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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to ASM International Q1 2022 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Victor Bareño. Please go ahead, sir.
Thank you, operator. Good afternoon, and welcome, everyone, to our Q1 earnings call. I'm joined here today by our CEO, Benjamin Loh; and our CFO, Paul Verhagen.
ASM issued its first quarter 2022 results yesterday at 6 p.m. Central European Time. For those of you who have not yet seen the press release, it is accessible on our website, asm.com, along with our latest investor presentation. As always, we remind you that this conference call may contain information relating 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, reports and financial statements, which are available on our website. And with that, I'll now hand the call over to Benjamin Loh, CEO of ASM.
Thank you, Victor, and thanks to everyone for attending our first quarter 2022 results conference call. We know it is a busy day for all of you. The agenda for today's call will be as usual. Paul will first review our first quarter financial results. I will then continue with a discussion of the market trends and the outlook, followed by Q&A. I will now turn it over to you, Paul.
Yes. Thank you, Benjamin. In the first quarter of 2022, you've seen that most likely revenue increased to EUR 517 million, in line with our guidance of EUR 500 million to EUR 530 million. At constant currencies, revenue was up 25% year-on-year and 3% compared to the fourth quarter of last year. Spares & service revenue increased by 12% year-on-year at constant currencies and accounted for 17% of total sales. Equipment sales increased 28% year-on-year and were led by very strong sales in our ALD product line. In terms of customer segments, revenue was led by foundry, which increased strongly compared to Q4 but was below the very strong level of Q1 last year. Logic was the second largest segment. While somewhat down compared to the record-high level in Q4, logic revenue remained very strong and grew significantly compared to the same quarter of last year. The combination of logic/foundry continued to account for the larger part of our sales and increased to a new record-high level in the first quarter. Memory was the third-largest segment, with sales up strongly, both sequentially and year-on-year. DRAM represents the larger part of memory, although the contribution of 3D NAND meaningfully increased in Q1. In our niche segments, analog/power and wafer makers sales momentum was also solid. Gross margin came in at 47.8% in the first quarter. This was down from the 49.5% in Q1 last year, which, as a reminder, reflected an exceptionally strong application mix in that quarter. However, compared to the 47% in Q4, the gross margin improved. And this was driven by a slightly more favorable mix in Q1 of this year. Cost inflationary pressure has increased. We have been able so far to offset the negative impact by continued commercial negotiations, efficiency improvements, engineering improvements and selective price increases, and that continues to be our focus. SG&A expenses increased 45% at constant currencies compared to Q1 last year. It should be noted that SG&A in Q1 last year was at a relatively low level due to the phasing of SG&A within the year. Compared to Q4 last year, SG&A was up 9% at constant currencies. And as I explained in the Q4 earnings call, we had a reclassification of a few millions from SG&A into R&D. So when adjusted for this reclassification, SG&A in Q1 was only marginally up compared to the underlying level in Q4.
The increased level in SG&A is mainly driven by our investments in the growth of our company and to strengthen the organization in preparation of substantially higher revenue levels in the next years. Our total headcount at the end of Q1 was up 34% versus 1 year ago. Recruitment costs increased driven by successful hiring of new talents. SG&A also includes higher spending for IT projects, such as in the area of supply chain managements. For the next quarters, we expect a gradual increase from quarter-to-quarter in SG&A. Our target for SG&A to gradually decrease to a high single-digit percentage of revenue by '25 -- 2025 is unchanged. Net R&D expenses increased year-on-year by 39% at constant currencies. The increase is explained by higher headcount and an increased number of R&D projects. Compared to Q4, net R&D dropped by 12%. Reasons for the sequential drop are the reclassification that I just mentioned and some seasonality in spending. For the coming quarters, we expect a gradual increase in R&D expense. On a structural basis, our target remains for R&D expense to be at the high single digit to low double digit as a percentage of revenue. As I mentioned in the last earnings call, net R&D in the full year 2021 at 8.7% of sales was slightly below this target. The operating margin of 27.7% in Q1 '22 increased by 1% compared to Q4 and decreased by approximately 4% year-on-year. Below the operating line results included a currency translation