But overall, I think if you take into account a few percent increase, that's what we try to manage. We will be very strict on SG&A. And as a percentage of revenue, for sure, that will go below 9%.

Got it. Understood. Maybe, Hichem, just to clarify on the Axus acquisition. Is this -- do you have a specific focus on hybrid bonding? Or is it more generally bonding applications?

Yes. I think we -- really we're looking into the advanced packaging as not only hybrid bonding. So it's really packaging as overall market from that point of view.

The next question is from Robert Sanders of Deutsche Bank.

Maybe just if you could just discuss a bit about what you see in terms of clean room constraints at your customers. Obviously, we've seen some companies talk about that. Obviously, your tools don't take up as much footprint. And -- but in terms of looking into '27, do you see significant capacity opening up? And how does that set you up for next year?

I think that we see -- if you look into 2026, -- we do see there's a constraint in fab space in multiple areas, which limits the really expansion for our customer. I mean it's -- I think it's very clear. It's very public information. And also, we see a growing sense of urgency from our customers really to get some of the tools. So based on that, we see that there is a good momentum as more and more capacity come in, in 2027. So we see momentum really continuing in 2027. So not only we are excited about 2026 and very positive about 2026, but we see the fact that more and more capacity -- the fact that there's a constraint right now in fab space, but that fab space is going to open up in 2027 means that also 2027 is going to be a very good year for our company.

Great. And just a quick follow-up. Just a clarification on foundry/logic in '26, are you saying that's going to grow? Or are you just saying it's going to remain the largest part? I didn't quite understand. Maybe I missed that if that was asked already.

Both, yes and yes, it will remain the largest part, and it will also significantly grow.

The next question is from Stephane Houri of ODDO BHF...

I just wanted to come back on the decision to stop giving the orders on a quarterly basis because, yes, indeed, some of your -- other players in the industry have done the same. But it seems to me that the volatility was not such a high volatility as for others and that given your lead time, it was a good indicator. So what are you going to give apart from more granularity on the current level of sales? And I have a follow-up.

Yes. Let me take that question, Stephane. Actually, we -- multiple, let's say, stakeholders that we have discussions with gave suggestions that we should maybe like our peers, stop with quarterly bookings because the risk of an overreaction is there. As we said already, it's not always demand driven, but it's timing, just phasing, nothing else. So we see overreactions up if it's really good or overreaction down, if it's really not good, which is not helping, of course, the stock increases volatility. So that's a key reason why we're stopping.

On the other hand, I think with the hopefully improved transparency on segment information, that might help. We will continue with revenue guidance, of course, like we do today and maybe some qualitative guidance if we believe that is necessary. So with that, I hope that you guys have enough to model and to come to a view on how we will develop in the coming period. But these have been the considerations. And based on that, yes, we have made this call.

Okay. And what about the evolution of spares and services it has been outgrowing the equipment parts in 2025. So what is your view on 2026?

I think on 2026, I think with the fact that the fabs are at maximum capacity, we expect continued growth in 2026. The other thing, as the market moves more and more into more advanced nodes, we see the service part of our market also growing even higher than the rest because of the complexity of the equipment at the very high-end node, which favor outcome-based services or solutions that are much more valuable and add more value to the customer. So I'm very optimistic also on the service market this year and in the future.

The next question is from Jakob Bluestone of BNP Paribas.

Just on Axus, could you maybe just help us understand how you plan to cross-sell CMP tools? And if you have any idea what share of your customers are currently already using CMP in their processes?

I think that for -- I just want to make very clear for Axus as a company, I mean, it has a very low revenue. I mean we're talking about revenue between USD 20 million to USD 30 million per year. So this is the latest revenue they have in 2025. So this is a very small acquisition from this point of view. And we're going to leverage the -- our expertise to help this technology, bring this technology to a larger customer from that point of view. But as I mentioned, okay, this is all about a technology buy where we think that, okay, we can add some of our strengths into the CMP market.

I mean if you look into CMP, it's systems for chemical mechanical polishing and that chemical part that really means chemistry. And that's where we play with. I think we have some idea on how to make the chemistry better, especially when you go into 3D integration whereby the chemical part of the CMP becomes most predominant than the mechanical part, especially as you go to 3D and the structure becomes more and more fragile from that point of view.

So we think we can play a role there. We're going to see how it goes. But again, this is something that we think that we can improve. It's a very small acquisition. I think it plays on our street and going into a market that's growing a lot, which is the advanced packaging. So we are very excited to look into how can we make it even better and improve our penetration into the advanced packaging in the future.

Great. Maybe just a quick follow-up as well just on CapEx. Can you provide any commentary on CapEx for '26, I guess, particularly in light of the expansion in Almere?

Yes. No. The expenses as per our guidance from the Investor Day, I think it was EUR 200 million to EUR 250 million in the years where infrastructure expansion. So in '26 this year, it will mainly be CapEx related to Scottsdale still. And then very likely, as we see it today, then in '27, you will start to see the first more material CapEx for Almere.

The next question is from Sandeep Deshpande of JPMorgan.

My question is back to the M&A you've done. I mean has the policy of ASM changed at all with regards to M&A? Those of us who have covered the company for a long time, I mean this -- the company did a lot of M&A, then made a lot of exits. Now you've started doing M&A in a small way again. So has the overall policy towards M&A changed at ASM? And are there more areas apart from now the CMP acquisition that you plan to do? And does the company plan to become stand-alone players in this? Or is this just addition to existing tools, which is probably a less risky proposition. And so I just want to try to understand your thought process behind the M&A.

Yes. No. So did it change? At least in the last 5 years, it did not, although indeed, we made 3 acquisitions in the last 5 years. And in the 10 years before that, we made none. So from that point of view, you could maybe think there is a change. But I think there's not really a change because also before that, what I understand from my predecessor, they've looked at certain opportunities, but for whatever reason, they never materialized.

So we look into M&A if we see an opportunity where we see clear value-creating opportunities and that helps us to grow and build our position further in certain areas that we have labeled as important/strategic to us, then we want to act. And we did that now 3 times. There's always a very clear link to strength that we have. It leverages, let's say, our strength of the capabilities of the company that we buy. It can build and leverage on our global network that we have. So yes, the logic at least for the last 3 have been actually exactly the same for Reno, for LP and now for CMP, Sandeep.

And we will continue to scan the market. We have continuously said that. Our first priority in terms of capital allocation is growth. Number one is organic growth. That's why we continue to invest in R&D, very important and in infrastructure expansion, as we explained. But the second is also inorganic. If we see true value-creating opportunities, we try to do it in a very disciplined manner. We're not throwing money away because we have it, no. We only do it if we truly believe that there is a medium- to longer-term strategic play that can create a lot of value to us based on the capabilities that we have in combination with the targets. So that did not really change as far as I'm concerned, Sandeep.

