ASM International (ASMIY) Q2 2026 Earnings Call Transcript

Date: July 29, 2026 | Source: Investing.com / company IR

Participants: Victor Bareño (Head of IR), Hichem M'Saad (CEO), Paul Verhagen (CFO)

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Conference Operator, Chorus Call: Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the ASM second quarter 2026 earnings call. As a reminder, all participants are in listen-only mode and after the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and 0 on their telephone. At this time, I would like to turn the conference over to Mr. Victor Bareño, Head of Investor Relations. Please go ahead, sir.

Victor Bareño (Head of Investor Relations, ASM International): 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 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 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.

With that, I will now turn the call over to our CEO, Hichem M'Saad.

Hichem M'Saad (Chief Executive Officer, ASM International): 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.

Paul Verhagen (Chief Financial Officer, ASM International): Thank you, Hichem, and thanks also everyone for joining our call today. 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. On a constant currency basis, revenue increased by 24% year-on-year and by 15% compared to Q1 2026. 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-on-year growth at constant currency. This reflected the continued success of our outcome-based services and also strong demand for spares in the current environment of elevated customer fab utilization rates. In terms of customer segments, revenue was again led by Logic Foundry, which represents the largest customer segment. Sales in the leading-edge Logic Foundry segment increased strongly compared to Q1.

2 nanometer-related sales accounted for the largest part, while sales in the 3 nanometer to 7 nanometer nodes also showed a nice uptick. After the acceleration in Q1, mature Logic Foundry sales remained at a solid level in Q2, with China continuing to account for the majority of these sales. Memory sales increased sequentially compared to Q1 and were mainly driven by HBM-related DRAM applications. With these Q2 results, we have now disclosed for the first time the equipment sales breakdown by customer segment for the first half year. In the first six months of the year, Logic Foundry was by far the largest segment, accounting for 77% of total equipment sales. Both the leading edge and the mature segments had a solid contribution. Memory contributed 15% of the total in the first half.

This is slightly below the 16% contribution reported for the full year 2025, primarily explained by the phasing of shipments. 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 the relatively low 8% of total equipment sales in the first half. Although power, analog, and wafer 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 from the China market, also the results from improved efficiency and productivity initiatives. For the full year, we expect gross margin to be around 51%. SG&A as a percentage of revenue improved meaningfully to 7.9% in Q2. This reflected solid operating leverage from higher revenue levels and our continued focus on cost discipline. For the full year, we expect SG&A as a percentage of sales to be below 8.5% compared to 9.2% in prior year. Net R&D increased 22% year-on-year at constant currency in Q2. We continue to invest heavily in innovation to support customer roadmaps at future technology nodes and to advance our expanding portfolio of growth opportunities. Despite the increase in spending, net R&D as a percentage of revenue declined slightly to 11.1%.

For the full year, we intend to keep net R&D within our target range of a low double-digit percentage of revenue. Adjusted operating profit increased by 27% year-on-year at constant currency, and the adjusted operating margin remained at a very strong 33%, in line with the record level achieved in Q1. If you look at the main movements below the operating line, financial results included the 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 US dollars, and related translation differences are included in our financial results.

Our share of income from investments, reflecting our approximate 24.6% stake in ASMPT, amounted to EUR 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 amounts to EUR 63 million in the quarter. For the full year, we continue to expect CapEx to be above the higher end of the guidance range of EUR 150 million-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 continuous investment innovation while maintaining excellent profitability. With that, I'll turn the call back over to Hichem.

Hichem M'Saad (Chief Executive Officer, ASM International): Thank you, Paul. As Paul discussed, we delivered strong results with quarterly revenue exceeding the EUR 1 billion milestone for the first time, despite increasing strain across the semiconductor supply chain. Supported by robust end market demand and ongoing industry capacity expansions, customers continue to place a high priority on securing the equipment required for their growth plans. I'd like to thank our teams for their execution and tireless effort to deliver on our commitments in this demanding environment. Over the past several years, we have invested ahead of the curve to expand our manufacturing capacity in our key manufacturing sites of Singapore and Korea. Today, we are well positioned to increase output to support customer demand. As supply chain conditions become increasingly stretched, we remain focused on working closely with both suppliers and customers to meet shipment schedules and help enable our customers' success.