gain of EUR 9 million, and this compares to a translation gain of EUR 7 million in the fourth quarter and a gain of EUR 16 million in Q1 of last year. As explained on previous occasions, we hold the largest part of our cash balances in U.S. dollar, and the translation differences are included in our financial results. Now quickly, some comments on ASMPT. Our share in income from investments, reflecting our 25% share of the net earnings from ASMPT, amounted to EUR 24 million in the first quarter, slightly down from EUR 26 million in the fourth quarter and up from EUR 14 million in the first quarter of last year. ASMPT reported quarterly revenue of $675 million, which was at the high end of the company's guidance. Revenue was down 15% in Q4 and up 21% year-on-year. In terms of order intake, ASMPT's Q1 bookings were approximately $900 million, up 34% compared to Q4 and down 10% year-on-year. Now turning back to our consolidated operations. Our new orders in the first quarter were EUR 706 million, up 8% in the fourth quarter and up 65% year-on-year at constant currencies. In terms of equipment, the order intake was led by record-high ALD bookings. We also had strong momentum and record bookings in our Epi and vertical furnace product lines. Looking at the breakdown in bookings by customer segment, foundry was the largest segment and increased to a record-high level. Logic was second. Memory bookings showed a solid increase and also reached a record high. The larger part of memory bookings was driven by 3D NAND, which increased strongly versus Q4, while DRAM moderated somewhat after the record-high level in Q4. Similar to the trend in the last couple of quarters, the contribution of the power/analog and wafer maker segments was also very solid and at the record level in Q1. Now turning to the balance sheet. Our financial position continues to be strong. We ended the quarter with EUR 550 million in cash, up from EUR 492 million at the end of the fourth quarter. This increase was driven by a solid free cash flow of EUR 61 million, including a net amount of EUR 39 million paid for the acquisition of Reno Sub-Systems. We announced this acquisition on March 14, and Reno is a supplier of RF matching technology, which will advance our leading ALD products. Given the limited size, the acquisition is not expected to have a significant impact on 2022 earnings. And excluding this acquisition, free cash flow was EUR 99 million compared to EUR 89 million in Q1 of last year. This increase was driven by increased profitability and lower cash tax payments and partially offset by higher CapEx of EUR 27 million in Q1 of this year with only a relative moderate cash outflow for working capital. For the full year '22, we continue to expect CapEx to be at the high end of the range of our mid-term target of EUR 60 million to EUR 100 million annually. With our Q4 results, we announced the authorization of a new EUR 100 million share buyback program. This program is expected to start later. And in terms of dividends, as a reminder, we announced a regular dividend of EUR 2.50 per share, up 25% from last year, for approval by the AGM on the 16th of May. And with that, I hand the call back over to Benjamin.
Thank you, Paul. Demand continued to be strong in Q1, and prospects for the full year are solid. We expect to outperform the mid- to high-teens percentage growth that is currently forecasted for the wafer fab equipment market in 2022.
Demand for leading-edge logic/foundry remains strong. At the same time, we are also increasing our position in the memory market, and we have strong momentum in our smaller power/analog and wafer maker segments, also driven by some of our new product introductions. Let me first provide you with an update on the supply chain situation as this was a limiting factor in Q1. Supply chain conditions remained challenging in the first quarter, in line with our earlier projections. We have seen shortages and extended lead times across various parts of the supply chain with particularly tight conditions again in certain chips and electrical components. Despite these challenges, we were able to meet our guidance and to increase our revenue again in Q1, which was our 15th consecutive quarter of positive year-on-year growth, thanks to, again, a terrific job of the ASM team. We project the supply situation to remain tight in the second quarter but expect again a sequential sales increase in line with our previous indications. Meeting the requirements of customers remains a key priority. Our actions to mitigate the risks include continued close collaboration with our suppliers, early ordering and the qualification of additional suppliers. With substantial industry-wide efforts to increase supply and capacity, we expect some improvement in the supply chain situation in the second half, although there are parts where we still have limited visibility. In terms of internal capacity, the timely investments we made to substantially expand our capacity are now helping us to support the increased demand from our customers and to drive revenue