And a quick follow-up. I mean, I think a quick follow-up. I mean, in terms of the earlier question on your improvement being seen in the logic/foundry market. Earlier last year, you had talked about a slow start to '26. So did something change in the last few months in terms of the slow start that some key customers changed how the trajectory of how they're taking delivery of the tools? Or was this slow start is what you have already guided? This is the guidance and it was underplaying what the market expected. The market was underplaying what you expected, sorry?

No, I think, no, absolutely it changed in the last, whatever, 2 to 3 months. You've seen announcements from some of our customers that have significantly increased their outlook, especially a large foundry customer, which I think that's where it started with. We just explained the improved sentiment in China in combination with a pause of some of the export control measures that were initially put in place, but then paused. Some customers will take advantage of that. But at the same time, also clearly improved sentiment there.

You read about the hyperscalers and their investments in data centers and infrastructure, hundreds and hundreds of billions. It's definitely a different situation in the last 2, whatever, maybe 3 months than what we thought before. We always thought '26 would be still a good year, but starting in the slow, as you said, and then accelerating more towards whatever the second half of the year. But that acceleration that we actually had expected maybe somewhere in the course of the year, literally starts now. So there's clearly a change, yes.

The next question is from Timm Schulze-Melander of Rothschild & Company Redburn.

I had 2, please, one for Hichem and one for Paul. The first one is just on the CMP business model just with respect to consumables, slurry and pads. I know it's a small business, but is that going to be something that you provide? Or is that going to be provided by an external or a third party? And then I had a follow-up.

Okay. So to answer your question, okay, regarding the CMP part of the business and the acquisition. So the -- once -- as the technology in packaging moves more and more into high end, from -- it's going to move from TCB to hybrid bonding in the future. Then what happened is that we're going to go to lower temperature processing and the surface of the interface becomes a very significant in the hybrid bonding part of the advanced packaging.

So for such, interface control is very important. We have solutions, organic solutions from our ALD know-how to engineer interfaces and engineered surfaces. But also CMP is part of that whole the whole process flow. And by definition, CMP also affects the surface of the deposition layers that deposited film. So it's important for us also to understand how that interface from CMP works with our deposition films that we developed in CVD and ALD to engineer a very clear interface.

So I hope that's very clear from where we stand. This is a new market for us. This is a new market, and we try to understand this market very well. We have -- as we mentioned, we have organic offering there. This organic offering are in ALD in the area of ALD. This organic offering are also in the area of CVD like PECVD, but also this offering, the organic offering is also in the area of epitaxy and silicon photonics, where we also have some traction in those things.

So CMP plays a significant role in engineering the interface. It's complementary to our deposition technology. And it's very important for ASM to really know how CMP also engineers the surface and interface in addition to the offering that we have in deposition, both CVD and ALD. The next thing regarding the question that you have asked about slurry and so on and so forth. As I mentioned, the CMP part is moving more and more into the chemical part. So you have CMP, you're trying to polish. So polishing both with force, okay? That's the mechanical part, but also the chemistry, which is the slurry and so on and so forth.

And that slurry thing or the chemical part is becoming much more important than the mechanical part because of the 3D drive that's happening in our device. And when you talk about advanced packaging, you're going to put things on top of each other. And you also have wafers that are very thin, they are very brittle. So you cannot put too much force. So the chemical part becomes much more important. We are a company that knows a lot about chemistry, and we have know-how and knowledge in that, which we have applied for ALD and other parts. And we think we can do the same for the CMP part of the business.

Great. That's very clear. Just moving on to Paul. sincerely appreciate the improved disclosures. For one, I'd probably request for a quarterly rather than a semiannual, but the disclosure improvement is much appreciated. I just wanted to ask about the cost saves and the run rate and just kind of get a sense as to kind of what the exit rates were or are for '25 coming into '26. And maybe just trying to think about the cost savings contribution and how that might scale or how that sizes relative to the increase in R&D, which I think you're guiding is going to, on a gross level, rise by about EUR 40 million, EUR 45 million. I just wanted to get a sense of maybe the extent to which cost saves might offset how much of that they might be offsetting.

Are you specifically referring to SG&A and R&D or also to cost of goods?

I'm referring to the broad A to Z cost savings and efficiency programs that you guys have across the company and just trying to scale those relative to the specific cost increase that you're guiding for in the gross R&D spend.

Okay. So on the real cost savings, it's more, let's say, margin related where we have explained before on the -- for instance, the standardized platforms. So we have more and more products now that are qualified by customers based on standardized platforms, which have a better cost structure, lower cost structure, more common parts, et cetera, which leads to cost reduction, but also to a reduction of complexity in terms of logistics will lead to somewhat improved inventory simply because of more commonality.

I'm not going to give you a number there, but it's -- yes, it's a meaningful improvement, let me say it like that. The other part, but also that will go slow. So every year, you will see some benefit there is the MIT that we talked about before, the merchant transit, where we don't have everything come to Singapore first, assemble it, test it, but have the platform go straight to the customer, the process chamber that comes from Singapore then straight to the customer and assemble it there and test it there, which skips one big step, which is also a big improvement.

Of course, we have value engineering initiatives on our products continuously. We have material cost savings, commercial savings. So there's across the board savings going on. On the R&D part, here, I mean, the name of the game is selecting the right priority from the many priorities and many opportunities that we see, which, of course, to a large extent, are based on the, the overall market opportunity that we see and whether or not we can have a differentiated proposition or not, but it's not so much about saving costs, although we try to be very efficient, of course, in what we do there.

For SG&A, it's literally doing more with less. So we grow and grow, but we want to automate more. We want to make our processes better. We want to leverage AI better. So there instead of just adding people more and more, it's all about doing more with less and do maybe more with the same, to be honest, to support this growth without adding too much cost. So every line has a different dynamic, if you wish.

The final question is from Marc Hesselink of ING.

First its a follow-up on the market share in memory. I think now you very clearly stated that whatever the industry of WFE is doing, you expect to be growing faster. So does that also imply that in the more advanced parts of the memory market, your market share is getting closer to the market share that you have in the advanced logic/foundry.

Let me take this, Marc. No, absolutely not. I wish because then we would be looking at very different numbers. No, no. So what I think we try to say is that on the small revenue base that we have today in memory, especially in DRAM, we expect significant growth -- significant growth even more as a percentage than in advanced logic/foundry.

Having said that, for '26, we also expect significant growth, in particular, in advanced logic/foundry, maybe a little bit less maybe as a percentage than DRAM, but still very high. If that growth would, let's say, change significantly during the year, the percentage so that advanced logic foundries, we don't expect that this scenario would grow much lower and DRAM would suddenly go even more and stronger than we are today, then the statement that we make is maybe -- would become maybe invalid because if all the growth would be in DRAM, of course, we would not be saying what we were saying. But also, we say what we say because we believe that also the growth in advanced logic/foundry will be very significant. That is the reason why we say what we say.

Okay. That's clear. And then my second question is on -- it's more of an organizational question. So you're adding R&D capacity. You're adding -- you have introduced a new IT system. You have now a new Board member. With the growth of the company, you're adding this kind of, let's call it, another layer of professionalization within the company. Is that the way to look at it? Is there more to come? And is there more that you have to scale in the coming years given the high growth that you have going forward and what you had in the past?