The demand environment 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 at the 2 nanometer nodes remains the largest driver of investment activity, supported by the ongoing capacity ramp and increasing adoption of gate-all-around technology for advanced logic devices.

At the same time, we are seeing an uptick in investment activity in the previous generation leading-edge nodes of 3 to 7 nanometer, consistent with the trend that we first highlighted during our first quarter earnings call. Growing demand for advanced CPUs and emerging agentic AI workloads is tightening available capacity and driving increased demand for the 3 to 7 nanometer nodes, following a period of relatively limited spending levels for these 2 nodes in the past couple of years. While the 3 to 7 nanometer nodes are no longer the industry most advanced technology generation, they remain ALD intensive 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 nanometer.

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 meaningful step forward in device performance and power efficiency, enabling the next generation of AI and high-performance compute devices. Some customers have commented that they view the 1.4 nanometer as a potentially larger opportunity than 2 nanometer, which itself is expected to exceed the scale of the 3 nanometer node. As we have discussed previously, we expect our served available market at 1.4 nanometer to increase further as customers increasingly deploy additional process steps and performance enhancing 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 2 nanometer, both in ALD and in EPI. We are also very pleased by the recent wins for our moly ALD offering at the 1.4 nanometer node. These strengths 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 foundry application, 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 be supported by many of the same secular trends underpinning investment elsewhere, including the growing demand for AI-enabled devices and infrastructure.

Our strong sales development in China also reflects our company's continuous competitiveness with customers, valuing the combination of leading performance and attractive cost of ownership of our equipment. Looking at our China sales in total, mature Logic Foundry continues to be a sizable part, but we are also seeing increasing demand from a small base in the memory segment and a gradual recovery in Power Wafer Analog. Let's now discuss the memory segment. Demand continues in the DRAM market to strengthen as customers are moving aggressively to expand capacity and increase output to address the persistently tight supply-demand environment. Sales increased strongly and were primarily driven by HBM-related DRAM applications, reflecting continued investment in AI infrastructure and the resulting demand for high-performance memory. We also continue to strengthen our position in the DRAM market, and during the quarter, we were selected by another DRAM customer for our epitaxy solution.

Looking further out, we remain very positive about the strategic opportunity in DRAM with a transition to 4F squared cell architectures and FinFET-based peripheral circuitry, which are expected to move to production in the 2028, 2030 timeframe. FinFET-based peripheral circuitry is expected to deliver further improvement in performance and speed. The transition to 4F squared cell architecture and vertical channel structure is targeted to enable higher bit density and continuous scaling. These 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 this transition will increase our DRAM served available market by EUR 400 million-EUR 450 million over the next two nodes. Supported by expanding customer R&D engagement in 4F squared and FinFET Peri, we are targeting an increase in our DRAM market share. Innovation remains a key focus for ASM.

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-around architecture, and 4F squared DRAM. We also see advanced packaging emerging as an attractive medium-term growth opportunity as chiplet-based architecture and heterogeneous integration increase the importance of materials innovation, bonding, and interface engineering. Beyond ALD and Epitaxy, we continue to invest selectively in areas where we can bring differentiated technology to customers. One example is our plasma-enhanced CVD patterning solution that's gaining encouraging customer engagement due to its excellent gap-fill capability relevant to many applications. 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.

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 two nanometer node, the three to seven nanometer nodes, as well as a first meaningful contribution from the 1.4 nanometer node. We also expect our memory sales to show a substantial sequential increase in the second half, supported by record high quarterly orders in the segment in the second quarter, with the phasing of shipment this year more second-half weighted. We expect this increase to be driven primarily by advanced HBM DRAM, and to a lesser extent, by an improvement in memory demand in China.

In the Power Wafer Analog segment, we expect sales to increase in the second half from a lower base in the first half. Growth in this segment remains selective and is primarily linked to AI-related applications, particularly technologies supporting the increasing power requirements of data centers. The only segment expected to be down is mature logic/foundry, reflecting the first half-weighted nature of sales in this segment this year, mainly from our customers in China, as discussed last quarter. We nevertheless expect our overall China sales to remain at a solid level in the second half, with growth in Power Wafer Analog, and memory largely offsetting the decline in mature logic/foundry. Looking beyond our outlook for the second half of 2026, our confidence in the longer-term growth trajectory of the business has continued to strengthen.