growth. The highlight last month was the official launch of our new facility, Woodlands Height, in Singapore. As you know, we already completed it at the end of 2020, and we have steadily ramped output since then. Last month, we also broke ground for the second manufacturing floor in this facility, which is on track to be production ready by early 2023, as we already announced last September. In total, the new facility, including the 2 production floors, will triple our global manufacturing capacity. This will provide us with the capacity and flexibility to meet our 2025 revenue targets. Our people and operations in Singapore have been instrumental in the success of ASM already for many years, not only in manufacturing but also in other functions, such as global IT, people and supply chain management, including key leadership roles. Let's now look in more detail at the trends in our markets. The start of the year has been strong for our industry. Economic uncertainties increased in recent months due to the geopolitical situation and increasing inflation and interest rates. However, secular growth trends in our industry continue to be strong and are expected to result in structural growth in the semiconductor market in the coming years. Looking at the wafer fab equipment market, conditions continue to be robust. Demand is very solid across the board as customers stay committed to execute their capacity expansion plans and technology road maps. For 2022, WFE spending is expected to increase by a mid- to high-teens percentage, unchanged compared to a couple of months ago. Advanced logic/foundry is expected to be a key driver behind the increase in WFE this year. Our customers are stepping up their spending in 2022 to build the capacity for the current, leading-edge devices and for the next generation of more powerful and power efficient semiconductors. This capacity increase is in response to digitalization trend and multiyear growth in new, data-intensive end market products such as in cloud computing, artificial intelligence and increasing semiconductor content in 5G smartphones. Apart from a solid spending increase, demand is also supported by the transition to the next logic/foundry node. In the latter part of 2021, our logic/foundry orders already included the first meaningful contribution from the upcoming technology node that key customers are planning to bring to high-volume manufacturing in the second half of this year and going into 2023. This year, in 2022, even though customers will also further add to the current node capacity, the mix of next node spending will meaningfully increase. Compared to the current node, the number of ALD layers and applications increases on average by a strong double-digit percentage. We have been able to secure a meaningful part of the new ALD layers and applications. As a consequence, we expect the upcoming logic/foundry node to be a strong driver for our company sales in 2022. In the logic/foundry sector, we have also seen a strong increase in the recent periods in our R&D engagements with key customers to develop new applications for gate-all-around technology. These engagements support our expectation that gate-all-around will be an important driver in the mid-term for further increase in ALD and Epi requirements in the logic/foundry space. As we indicated in our Investor Day last year, the transition to gate-all-around is expected to drive an incremental USD 1.2 billion opportunity in our ALD and Epi markets by 2025. Talking about the logic/foundry sector, I would also like to highlight Intel's EPIC program Valued Supplier Award that we received earlier this month. We are very honored to receive this prestigious award, which we earned for our performance in technology. Next, looking at memory, we remain focused on improving our position over time and increasing the contribution to our sales. Further scaling in DRAM, higher stacks in 3D NAND, the introduction of new materials and increasing device complexity means that the growing number of ALD applications will be required. In the last couple of years, we talked several times about new applications that we have been working on, some of which are expected to move into volume manufacturing in 2022 and 2023. Last year, from a lower base, we had a solid increase in our memory sales, mainly on the back of our high-k metal gate solution in DRAM. High-k metal gate is a key innovation that increases the speed and energy efficiency of high-performance DRAM devices. This year, we expect continued robust demand as leading customers are further boosting their capacity for high-performance DRAM. In 3D NAND, we're also making further inroads with ALD gap-fill, as we discussed in our last earnings call. As customers will be transitioning to higher stacks of 3D NAND approaching 200 layers and beyond, single-wafer ALD becomes a key requirement for high-aspect ratio gap-fill. ALD gap-fill is a sizable opportunity, and we believe we are well-positioned with the technologies we have developed for seam-free deposition of gap-fill in deep trenches.