Maybe one small adjustment, Marc, we did not add a new Board member. It's a new ExCo member. So senior leadership, but it's not a Management Board member. The carrier that we talked about is an ExCo member. I think what we're doing is we have -- actually, this is something that's happening for many, many years in a row. Of course, we're trying to professionalize the company and trying to get ready to scale the company in an efficient and effective manner.

So for instance, the new ERP system, which we have globally implemented through a big bang is, let's say, the foundation for further, let's say, growth in a more automated fashion, in a more productive way than we would have been able to do without this because with the previous system, we had to do much more manual work than what we can do today as an example. Also AI applications, we can leverage better with the foundation that we put in place now than what we would have been able to do without this foundation. So yes, it's all about scaling. Yes, it's about professionalization of the organization. So I'm not sure if that answers your question, but this is what I can say.

The question was also a bit, is there more to do on this side? I mean, I think we had quite some announcements over the past few years. Is that -- are the large part behind it now? Or are you still taking another steps here?

Yes. I'm not sure you're referring to because so many announcements I don't think we've had. I mean, we have an Expo. We have a number of KPIs. We professionalize, I mean, our way of working, which I guess every company does. So we will continue to do that. We will not stop. It's not like, okay, from now on, you will not see any announcement anymore. But yes, I think what we do is for the reasons that I just tried to explain is to scale the company in a controlled, professional and highly productive manner. That's what we are trying to do.

That was the final question. I will turn it back over to the CEO for any closing remarks.

On behalf of Paul and Victor, I would like to thank everyone for attending today's call. We hope to meet many of you guys very soon in the upcoming investor events. Thanks again, and goodbye.

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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ASM International Third Quarter 2025 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 welcome, everyone, to our 2025 Q3 earnings call. I'm joined here today by our CEO, Hichem M'Saad; and our CFO, Paul Verhagen. ASM issued its third quarter 2025 results yesterday at 6:00 p.m. Central European Time. The press release is available on our website.

With our latest investor presentation, we remind you, as always, that this earnings call may contain information related to ASM's future business and results in addition to historical information. For more information on the risk factors related to such forward-looking statements, please refer to our company's press releases and financial statements, which are available on our website.

Please note that the profitability measures mentioned in this call today will be primarily based on adjusted non-IFRS figures. For the reported results as well as the reconciliation between reported and adjusted results, please refer to the quarterly results press release.

And with that, I'll now hand the call over to Hichem M'Saad, CEO of ASM.

Thank you, Victor, and thanks to everyone for attending our third quarter 2025 conference call. First off, I'd like to thank all our investors and stakeholders who joined us for Investor Day last month. It was great to see so many of you. For today's call, we'll be following the usual agenda. Paul will begin with an overview of our second quarter financial results. Next, I'll discuss the market trends and outlook, followed by the Q&A session.

I will now turn it over to you, Paul.

Thanks, Hichem, and thanks, everybody, for joining our call today. Let me start with revenue. The revenue in the third quarter of '25 amounted to EUR 800 million, up 8% year-on-year at constant currency. And compared to the second quarter, sales were flat at constant currency. This was at the high end of a guided range of flat to down 5%. Equipment sales increased 10% year-on-year at constant currency and were led by ALD followed by Epi.

Spares and service sales were up 2% at constant currency. Year-on-year growth in spares and services was lower than in the past few quarters, and this is explained by the accelerated above trend demand in China in the second half of last year. Growth in our outcome-based services continues to be healthy.

In terms of customer segments, revenue was led by logic/foundry, followed by memory and then power/analog/wafer. Logic/foundry continued to account for the majority of sales. Advanced logic/foundry sales for the largest part 2-nanometer related were up substantially compared to the third quarter of last year and approximately similar to Q2. Mature logic/foundry sales mostly in China, were up year-on-year and down from the second quarter.

Memory sales decreased compared to Q3 of last year and were roughly similar to Q2. of this year. ALD sales for advanced HBM-related DRAM applications represent a larger part of our memory sales. The year-on-year decrease was mainly explained by some lumpy and relatively high sales and orders from memory customers in China in Q2 and Q3 of last year, as we also discussed in previous quarters.

Sales in the power/analog/wafer segments were up slightly but still at relatively low levels, reflecting the continued downturn in these markets. Gross margin in the third quarter remained strong at 51.9%, roughly similar to Q2 and up from 49.4% in the third quarter of last year and again supported by a positive mix. As mentioned in the press release, we expect a less stable mix in the fourth quarter, which should bring the gross margin to around 51% for the full year.

One of the mix factors was revenue from China, which decreased both year-on-year and compared to Q2 but still represented a solid level in Q3. We still expect China sales in the second half to be lower than in the first half with a more substantial drop in Q4. As discussed in the last quarter, our forecast for the gross margin excludes the impact from potential new U.S. tariffs. Our industry is currently still exempted, but it remains unclear what any new tariffs will be. We have several contingency scenarios in place to help mitigate potential direct impacts including the option of expanding localized manufacturing in the U.S.

SG&A expenses were 10% lower year-on-year. This reflects lower variable spend and our continued cost focus. For the full year, SG&A is still expected to be somewhat below prior year. Gross R&D was up 10% in Q3, reflecting ongoing increases in our R&D programs. This increase plus the inclusion of a EUR 4 million impairment was partially offset by a relatively higher increase in capitalized development expenses, leading to an increase of 3% in net R&D expense. At 30.9%, the operating margin continues to be strong, supported by the solid gross margin and the year-on-year decrease in SG&A.

Below the operating line, financial results included a currency translation gain of EUR 11 million, and this compares to a currency loss of EUR 60 million in the second quarter and a loss of EUR 48 million in the third quarter of last year. As a reminder, we hold the largest part of our cash in U.S. dollars.

Let's quickly switch to ASMPT. Our share in income from investments, reflecting our stake of approximately 25% in ASMPT amounted to a loss of EUR 7 million in the third quarter, which is explained by one-off restructuring costs taken by ASMPT in the quarter. Our net results in Q3 also includes an impairment reversal of EUR 181 million, driven by a recovery in the market valuation, our stake in ASMPT in the quarter. With that, the impairment charge of EUR 250 million that was recognized in Q1 of this year has now been fully reserved.

Let's go back to ASM now. Order intake. Our new orders amounted to EUR 637 million, a decrease of 7% compared to the second quarter and a decrease of 7% compared to the third quarter of last year at constant currency. With the Q2 results, we already indicated that book-to-bill would be below one in Q3. As an expected rebound in advanced logic/foundry orders will be offset by a sharp drop in China orders following a very strong first half of the year.

In our update last month, we indicated advanced logic/foundry orders would still be up, but not as strongly as previously expected due to very mixed trends per customer and also that power/analog/wafer orders came in somewhat lower than expected.