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-EUR 4.6 billion range we shared last year.

Victor Bareño (Head of IR): Thank you, Hichem. Let's now move to Q&A. To accommodate as many callers as possible, please limit your questions to no more than two at a time. Operator, can we have the first question, please?

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Questions & Answers

Conference Operator, Chorus Call: Thank you. This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. First question is from Sandeep Deshpande, JP Morgan.

Sandeep Deshpande (Analyst, JP Morgan): Yeah. Hi, thanks for letting me on. My question is, you've indicated 2027 is now going to be above the top end of your guidance. How should we be thinking of the granularity there? When we look at your 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? I have one quick follow-up.

Hichem M'Saad (CEO): I'll take the question. We are very positive, Sandeep, about our 2027 revenue projections. The reason why we are very positive is because of our interaction with our customer, and they're giving us actually very early on their equipment plans for 2027, and some of them actually even in 2028. If you look into our revenue in 2026, we have said that the second half of the year is going to exceed 20% the first half. Making your calculation, our revenue, we're going to exceed EUR 4 billion. 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-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.

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. Okay, we're talking about the higher range, the EUR 4.6 billion. I think based on demand 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? Let's discuss the trends that we are seeing right now for 2027. 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 nodes. As we mentioned just earlier, we also see 3 nanometer and 7 nanometer nodes 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 customers begin preparing for high volume manufacturing in 2028, as we have all along said that 2028 will be the 1.4 nanometer HVM. We see orders happening for 1.4 nanometer 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 power efficiency and performance are second to none. We see customers really being very excited about that. Also we see 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. As you guys know, we are coming from a small base, but we have seen some good wins lately and we have some wins. 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. We see it to continue in 2027. This is really driven by power solution for that. Even silicon carbide, we also have seen the past couple of months, some good activity in silicon carbide epitaxy from that point of view. All in all, we expect 2027 to be a very strong year.

I think when we arrive in 2027, we probably will be able to give you more visibility on what's the number greater than EUR 4.6 billion.

Sandeep Deshpande (JP Morgan): 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?

Hichem M'Saad (CEO): No, this is new. New wins. We talked before that we had some wins in moly, actually the past quarter we had actually new wins in molybdenum. We feel very excited about this market. This is the first time that ASM is used for metal deposition market. Customer likes the solution and we are really excited about the latest wins that we have.

Sandeep Deshpande (JP Morgan): Thank you so much.

Hichem M'Saad (CEO): Thank you, Sandeep.

Conference Operator, Chorus Call: Next question is from Nigel van Putten, Morgan Stanley.

Nigel van Putten (Analyst, Morgan Stanley): Hi. Thanks. Good afternoon. First question would be on the mature logic foundry segment. Unlike all the other segments, and I think the entire industry, it's not growing into the second half. I guess interesting, the same trend we've seen last year. Just trying to understand order behavior from those customers. Would it be fair to say there's a seasonal pattern there? Maybe on that, would it be fair to assume that revenue could or maybe should recover in the first half of 2027? Or do you see a reason to caution against that? That's my first question. Thanks.

Hichem M'Saad (CEO): Yeah. Maybe on logic/foundry, Nigel, this is Paul speaking. What we see indeed in the first half, actually in Q1, we saw an acceleration. Strong acceleration. Although we never know for sure, we mentioned that this could be related to the potential new export controls. 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. 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. Basically, as I think we already said in the Q1 earnings release, that we would expect a stronger mature logic/foundry in the first half compared to the second.

Paul Verhagen (CFO): That's exactly what we see now, both in orders, also of course then revenue that will follow. 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 power/wafer/analog. For next year, I don't want to say too much because as you know, visibility on China is always low, so far it looks reasonably good, I would say. Yeah, there is some level of uncertainty, of course, around export controls. China visibility is low, based on everything we know today, it looks quite decent. Yeah, to be confirmed, of course, going further into the year.

Nigel van Putten (Morgan Stanley): Right. Thank you. That's very helpful. Paul, another question for you in terms of capital allocation. There's now EUR 1.2 billion on the balance sheet, EUR 900 more in investments. I think it's fair to say the free cash flow will stay very positive in the next couple of quarters. The share seems to be trading at a discount both to the historical valuation also peers. To me, the obvious decision would be to acquire shares in a meaningful way, clearly you seem to have a different opinion. I guess my question would be, is it looking at more sizable opportunities from an M&A perspective, perhaps in advanced packaging? Any color there would be helpful. Thank you.