Looking at the breakdown by customer segments, logic/foundry was the larger segments, followed by memory and then power/analog/wafer. Logic/foundry orders decreased slightly year-on-year and compared to Q2. As just mentioned, a solid increase in advanced logic/foundry compared to Q2 was offset by a sharp drop in mature logic/foundry orders mostly in China.

Memory orders dropped compared to last year and were relatively steady compared to Q2. And the largest part of memory orders was for advanced DRAM applications.

Let's turn now to the balance sheet. ASM's financial position remains in good shape. We ended the quarter with EUR 1.1 billion in cash, up from EUR 1 billion at the end of June. Days of working capital dropped to 37 days at the end of September, down from 43 days end of June. This level is relatively low and also below the longer-term target range. As previously explained, this is due to a relatively high level of contract liabilities for a large part in China, which is expected to gradually normalize over time.

CapEx amounted to EUR 38 million in the third quarter due to phasing of investments for our new Arizona facility, CapEx in the fourth quarter will be higher. And for the full year, we still expect CapEx of EUR 200 million to EUR 250 million. During the quarter, we also paid EUR 100 million in earn-outs related to the acquisition of LP in 2022. In total, free cash flow amounted to EUR 139 million in Q3. Excluding the earn-outs, the free cash flow amounts to a stronger level of EUR 239 million in Q3 and EUR 628 million in the first 9 months.

During the third quarter, we spent EUR 109 million on share buybacks as part of our EUR 150 million program that was completed on July 25. And lastly, let me recap the 2030 financial targets we shared during the last month's Investor Day. Growth prospects for ASM remains strong on the back of rising ALD and Epi intensity in the logic/foundry and DRAM markets and new opportunities in, for instance, PECVD and advanced packaging and continued double-digit growth in spares and services.

We expect the revenue to grow to more than EUR 5.7 billion by 2030, and this represents a CAGR of at least 12% from 2024 through 2030, twice the rate expected for the wafer fab equipment market. We raised our gross margin target to a range of 47% to 51%. And as part of this, we discussed a number of initiatives that will drive efficiency and productivity improvements.

One of the key initiatives I'd like to highlight again is the successful launch of a new ERP and PLM systems. We went live 3 months ago and the transition was executed smoothly without any disruption to operations. This milestone lays a solid foundation for future efficiency improvements, including the rollout of real-time analytics and other digital transformation efforts. We will remain disciplined regarding operating expenses.

Combined with the operating leverage effects, we expect SG&A to drop to less than 7% of revenue by 2030. We intend to increase R&D investments. This is our lifeline as the opportunities continue expanding in the next nodes. The target is to keep net R&D in a low double-digit percentage range of revenue. This will all lead to solid operating margin of 28% to 32% in the coming years and from 2030 onwards of more than 30%.

In terms of CapEx, we expect an annual level of EUR 150 million to EUR 200 million during years of infrastructure expansion and EUR 100 million to EUR 200 million in years without such an investment. Combined with improving profitability, we project free cash flow to increase to more than EUR 1 billion by 2030.

During Investor Day, we also reiterated our capital allocation policy. #1 priority remains investing in the growth of our company. That includes R&D and infrastructure investments and also M&A in case of attractive opportunities. In addition, a strong financial position remains important with at least EUR 800 million in cash as we remain committed to our dividend policy and to return excess cash in the form of share buybacks. And with that, I'll turn the call back over to Hichem.

Thank you, Paul. Let's now continue with a review of the market and business trends. Starting with the end market conditions. The overall picture continued to be mixed, similar to the previous quarters. In various parts of the semiconductor market, the recovery continues to be held back by uncertainties around the economic outlook and geopolitics. It's clear that AI remains the bright spot across multiple sectors and markets, adoption of AI is being accelerated as a key driver of innovation and productivity gains. The surging demand has been highlighted by recent strategic partnerships and announcements from industry leaders aimed at expanding AI data center capacity.

In terms of wafer fab equipment, the growth in AI is expected to drive significant and structural growth in the advanced logic/foundry and DRAM markets. These strengths play to ASM's strength. If we first look at our advanced logic/foundry business, overall demand continues to be healthy even though trends by customer has been very mixed. As already mentioned, these mix trends had some impact on Q3 bookings and will also impact sales in the second half. For the full year, we still expect a very strong increase in our gate-all-around related sales.

The 2-nanometer transition continues to be a strong driver for our company. In the Investor Day last month, we reconfirmed the $400 million SAM increase in the move from FinFET to first-generation gate-all-around. We also reconfirmed that in this transition, we at least maintain our ALD market share and expanded our share of Epi layer accounts from 22% to 33%.

Our customers continue to report strong demand for 2-nanometer for both AI and smartphones. We expect this to support continued investment in 2-nanometer capacity expansions in 2026, including new sub nodes, such as the backside power distribution. At the same time, customers continue to progress steadily in the development of the upcoming 1.4-nanometer node. In the second half of 2026, we expect the first 1.4-nanometer pilot line investments, followed by the start of volume production in 2027 and 2028.

As also shared in our Investor Day, we expect a SAM increase of $450 million to $500 million in the 1.4-nanometer transition. Based on the intensity and breadth of our R&D engagement, we expect again to at least maintain our market share in the transitions to the next 1.4-nanometer node. We expect new ALD layers in [ backside ] power in NIMCAP and metal ALD layers in the middle-end-of-line.

However, the biggest area of increasing ALD intensity continues to be in the transistor area, the front end of line. This is the heart of the chip where the overall device performance is defined by functional materials such as the high-k and electric dipole layers for multi-DC and work function layers. As a percentage of total ALD layers, we expect the number of layers in front end of line to increase from 50% in the 2-nanometer node to 60% in the 1.4 nanometer node. This is an area where our company holds strong market share position.

Let's now review the memory business. High-bandwidth memory, HDM-related DRAM continues to be the main driver. Fueled by strong demand for AI data centers, customers are expanding manufacturing capacity for the most advanced DRAM devices for HBM applications. These devices require ALD High-K Metal Gate technology in which ASM has a leading position.

Looking at the year-on-year performance, despite the good momentum in high-end DRAM, it's important to note that our memory sales last year included elevated sales from Chinese customers, which are not repeated this year. As a result, we still expect our memory sales to be lower than last year at less than 20% of overall equipment. The outlook for CD NAND, which is the smaller part of our memory business, has been improving somewhat, and we continue to be well placed with our ALD death field solutions with key customers.

We expect DRAM investment to further increase in 2026. In the next couple of years, we expect a further gradual increase in the number of ALD layers in advanced DRAM. In the press release, we highlighted new wins in Epi and ALD dipole and work function-related layers in DRAM HBM for most expected to ramp in 2026 and 2027.

Starting in 2028, we anticipate a significant increase in our SAM in DRAM driven by 2 major technology transitions. The move to 4Fsquare architecture and the adoption of FinFET in the periphery. In 4Fsquare, the channel structure becomes vertical, and producing a more complex 3D architecture. This shift will require additional ALD layers for gap-fill, oxides and metals and we'll also increase the role of Epi as an enabling technology. Shortly thereafter, the transition from planar to FinFET in the periphery will further increase demand for logic like ALD and Epi layers.