Paul Verhagen (CFO): Yeah. As you know, we continuously scan the market for opportunities in terms of M&A. As we always said, it's not like that there's a huge number of things that we believe are value-creating to them. If there are, and if we will find them, we will act. Two. We also have announced our share buyback program, which we will start in the second half. It's not huge, it's EUR 150 million, at least it's what we communicate already with our Q1 result release or full year result release. We will start that now, then we'll see going into next year how we deal with excess cash. You're right, we are looking at M&A, and if we can find opportunities, we will act on it. There's nothing now at this moment that I can talk about.

Nigel van Putten (Morgan Stanley): Much appreciated. Thanks.

Paul Verhagen (CFO): Thank you, Nigel.

Conference Operator, Chorus Call: Next question is from Didier Scemama, Bank of America.

Didier Scemama (Analyst, Bank of America): Good afternoon, gentlemen. Thank you for taking my questions. My first question is really for Hichem. Can you help us understand how you think about ASM revenue growth over the course of 2027 and 2028 relative to WFE? I think consensus expectations are for around 30% WFE revenue growth over the next couple of years. I would have thought that given your idiosyncrasies around 1.4 nanometer with high ALD and EPI layers, your new wins in moly metallizations, and maybe in 2028, the beginning of a benefit in 4F squared, you'd be comfortable to be at least in line. Just wanted to hear your thoughts around that. I've got a follow-up. Thank you.

Hichem M'Saad (CEO): Yeah. Okay, thank you very much for your question. I think that based on what I mentioned really earlier, we are very positive about 2027. We really are. Wherever the market is going to grow, we are at least going to grow at that market or even higher than that. I think that we are very positive about our position in leading-edge logic and foundry, our expanding market share in 1.4 nanometer, which is actually happening, and in 2027. We are very excited about our growth in DRAM with new application and wins in both ALD and epitaxy. What can I tell you? If the market is going to grow 30%, we are at least going to grow at that level. There's no question about it.

Didier Scemama (Bank of America): Makes sense. Thank you. The other question was about 4F squared, it might be a bit early to talk about that, but I think at least some of your customers are really investing in 4F squared transition towards the end of 2028 for maybe 2029, 2030 type of accelerated ramp. Some people talk about even more optimistic assumptions. 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 4F squared? Historically, as you mentioned, you've got a, let's say, weaker competitive position in DRAM versus leading-edge logic foundry. Obviously you have a very strong position in single wafer ALD and taking share in EPI.

Would it be fair to have something in between these two 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?

Hichem M'Saad (CEO): 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 4F squared for both our ALD and EPI technology. Even more than that, in some of the 3D technology that we have. Customer really working with us on these application. We understand that 4F squared is going to start at 2028, continuing to 2030. Yes, we're coming from very small market penetration, we are really excited. If I look into ALD, definitely there's more ALD layer happening in the FinFET. I think with 4F squared also there's going to be more FinFET. We're very excited also about the architecture, 4F squared architecture, which needs some ALD, both Thermal ALD and PE-ALD. EPI, definitely.

We have gained share. We think that our solution is being accepted by our customer. We are already in HVM in EPI with one customer. We are getting there with the other customers. Overall, things are very positive from that point of view.

Didier Scemama (Bank of America): Great. Can I just squeeze in a quick one? I wondered, you mentioned the strength of ASM in precursor technologies, which I think is really underappreciated by the market. Where or how far away from the market or away from your competitors or ahead of your competitors do you think you are in sort of mastering chemistry and precursors? My mind as we move into 1.4, next generation gate-all-around and also 4F squared, those material-based enhancement technologies will require the best precursor technology. I just wondered how you feel about your competitive position versus your peers.

Hichem M'Saad (CEO): I think because of our ALD experience that started since 1998, we have a very good understanding of precursor and chemistry, because ALD depends on that. Okay? ALD is the best technology to develop new material. To develop new materials, we use ALD. With that we have the experience and the expertise within the company to develop new precursor. Okay? We have used this expertise all along to develop new ALD processes. For that, okay, we call ourselves the materials discovery company. We are discovering new materials actually every day. These materials, we have used them for ALD, for high performance, because ALD provide high-performance benefit. Some of these materials that we use are actually providing some benefit. For example, energy efficiency.

We're taking also our material tech knowhow and expand it not only to ALD but also to other parts of our business, like epitaxy and PECVD, and we see significant benefit for us. What can I tell you? I'm very excited. I think we were using our core competency, which we had for ALD and precursor knowledge and so on. We expanded to other parts of our business. We see significant acceptance of that from our customers.

Didier Scemama (Bank of America): Yeah. Thanks very much.

Hichem M'Saad (CEO): Thanks, DJ.

Conference Operator, Chorus Call: Next question is from Francois Bouvignies at UBS.

Francois Bouvignies (Analyst, UBS): Thank you very much. I just wanted to come back on the memory comment. Hichem, you said that H2 memory will accelerate in second half of the year, but it seems that it's mostly volume-driven, capacity increase-driven. In the last two quarters, you interestingly announced two new AP customers on the DRAM side. I was wondering, when do you think these layers will come through, will be visible, and for which applications would that be specifically? Thank you.

Hichem M'Saad (CEO): Okay. I'm gonna have Paul answer your question.

Paul Verhagen (CFO): Yeah. Francois, you're right. In H2, it's mainly capacity-driven, let's say the acceleration memory that we see, especially compared to H1. For the new win that we announced actually, in this earnings release, we see the first revenue actually, meaningful revenue in 2027. Maybe one or two tools this year, but meaningful revenue in 2027. As a result of that, you will see further growth as well in 2027, on top of capacity expansion.

Francois Bouvignies (UBS): Okay. Which application? Just—

Hichem M'Saad (CEO): Yeah, I think we're not gonna talk really about the applications because it's really customer specific. Let me tell you, it's a large application.

Francois Bouvignies (UBS): Okay. Thank you. My follow-up is a bit a follow-up to Didier's question and digging a bit more on 2027. If I look at 2026 and your guidance, even if I take a conservative numbers, you're gonna grow 35% at constant currency most likely, which is above WFE most likely this year, which is quite remarkable given the memory lower exposure you have. If I put all of that together for next year and you describe many times these AP layers, now you just said that you will have a ramp-up next year with 1.4 nanometers. Is it fair to say that, it's not at least we are talking about, it's the gap.

The outperformance of WFE should be much wider in the next two years, given the mix is going more into your favor, and on top of that, you have the memory layer count boosting on top. Is that a fair representation or am I missing something?

Hichem M'Saad (CEO): I think you're not missing anything. You just heard me say that we, ASM, are very optimistic and positive about 2027 and beyond. We are really excited about our position.

Francois Bouvignies (UBS): Great. Thank you.

Conference Operator, Chorus Call: Next question is from Adithya Metuku, HSBC.

Adithya Metuku (Analyst, HSBC): Yeah. Good afternoon, guys. Thank you for letting me on. My first question is just on the outperformance you talked about in the last couple of answers. WFE numbers, if you look at it, depending on whose numbers you look at, you're basically looking at 30%-40% growth in 2027, potentially another 30% after that in 2028. 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. Are you thinking along similar lines? I've got a follow-up.

Paul Verhagen (CFO): Yeah. What we've said, Aditya, is that as a minimum, we expect to grow in line with WFE and most likely more. Hichem has explained the trends that we see in 2027. I'm not gonna do the math for you yet. 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 who asked the question. At the same time, there is low visibility, things can still change. Overall, I can only repeat what we've said already. We're very positive. We have some nice wins.

Hichem M'Saad (CEO): The trends are looking good, are looking in our favor. Yeah, indeed, if we grow more than 30%, yeah, you can do the math. You take 26 times 1.3 something. You're correct. Yeah.

Adithya Metuku (HSBC): Okay. Just as a follow-up, some of your peers have been talking about potential delays to the 4F-squared transition, partly because your memory customers want to focus on adding capacity at 6F-squared to meet the very strong demand that they're seeing. The worry being that if you transition to 4F-squared, 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 six to 12 months ago. Any color there would be helpful. Thank you.