At our Investor Day, we quantified the SAM expansion in DRAM at $400 million to $450 million as a result of this multi-node transition. In addition, this presents a compelling opportunity for ASM to grow our ALD shares in the DRAM market and to accelerate the expansion of our memory business.

Next, the power/analog/wafer segment continued to experience weak market conditions. While there were early signs of end market recovery at the end of Q2, it became evident over the past 3 months that investment level in this segment will not rebound in the second half of the year. Assuming no adverse economic development, we expect spending in these markets, starting from a low base to gradually improve over the course of 2026.

Thanks to innovative products that we launched in recent years, we are well positioned to benefit from this recovery. One example is our Epi Intrepid ESA tool which has helped us secure several new customers and position in 300-millimeter power and wafer applications. It's important to note that our outlook for gradual recovery excludes the silicon carbide market, where market conditions remain more challenging.

Looking at China. Revenue was still at a solid level in Q3, but bookings dropped significantly. And as Paul already mentioned, this was the main reason for the sequential drop in our overall bookings. China bookings were still strong and very much concentrated in the first half of the year. On top of this, we incurred some additional impact from the export restrictions that were announced earlier this month. The impact on a total annualized sales is expected to be around 1% to 2% negative. With a stronger drop in Q4 sales, we project sales from China to be lower in the second half compared to the first half.

Equipment sales from China will also be lower in the full year of 2025 and expected to account for approximately 30% as a percentage of total ASM revenue. Looking forward, we expect a gradual normalization in China demand in 2026 and subsequent years, in line with our previous view. This follows on a number of years of very strong spending, particularly in the mature logic/foundry segment. For 2026, the contribution from China is projected to remain meaningful, although sales are to decline by double digits.

Before moving to the guidance, I'd like to repeat a few more of the takeaways and strategic priorities we shared in our Investor Day. ALD and Epi remains key growth markets for our company. We project a CAGR of 9% to 13% for both markets in the period of 2024 through 2030, which is clearly ahead of the 6% growth expected for the WFE market. This growth is driven by increasing complexity and increasing ALD and Epi layers to address challenges related to more 3D structures and new materials in these nodes, both in logic/foundry and DRAM.

Advanced packaging is emerging as a key midterm growth driver for ASM, with the market projected to grow at an attractive CAGR of 15% through 2030. Although it currently represents a smaller portion of our business, upcoming generations of advanced packaging featuring finer pitches will demand more sophisticated solutions were aligned with our strength in chemistry, innovation and surface preparations.

We've recently secured new ALD wins for TSV liner applications, and we are currently pursuing initiatives aimed at doubling our served available market by 2030. At the Investor Day, we also introduced growth targets for our spares and services business. For the period of 2024 to 2030, we expect a continued strong CAGR of more than 12%. The main engine of this growth is our outcome-based services, which we target to account for more than 50% of our sales and service sales by 2030.

These innovative services deliver guaranteed outcomes to our customers, such as improved tool performance and availability. One example is our new dry cleaning solutions for refurbishing critical tool parts. Compared to conventional cleaning technologies, this approach improves defectivity performance and extended parts lifetimes, thereby reducing costs for our customers. It also contributes significantly to sustainability with a 67% reduction in CO2 emissions versus traditional wet cleaning methods.

Another example is the use of automation in services by developing robots to place replacement parts in reactors, we achieved far greater precision than manual placements. This enables customers to operate our tools with action level precision, essentials as geometries shrink and nodes become more complex. Last but not least, we remain focused on driving operational excellence, maintaining a flexible footprint and as Paul also emphasized delivering improved financial performance.

Let's now have a look at the guidance as outlined in our press release. For Q4 2025, we expect revenue to be in the range of EUR 630 million to EUR 660 million. For the full year 2025, we continue to expect revenue growth at close to 10% at constant currencies. Despite the projected slow start in 2026, we expect ASM revenues to grow in 2026.

In terms of orders, we expect the trend to bottom out in Q4 at a slightly higher level than Q3. And looking at next year, we project quarterly orders to pick up again as 2026 progresses.

With that, we have finished our introduction. Let's now move on to the Q&A.

We'd like to ask you to please limit your questions to not more than 2 at a time so that as many participants as possible have a chance to ask a question. Operator, we are ready for the first question.

Thank you. This is the Chorus Call conference operator. [Operator Instructions] The first question is from Didier Scemama, Bank of America.

Maybe a first question for Hichem. Can you maybe give us a little bit more color as to what's already in your backlog? Because we've seen, of course, over the course of the last few weeks, a significant improvement in the picture for AI CapEx or logic chips, but also HBM, but also commodity DRAM. We've seen, of course, one of your customers this morning talking about a substantial increase in CapEx next year. So is that already in your backlog? Or is that yet to come and sort of give us confidence that your bookings have to materially improve from here? I've got a follow-up.

Yes, Didier, I'm going to have Paul answer your -- this question, okay?

Yes, Didier, thanks for the question. You've seen our backlog, which came down further on the back of book-to-bill below of one, to be precise 0.8. So what's in the backlog, as you know, we have a relatively short-term backlog, if you compare it to let's say, one of our companies here in the southern part of the Netherlands, 3 to 6 months, typically. We also said that we expect a relative soft start of 2026. So not everything that you are referring to is already in our backlog. Of course, some elements are -- I'm not going in detail what is precisely in or out. But given the relative low bookings that we have, which we also guided for after the -- or at the Investor Day, you can imagine that not all of that is in the backlog at this stage.

Okay. Got it. And I think in the last 12 months or so, commodity DRAM and commodity NAND, which historically are reasonably small part of your revenues, have been very, very low in terms of capital investments. If we were to see greenfield capacity addition for 3D NAND, but also investments in DDR5. Do you think that could become a meaningful driver in '26? Or is your participation in those markets fairly de minimis?

Yes, I can take this question. I think that as DRAM devices will -- will improve, increase, there is more and more ALD layers. And with that, we expect an increase in our business from that point of view.

I think you said 25% is memory? Is it like a really small sliver of your revenues today that's basically ex-HBM?

So most of the revenue right now is actually in HBM, Didier, okay? That's what...

The next question is from Tammy Qiu, Berenberg.

So the first question is on GAA. I remember earlier this year, you were saying that GAA order would be up quarter-on-quarter in 2025. So now we have a little bit of timing-related issues. So going to 2026, would you say that GAA would be still grow year-on-year versus 2025 level? And how should we be thinking about this pattern on the -- from an order perspective?

So we see that 2026 is going to grow in GAA versus 2025. I think in 2026, there's going to be 2 things happening. First 2-nanometer production will continue in gate-all-around. But also, you see the 1.4-nanometer node will also start in pilot production in the second half of the year. The other thing that we see happening is that also there is going to be more customers in a 2-nanometer technology node in 2026 versus 2025, which is also driving some new business, especially in the U.S.A.