Hichem M'Saad (CEO): Yeah, Adi, I will take this question from you. Whenever you transition to any new technology mode architecture, you might see some hiccups and so on and so forth. Yes, we are very close to our customer, and we see some of them having some issue for the transition to 4F-squared. To be honest with you, this is not consequential from that point of view, because even at the 6F-squared right now technology mode, customer want to have performance. We see penetration, both in both ALD and epitaxy right now in the 6F-squared technology node. Performance is needed. To be honest with you, maybe sometimes you need it more before you transition to second generation. If you're not getting the benefit from architecture, you need to get benefit from material. It's good for us either way.

Adithya Metuku (HSBC): Got it. Thank you.

Hichem M'Saad (CEO): Thank you.

Conference Operator, Chorus Call: Next question is from Stéphane Houri, Oddo BHF.

Stéphane Houri (Analyst, Oddo BHF): Yes. Hello, good afternoon. Actually, my first question is about the 1.4 nanometer and the moly recent win in ALD that you have discussed. I'd like to understand if we're talking about something that could be sizable already in 2027. 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. Thank you.

Hichem M'Saad (CEO): Thank you for your question, Stéphane. The way to answer your question is that, first, 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 node. As I mentioned that in previous calls, I mentioned that molybdenum is doing metallization, is going to happen gradually from one generation to the other. Because metallization, you have dozens and dozens of layer. When you're winning these ones into this layer, yes, it's very good. It's beneficial. 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 2028.

Overall, this is exciting time, but also at the same time, molybdenum just starting in the industry. With more and more generation, we're going to see more and more implementation and proliferation of molybdenum into the node. This is an incremental benefit for us, and it's going to add to our revenue, and for me, this is very exciting. I think that our strategy to move into metallization, metal deposition is working. We also feel very positive in the future. We're developing also new precursor, new technology for moly, which is going to be even more and more differentiated in the future. We're working with our customers for this. Things look good from that point of view.

Stéphane Houri (Oddo BHF): Okay. Thank you. The second question is about the gross margin trajectory, because you have always been a bit conservative with your pretty wide guidance from 46%-51%, and you've been more or less constantly above. You explained this with the size of China, which is quite easy to understand. When we heard the conference call of ASML, they did 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. Are you thinking about expanding your gross margin above the high end of the current guidance, which is 51%? Are you thinking about price increase? Reasonable price increase but still price increase that would help the gross margin. Thank you.

Paul Verhagen (CFO): Yeah. Thanks for the question, Stéphane. On the margin, you've seen it in this quarter, we guided around 51%, which indeed is at the high end of the range. Could be slightly higher, could be slightly lower, but around 51%.

You have a few questions. Are we, let's say, implementing price increases? The answer is yes, where possible. We have some targeted price increases amongst orders also to deal with some of the cost inflation that we see happening from our supply base. As a minimum, we want to pass that on into our supply chain. Two. We still do value-based pricing. We still believe for the medium to long term, that's the best way to do it. What you see is one of the reasons why the margin is so good is not only China is definitely still a part of it's accretive, but also because we have a relatively high share of advanced products, which typically, not always, but typically have a higher margin, which is value-based.

The more complex certain deposition layers become, the more complex our tools becomes, the higher the value we can offer. We, of course, try to also reflect it 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. That you should also take into account. Last but not least, we talked about a number of initiatives in prior calls on the standardization of platforms on merchant transit. We also put a lot of focus and effort on becoming more efficient and working on our costs. That's another element. If you add it all together, you get what you see now. Of course, we will try to continue to do that and see if we can get it structurally at a higher level.

For now, we're not changing the guidance other than that we've said for this year, we will be around 51%.

Hichem M'Saad (CEO): Thank you, Stéphane.

Stéphane Houri (Oddo BHF): Okay. Thank you very much.

Conference Operator, Chorus Call: Next question is from Jakob Bluestone, BNP Paribas.

Jakob Bluestone (Analyst, BNP Paribas): Hi, good afternoon. Thanks for taking the question. Earlier this week, we heard about China making progress in DUV. I was wondering if you could maybe give us a little bit of an update on what is the state of Chinese local competition that you currently face. Thanks.

Hichem M'Saad (CEO): To answer your question, I think that, yes, we heard the news about DUV in China. We also know that there's competition in China from different players. In China, actually, like we mentioned, we working on mature logic node, and also we work on memory and power and analog. Not of course, we don't ship tools for the leading-edge devices. We see our position to be good in those markets. The competition is there, I think we see some wins and continue to really to do well from that point of view. I think by keeping really continued on innovation, which we are doing incessantly, to really compete in the China market, which is very cost competitive from that point of view.

We have to improve our cost of ownership, and we're using innovation technology and process innovation to really achieve the lower cost of ownership. We've been able to win in that area. That's really one of the reasons that, in the mature nodes, which is you can think of it as very cost competitive from that point of view. We're still holding our own, and we are still very competitive, and we like what we see right now. Right now, everything is from that point of view, we are competitive. We see our competitiveness be there. We understand the China market is, China players. There are many China players coming in from that point of view.

If we continue to innovate, and which we have done, both in technical benefits and also in cost of ownership reduction, I think we should be able to continue to do well.

Jakob Bluestone (BNP Paribas): Understood. 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 any ordering extra inventory build because of that? Not sure if that's something you can comment on.

Paul Verhagen (CFO): Yeah. As I said, we see actually very strong demand in China, and we believe that one of the reasons is indeed export controls. Yes, we also see some accelerated ordering. It's not excessive, but there is some of that. Not excessive in any way or form. Yeah, that there is speculation on new controls that typically supports acceleration of orders and delivery towards Chinese customers. There is some of that, but not excessive.

Jakob Bluestone (BNP Paribas): Understood. Thanks.

Hichem M'Saad (CEO): Thank you, Jakob.

Conference Operator, Chorus Call: Next question is from Tim Schulte-Mehringer, Rothschild & Co Redburn.

Tim Schulte-Mehringer (Analyst, Rothschild & Co Redburn): Hi there. Thanks so much for taking my question. First one I just wanted to talk about, was just on the technology roadmap and sort of capital allocation. I think, Paul, you talked about maybe looking for some further acquisitions. You've done silicon carbide epitaxy, 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? Number two, just an update on how the integration of those is going, and then I had a follow-up. Thank you.

Paul Verhagen (CFO): 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, for a number of reasons, because there was an opportunity, we decided to do it inorganic. 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, also it helps us in our strategic objectives to grow in Advanced packaging. That was another reason to do it. Again, there was also a clear leverage with some deposition that we do. That's always important. We have typically a choice to do things organic, of course, doing things organic takes a longer time.

Yeah, if we don't see, let's say, the right inorganic opportunities, we might start actually some organic development for certain, let's say, capabilities or certain technologies that we want or think would be supportive to our strategy. That's, I think, how you have to see it.

Tim Schulte-Mehringer (Rothschild & Co): Very clear. Just looking at the revenue mix, 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. You talked about blowing through the revenue guide, surely a very strong tailwind on gross margin for 2027, 2028, just given the size of those numbers. What are the off takes? Because you talked a lot there about productivity. Is there anything in the supply chain, lead times of suppliers, anything that we should think about that's just going to sort of curtail the enthusiasm for the gross margin trajectory on a kind of one or two-year view? Thank you.

Paul Verhagen (CFO): You're right. The trends that we see in the market and our position in the market looks really good. Hichem talked about it. He named one by one, so I don't have to repeat that. At the same time, I talked about cost inflation. There is definitely cost inflation that we need to offset through pricing. That sounds very simple. It's not always easy, even not in this environment, because when you gain share, we still have to compete, and you can imagine that some of our competitors don't, let's say, give it away. They will fight for it. At the same time, increasing prices is not always easy, but sometimes we can, again, depending on the value that we deliver. There is some of that.

The whole product mix, of course, is important, but given how the market is developing, you will see a lot of advanced products, ALD as an example, which is typically good for the margin. There is some operating leverage, not a lot, but still every year that we grow, there is some of that. If you add it up over a number of years, it also starts to count. I talked already about China and export controls. There could be some of that. There is some level of uncertainty, but today it looks good. Yeah, we'll see what will happen there. We don't know. Overall things look pretty good. I cannot say it otherwise.

Tim Schulte-Mehringer (Rothschild & Co): Awesome. Thanks very much.

Paul Verhagen (CFO): Thanks, Tim.

Conference Operator, Chorus Call: Next question is from Tammy Chu, Berenberg.

Paul Verhagen (CFO): Tammy?

Conference Operator, Chorus Call: Tammy Chu, your line is open.