Okay. And was 1.5 -- sorry, 1.4-nanometer, you mentioned, the first batch of order for pilot line should be starting to be seen in next year. So is that coming from all the customers? Or this is only from one customer? And also, when would you expect the volume kind of ramp-up phase for 1.4 nanometer start to be seen?

So to answer your question. So right now, for the 1.4 nanometer in our numbers, what we looked at is one customer in 1.4 nanometer in the second half of 2026. I think the -- we hope that there's going to be another customer in 2026, then that would be also a better business for us in 2026.

And -- sorry, the volume ramp-up time frame?

So the volume ramp-up is going to be very small. It's the pilot production in the second half of 2026. That's what we put in. And we -- the 2-nanometer node that we mentioned is a very long node. So 2-nanometer is going to continue in 2026 and also 2027, it's a very long growth. As you know also the 2-nanometer node has sub-nodes and with different structure -- like different structure like a midcap that backside power distribution and so on and so forth. So for 1.4 nanometer, I think the big production start will be 2027 and 2028.

The next question is from Robert Sanders, Deutsche Bank.

Maybe a question on the gross margin. You're looking for a double-digit decline year-on-year in 2026. When I plug in a kind of estimate for China gross margin, that means that the consensus gross margin looks too high by quite a big margin. So is there anything that could mean that the gross margin is not well down next year as I think about next year?

I'm not sure I understand the question. What you say, a double-digit decline in gross margin?

In China sales.

You put in your release a double-digit decline in China sales. I look at the consensus. And the consensus is pretty optimistic on gross margin for next year despite the China mix being a headwind. So I was just wondering if there's any reason why the gross margin ex China would improve?

Improve compared to what?

Calendar '25.

Yes. Then I think I have to disappoint you because I don't see it improve compared to '25, to be very honest. We have -- I mean, in '25, we have a few things that are very important. One, we have a pretty still strong level of China sales over the full year, with H2 below H1, Q4 below Q3, et cetera. But still, if you look at full year, a pretty strong level of China sales, and we expect to meet a double-digit decline next year, which everything else equal will have impact.

Two, we have a very strong product mix, especially with, of course, 2-nanometer ramping to have a lot of leading-edge products and relatively spoken, lower, let's call mature products, power/wafer/analog, et cetera. So next year, when we also expect, of course, still continued growth in leading edge as Hichem just explained, but we also expect growth in, let's say, the power/wafer/analogs are relatively spoken, the rate of that segment will increase a little bit. That doesn't mean that every product in that segment has a lower margin and leading-edge product. But on average, I think it's fair to say that leading edge, we can demand higher margins than in that segment. So if you add it all together, lower China sales and a slightly different mix relatively spoken, you very likely get to a lower margin than in 2025. How much lower? I'm not going to tell you.

But that's also at the end of the day, really, it all depends on customer mixture, and product mixture. And I think that as Paul has mentioned, okay, we have made some efficiency in our business and also our cost structure in such a way that we fundamentally improved our gross margin from previous years. So it's still well -- we're going to see what's going to happen in 2026.

But we are very happy with really what we achieved this year. For us, 51% for 2025, this is a record for ASM, really a record. And that's an indication of the -- first, our position in the market, our competitiveness, but also in our cost control and better operational efficiency. And we will continue to really drive that in the future. We're not stopping right now.

And maybe to add, Rob, that was also the reason why we have increased our margin guidance during the Investor Day from 46% to 50% to 47% to 51%. So overall, indeed, we see improvements based on everything that Hichem also just once more emphasized.

The next question is from Francois Bouvignies, UBS.

So my first question, Hichem, on your new wins in Epi and ALD dipole and what function that you talked about in the DRAM HBM. So can you just provide more details on that design wins? Did it happen in the quarter? Was it competitive? And I mean you said in your remarks that it was for '26, '27 time frame, which I thought it would be more like '27. So is it like earlier than you expected? Maybe these wins and how many layers are we talking about? So I know it's many questions within that, but basically, giving more color on this Epi and ALD dipole design wins you had this quarter?

Yes. And we're very excited about the wins that we have made in both Epi and ALD in the last quarter. So this is really work we've been doing with our customer for the past couple of years, and we've been able to become POR for this business. And with starting HVM high-volume manufacturing in 2026 and beyond. As I mentioned, we're really working with many customers and on more and more layers and products. I think what we have seen right now in the industry is really pull-in in a way in some of the high-performance. I think the AI market is becoming super-hot on that point of view. And we see that the customer really want to have a higher performance. So with a higher performance, we see some of these things have been a little bit pulled in.

But I think the majority of the business, the bigger business for us really would happen when the move of DLM to FinFET, I think that would be great. But also we see many of the memory customers also very much using advanced packaging. And we're working with many of those right now on some of advanced packaging applications. But I think we see that 2027 and 2028 where things will become much more positive from that point of view. So 2036 will be the start and '27, '28...

How many layers did you win specifically for that this quarter?

[indiscernible] how many layers, but to be honest with you, we have many customers right now. We're actually working with all the DRAM customers. And you will hear in the next few quarters, more and more wins as those materialize.

That's great. And maybe China. I mean China, you forecast double-digit percentage growth. It seems that everybody is seeing the same thing, the double-digit decline, sorry, percentage next year for China business, LAM is seeing the same. [ ASML ] is seeing the same. So how do you build your forecast, I mean, out of interest?

Because I mean, my understanding is China is quite low in terms of visibility right now. You had some restrictions that only impact 1% to 2% of your sales, obviously, it's more bigger of your China business. But how do you build this forecast out of interest? Because it's very difficult to know where China is going to be next year. And when I look at the retail imports are increasing significantly in the second half of the year versus H1 this year. I would think that you should see decent year from a deposition and etching point of view. So just wanted to understand how you forecast China?

Yes. Let me take that question, Francois. Actually, the very short answer is customer intel. So we have people on the ground. We get, of course, we try to get, of course, as much as we can insights into the plans various customers have into new fabs that are being built or not being built. So every year, we have an idea, but you're correct, there is limited visibility. That's also true for next year. So there's no change from that point of view, but still based on the number of new fabs that you think might start based on inputs in that respect that we get from customers.

We had one year, it's maybe higher than the other year. That's an important input for us. Also last year, we had that input for this year. We're actually at the beginning of the year, we were -- I mean we were maybe a little bit prudent. Looking back now, China did a little bit better than what we anticipated but not to the extent that it was better than the year before. So also for next year, I mean, it could be slightly higher, slightly lower than what we currently think. But in any case, what we see based on all the intel that we have is what we guided and what we said in the press release. So that is, let's say, the best guidance we can give you based indeed on the limited visibility we have, but it's still supported by as much as possible customer intel that we can get.

You next question is from Jakob Bluestone of BNP Paribas Exane.

I had a slightly similar question actually. I mean, you say that you expect the order trend to bottom out in Q4 at a slightly high level than in Q3 and then sort of gradual recovery through '26. And I guess, just interested in the sort of broader business, where do you get the confidence from that? Is that what you're starting to hear from your customers? Or was that just sort of more from the various announcements that have been made? So just to get a sense of how concrete is your confidence on that trajectory that you've laid out for the improvement in orders?