Tammy Chu (Analyst, Berenberg): Hi. Sorry, technical issue. Thank you for squeezing me in. Firstly, on your 1.4 nanometer outlook, did you see more customer getting more aggressive on 1.4 nanometer from a timeline and volume perspective compared to last quarter? Also, the second question is, can you talk about your China business mix potentially into 2027, i.e. mature edge foundry logic has been very strong driving China in this year. Do you see memory in China picking up and sustain the strong momentum China had?

Hichem M'Saad (CEO): I think that it's very clear that for the 1.4 nanometer node, it's already public that there's more than one supplier for that node. As such, 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, you're a hero. Based on that, based on the fact that you get more performance and energy efficiency, and the fact that, okay, also the 1.4 nanometer, there's publicly more than one supplier. Yeah, we see investment in that node right now from that point of view. Yeah, that's happening.

Paul Verhagen (CFO): To be honest with you, we play in the front end of line of the devices and things from that nature in the transistor, in the gate around. We might be the first company that see—

Hichem M'Saad (CEO): We have visibility to what's going on from that point of view, because EPI is one of the first tools you need to [order]. And ALD 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 level, that you see that. We have good visibility, and with our very strong position there, we are very confident about what's going on under 1.4 nanometer node.

Paul Verhagen (CFO): Maybe on China, Tammy, what we see today, first maybe the disclaimer, because China, there's always low visibility, so the more detailed we go, the more swings you will see. Based on everything we see today, what we expect next year is, again, the bulk will be mature logic/foundry. 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. Yeah, we would expect it to grow unless, barring unforeseen circumstances, again, export controls, you never know. We would expect the same in power via for analog, where we see now, let's say, also the start of a recovery. Still from a low base, we would expect that to continue into next year.

Tammy Chu (Berenberg): Okay, thank you. Just to confirm, is that 1.4 nanometer incremental customer in addition to your estimation from last quarter? Or that's always in your number anyway?

Paul Verhagen (CFO): In the previous quarter, we already knew which customers we would, let's say, ship 1.4 nanometer. Nothing changed. Maybe other than that, maybe it has increased a little bit overall, but no, we're working with all customers, as Hichem already said, and that already was known also last quarter.

Tammy Chu (Berenberg): Okay, thank you.

Hichem M'Saad (CEO): Thank you, Tammy.

Conference Operator, Chorus Call: Final question is from Robert Sanders, Deutsche Bank.

Robert Sanders (Analyst, Deutsche Bank): Yeah. Hi, thanks for taking my question. I was just wondering about your supply chain, whether your backlog, in particular, how much of your 18-month deliveries over the next 18 months are kind of already sold out? Is your supply chain now a potentially bigger limiting factor than clean room availability? I have a follow-up. Thanks.

Paul Verhagen (CFO): Yeah, on supply chain, it's a good question, Robert. 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, where needed, also developing dual and triple sourcing. We have people at suppliers where there is stress. Far we can manage it. Yeah, there is definitely a level of stress there, but so far manageable.

Robert Sanders (Deutsche Bank): Of your backlog today, how much of that is covering next year's revenue? Is it a large portion of next year's revenue is already in the backlog?

Paul Verhagen (CFO): As Hichem said, we get very good forecast from our customers. There is some accelerations in orders. Our order book typically is six to nine months, so that didn't really change. Maybe it's a little bit better than normal. What has changed is, let's say, the commitment, although it's not yet a formal order, but the level of commitments and transparency that we get from our customers, that's definitely more firm than what we have maybe seen in prior years. That's often reported. As we said in the press release, orders in the first half are very strong. We also expect strong orders in H2, and on the back of that's what we said about our confidence level in 2027.

Robert Sanders (Deutsche Bank): 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? Thanks.

Paul Verhagen (CFO): Yeah. I would not talk about aggressive release today. We don't see that yet. We do expect further growth, again, from a low position in memory in China. 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.

Robert Sanders (Deutsche Bank): Thank you very much.

Conference Operator, Chorus Call: Mr. Bareño, there are no more questions registered at this time.

Victor Bareño (Head of IR): Okay. Thank you, everyone, also on behalf of Hichem and Paul for attending our call. Goodbye.

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

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*Verbatim transcript compiled from Investing.com (Jul 29, 2026). ~6,800 words.*