So I'd like to -- what Paul has mentioned earlier, we are very close to our customers, especially we are extremely close to our logic customers. Since we're working with all the top larger company, leading edge -- in leading edge logic and foundry. And then so that's the information really we're getting it from them. I think they have their investment plan for 2026. And based on that, okay, we are talking to them, and we know what kind of business we're going to achieve from them. So we feel confident from that point of view, okay?

Understood. And if I can just ask a quick follow-up as well. Just on lead times. Can you comment on whether the lead times, particularly for advanced logic are changing or have they stayed the same?

Lead time for us as a company, we always said that our lead times like used to be 6 months. But as I mentioned during the Investor Day, actually we have made a significant improvement, whereby we can reduce our lead time to about 3 months right now. So we took -- like we mentioned, we have made significant efficiency in our business processes, in our manufacturing and operations in such a way that we can be very fast in really being able to meet customer expectations.

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

I guess another question on your sense of growth into '26. So what are the areas you are seeing the biggest certainty and uncertainty in terms of materiality both on positive and negative. Now my guess is that the advanced foundry is pretty predictable and a strong positive into next year. And it seems to be that maybe more advanced logic and also power/wafer/analog are maybe a little bit more uncertain. Am I in the right ballpark here? And also, do you think that you could still grow if these 2 areas do not show growth next year? That's my first question.

Yes. So I think you're directionally correct, Nigel. So I think where we -- as Hichem also said, where we have, let's say, the most reliable -- maybe too strong, but we work the forecast with customers and especially the large customers and especially with the leading edge logic/foundry, the quality of the forecast that we get is better, I would say, than with quite a few other customers. So that's one. So there, we have, I think most confidence. That does not necessarily mean that things cannot change. Things will always change. For sure, pull-ins, pull-outs, et cetera, will always happen. But will also happen next year. But -- and that's the area where we have most confidence.

Two, I think in DRAM, given everything that is happening there, if you read all the market intel, I mean there is capacity shortage, I would say, demand is higher than supply. I think we're relatively confident on what we can achieve there. So there, we have quite some visibility. We just talked about China. We do believe China will come down, as we said, there is limited visibility, but it's not that we steer completely in the dark. We have still reasonable customer intel, but not as good as what we have from the logic/foundry customers.

And then for the power/wafer/analog, I would say it's maybe most uncertain. That market is now 7 quarters and by the end of the year, 8 quarters in a cyclical downturn. So it is more based on the fact that at a certain moment in time, that market should also start to see a turning point. But there, we do not yet see that in orders coming in, but we do expect that to come in and partially also based on, I guess, on customer intel, but that, I would say, is maybe the most uncertain one, but we would expect that to happen somewhere in the course of next year.

Got it. I'm going to use my follow-up then to still maybe press a little bit on sort of the dynamics you've also pointed out this quarter that there is still quite a bit of difference between one and the other. So maybe just for your forecast, are you sort of assuming multiple customers to grow next year in a material way? Or is that not your base assumption at the moment?

Yes. Basically if you talk leading edge for customers at this moment. I think 2 of them, and I'll leave it up to you to guess which one. We are reasonably confident that they will grow. One of that is still uncertain, and it's not an important one. But yes, we'll see what will happen there. We have, of course, a certain view baked into these projections that we have given, but at least 2 and maybe 3.

Yes. But I think if I add something to what Paul has mentioned, I mean we see customer concentration has increased in the recent quarter for advanced logic and foundry and we think it will continue in 2026.

The next question is from Stephane Houri, ODDO BHF.

Yes. Actually, I have a question about 2027. I know you gave -- just gave sense of guidance for 2026, with a very low point apparently and so it means that there is a need for an acceleration in the second half. Overall, we should expect probably a growth kind of low growth next year or mid-single-digit growth, I don't know. But it means that you reach your 2027 target, you need to have a double-digit growth in '27 at least. So what are the pieces of the puzzle we should look at to understand if you're in the good trajectory or not?

Fair to say, Stephane, I think firing on all cylinders is the right description here. So one, as I think Hichem already said at the beginning of the call, end of this year or middle of the second half of this year, we expect pilot -- investments in pilot for 1.4 and then going into HVM in '27. That's of course, a big driver. You've seen the SAM increase that goes with it.

Two, of course, we would expect memory to continue to be good on the back of, in particular, AI, which now, by the way, is driving both HBM also, let's say, conventional more high performance in DRAM, in particular, which should be good by '27. I mean, if power/wafer/analog by then is still not recovering then, okay, I don't know what is happening there, but we would expect logically that's also there. By that moment in time, you would see a turning point. So -- and also spares and service business will continue to grow as we -- based on outcome-based services, as we said, during the Investor Day. So firing on all cylinders would be, I think, the right description here.

Yes. One thing I would add to what Paul has mentioned is also what we see in 2027 is in logic, you're going to have 2-nanometer continued investment in capacity, but also the capacity increase in 2027 for the 1.4 nanometer node, okay? So you're going to have really leading edge 2-nanometer and 1.4-nanometer significant investment in those 2 technology at the same time. Because 2-nanometer is actually a very strong -- it's a very strong node, it's a very long node. That's what our customers are telling us. And as you know, there's many sub-nodes in 2-nanometer. So investment in 2-nanometer is still going to continue at a very healthy level in 2027. At the same time, you have the 1.4 nanometer expansion in that same year.

Okay. Okay. And I just wanted to come back on China where you see double-digit decline next year. Are you sure that this is only the market and that you are not facing an increased level of local competition. There is more and more noise about the efforts they are making and the quality they are obtaining. So can you maybe describe the situation there and the sustainability of your market share?

That's a good point. I think it's a combination of both things. One, China, we've seen everybody actually also appears to have seen a very high level of investment in the last 2 years or so, 2.5 years. So we've already communicated, I think, end of last year that we would expect this to gradually normalize, whatever that means.

Two, with recent, let's say, announced export controls, that also has impacted us to a certain extent, but also our peers, although it's maybe not materialized 1% to 2% of our annual revenue globally, but it's still a few percent, of course, of our China revenue, which again leaves a vacuum for local competition to step in. So yes, local competition will for sure, benefit from this, will get on a quicker learning curve because, yes, the unfortunate reality is that because of all these restrictions, yes, there is a playing field -- an unleveled playing field where local competitors can step in with what we would say inferior products compared to our products, but at the same time, learn at an accelerated pace compared to the situation if they would not have been able to get their products into customer fabs. So it's a combination of these 2 things, I would say.

And one thing I would add to what Paul has mentioned, okay? We think that we are very competitive in China vis-a-vis the Chinese competitor. We don't see our position to be really worse than what it was before. I think our products are very good, and we continue innovation unabated which really gives us an edge from that point of view. In China, what really -- what 2026 shows for us right now, we have really very low visibility on how some of the part of the market is going to materialize.

I talked today in my prepared remarks that we have won some significant business in Epi Intrepid ESA in the power/wafer/analog and some of those actually businesses is happening in China. So depending on what that -- so that shows really our competitiveness in that market. And I think if the market -- if the power/wafer market analog recovers, that's going to be also very positive for us in the future. And as you know, in the power/wafer/analog, visibility is very -- it's not very long. That market can go down immediately and go up at the last minute. So that's really a question we're going to find out in 2026, but we are very competitive. We think we can compete very well in that market. And it's an important market which we're going to continue to address.

The next question is from Adithya Metuku, HSBC.

I had 2. Firstly, look, when I look at your growth, you've always tended to outperform WFE given the company-specific growth drivers. As I look out to 2026, is there any reason why you will not outperform WFE next year? I just wanted any -- is there any headwind that we should keep in mind? Any color there would be helpful. And then I've got a follow-up.

I think on the outperforming the wafer fab equipment, we have mentioned that in our Investor Day that we will outperform the wafer fab equipment when going from '24 to 2030 -- from 2024 to 2030. It doesn't mean, okay, we're going to outperform every year. So still I'm sure about that. I mean we already announced saying that the 2026 for us is actually a growth year, which we are very confident about it. But to answer the -- whether we're going to outperform it in 2026, that's too early to say. But what we can tell you that from 2024 to 2030, we will outperform the WFE market.

Got it. Maybe just on that, I mean, if you were to underperform given where you sit today and your visibility into the different end markets that you talked about on this call before, if you were to underperform what would be the reason? I struggle to see what -- I don't see any reasons, but I'm just trying to see if I'm missing something here.

It depends really on the WFE mix. What's the mix of products, memory versus logic versus power/wafer/analog. It's really mix dependent.

Okay. Got it. And just as a follow-up. Paul, I just wondered if you could give us some color on OpEx in 4Q. I know you commented on SG&A, but I don't think you commented on R&D. And also if you could give any color on how we should think about OpEx into 2026? That would be super helpful.

Yes. So R&D for Q4, I think, there will be similar to Q3 gross R&D and most likely also net R&D. SG&A, Q3, we mentioned that there was relatively low variable expenses, where we made an adjustment based on certain accruals that were made. So I think the Q2 is more of an indication than Q3 going forward and into '26, and we've given guidance in the Investor Day. We will continue to invest in R&D, which is a lifeline. So there, you will see gradual increases compared to this year. And SG&A, we will keep very tight. And as a percentage of revenue, with revenue growth, we would expect that to come down a little bit further.

Can we have the next caller, please? Operator?

The next question is from Timm Schulze-Melander, Rothschild & Co Redburn.

My first one just very big picture, maybe a question for Paul. 2026, do you -- should we expect the aftermarket side of your revenues to outgrow system sales? And then I had a follow-up.

I have a view, I'm not going to tell you because it's too early to tell. But what I can say is that we do expect a healthy growth in our spares and service business in '26 compared to '25. It's too early to already say it will be higher or lower. But we do see what we believe will happen is that we will continue to see a very healthy growth in spares and service business.

Okay. That's helpful. Maybe just one other one. If we just -- you talked a lot about how important mix is to the outlook in 2026. Could we just when we think about your ALD business, I know you've talked about it being more than half of your system sales, but could you give us a kind of 5% to 10% range kind of what that ballpark looks like for 2025?

No, we were not going to give very specific guidance other than what we've given. We've obviously had ALD is more than half of our equipment business, which indeed it still is and maybe this year more so given the ramp-up 2-nanometer. It's also one of the reasons why the margin is where it is. Also given that, again, the more power/wafer/analog market is down. So relatively spoken, a lower percentage of the overall mix. And of course, still China is strong, although below last year, was still strong. So adding that all up, that's what you get, what we have, but we're not going to give specific guidance within a few percentages, what -- where we stand with ALD.

Okay. But given your prior comment about power/analog and some of the other mix, then as a percentage of sales, ALD might be flat or down as a percentage of your equipment sales in '26?

Depending on what we assume and depending on how much the relative markets grow, there might be indeed relatively spoken, a -- but now we're really talking scenarios, there might be relatively spoken, slightly lower share of ALD compared to power/wafer/analog if -- and it's a big if, if power/wafer/analog will grow more fast or faster than ALD, but that's still to be seen as well. So it's really too early tell. I really don't know. We have, of course, certain scenarios and assumptions, but it's too early to give external guidance on that.

And the last question is from Marc Hesselink, ING.

Yes. I have 2. Actually, on 2 bit smaller categories. Firstly, advanced packaging that you also now point out again in the press release, also at the Capital Markets Day spent some time of it. The fact that you're really focusing on it, does it show that this is something that can be material as well over the coming years? And how do you expect that then to ramp into your revenue numbers?

So I think we mentioned -- thank you for the question. I think we mentioned that we have made some wins in advanced packaging the past quarter, which we are really very excited about. We really think that advanced packaging is very enabling. We think that as a company, we can provide meaningful innovation and disruption to the market in the area of new materials and in the area of surface preparations and based on our experience in both ALD and also chemistry. We have a significant engagement in the past actually a few quarters with some key customers in both memory and logic, high-end logic to develop some of those films. We're very excited about this part of the business. And hopefully, we see more and more wins in the next few quarters, and we'll keep you updated of those when time comes.

But maybe to add, is it then material? Or is just the first start of something that can be material in the future?

It's really the first start. It's really the start right now. And that's why we're excited about the future of the company, and I think that would be something that, let me say, very excited about it, to be honest with you. I think there's -- we see customers putting in very hard. I think the -- as you know, in both memory and logic, heat generation is a big problem. So we're developing some films that really would reduce the hotspots with higher conductivity capability. We see films in actually the microphotonics area team developing films that can reduce light dispersion. So it's really one area that becomes very important for both the logic and the memory customers. And that's an area that, hopefully, is going to be very accretive to us in the future.

Great. And the second question is on -- actually on LPE. So you paid the earn-out in the quarter. So you did hit the milestone for that one. I mean I think in the press release, you can still read that it is very, very weak at the moment and also no recovery into next year. So can you then still talk about the building blocks, why did you still reach the milestones? And when do you -- are you still confident on this one to pick up maybe in the longer term?

Simple answer. The milestones are based on 2024. And 2024 was a star year for us with almost, I would say, explosive growth in silicon carbide. So if it would have been -- if the milestones would have been based in 2025, they would not have been met. But yes, the reality is that they were based on '24 and '24 is a very strong year for silicon carbide.

Okay. And no visibility on that improving in the beyond '26 period?

We, of course, expect that markets to come back at a certain moment in time, not yet for next year, at least we see no evidence for that to start to happen next year. But we still believe that there is a market for us, a good market for silicon carbide that we will start seeing come back, hopefully, also in 2027, but that's as again, it's too early to tell.

Gentlemen, there are no more questions registered at this time. I turn the conference back to the management for any closing remarks.

Thank you all for attending our call today and also on behalf of Paul and Victor. We hope to meet many of you again in the upcoming investor conference and other events. Thanks again, and goodbye.

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