We have engagements with several 3D NAND customers, including the first tool of ecoselections that we expect to start contributing to our sales in the course of the year. Our record-high 3D NAND orders in Q1 included already multiple tool orders for gap-fill. Growth is also strong in our smaller segments of analog/power and wafer manufacturers. These markets are again expected to increase at a very solid base this year as customers are expanding capacity to catch up with the higher demand and shortages. In addition, we are having strong traction in this market with some of our new products introductions. In vertical furnaces, for instance, our A400 DUO for 200-millimeter applications that we introduced a couple of years ago continues to be in high demand. We have also been working on the new 300-millimeter platform as part of our strategy to grow selectively in the furnace market. I'd also like to highlight our progress in epitaxy. We booked record-high orders in Epi in the first quarter. Epi was our fastest-growing product line in 2021, and we expect, again, significant growth this year. In the advanced CMOS market, growth in 2022 will be supported by investment in both the existing node and the next node. The transition to gate-all-around is expected to be a strong driver in the mid-term for both ALD and Epi, as I just mentioned. Last year, we already announced our first 2 selection for an advanced gate-all-around Epi application, and we are currently working with other customers in R&D. Another driver for the advanced CMOS market are increasing Epi requirements in DRAM. This has been a strong focus for us, and we believe the cost of ownership and technical performance of our solution also offers substantial advantages in DRAM. In the material node part of the Epi market for analog, power and wafer manufacturers, demand also continues to be strong. Here, we are also benefiting from the Intrepid ESA that we launched last year. We booked several new customer wins for this tool, including in China, which will start contributing to our sales in the second half of the year and going into 2023. To summarize, demand continues to be strong in the first quarter. The outlook for a solid increase in WFE is unchanged. The mid-term outlook continues to be solid as ASM is in an excellent spot to benefit from the transition to the next nodes. And we are also expanding our position in our niche power/analog and wafer markets. Now let's look at the guidance we issued with our Q1 press release. For Q2, at constant currencies, we expect revenue of between EUR 540 million to EUR 570 million, in line with our previous forecast for a further sequential increase in Q2. Based on the current visibility, we expect revenue in the second half of 2022 to be clearly higher than the level in the first half, to a certain extent, depending on the pace of improvements in supply chain conditions. With that, we have finished our introduction. Let's now move on to the Q&A.
[Operator Instructions] Okay. Operator, we are ready for the first question.
We have the first question from the line of Adithya Metuku from Credit Suisse.
So firstly, I just wanted to understand a little bit about one of your customers -- one of your logic customers. There's been a lot of talk around yield issues at the gate-all-around transistor structure. Have you seen any impact at all from these yield issues with this customer? And secondly, just on the supply constraints. Recently, TSMC noted on their call about helping its suppliers through making lagging-edge semiconductors available to ease the supply constraints. Are you seeing any impact at all from this? Those are my 2 questions.
Adi, thanks a lot. Thanks for calling in. So without going into customer specifics, I think what you mentioned about the gate-all-around yield issues, I think we need to, of course, understand that this is still a fairly new technology. So yield issues, to be honest, are not unexpected. But we're also not hearing anything specific. And I think over time, as the technology matures, the improvement in yields will probably come naturally. So maybe it's a little bit too early. Nothing to be concerned about. On the -- one of our leading customers are helping, let's say, suppliers with mature technology or mature node technologies to alleviate the supply chain, we have heard about that. But is there really an impact on us? The answer is probably very small because we are playing more in the leading and the most advanced nodes. So in terms of mature technology, we do not have such a high exposure as far as logic and foundry is concerned.
Just -- can I ask a clarification on your last answer? Or shall I get back in the queue?
No, please, please continue.
So just on that, I mean, the way I understood TSMC's line was that they are helping their suppliers get mature microcontrollers, et cetera, which are delaying the shipments of semiconductor capital equipment. So I wondered whether -- if -- whatever TSMC is doing is helping you ease the supply constraints on your side when you talk about supply constraints in certain lagging-edge products preventing you from shipping more, if that makes sense.
Okay. Sorry, Adi, for misunderstanding the -- your question. This actually -- and it's not just specific to one of our customer. Actually, a lot of our customers has already been fairly active in trying to help us get -- whether it's the controllers or stuff that we need. And this has already been ongoing for some time. I would say that the impact, sometimes it's -- it comes. Sometimes they are not able to help. But help from our customers has actually already been ongoing for quite some time.
The next question from Stephane Houri from ODDO BHF.
I have indeed 2 questions, actually. The first one is to have your view on the global GDP deceleration, why, in your view, it does not have any impact on your orders trends and also deliveries. And second question is on the gross margin evolution for the next quarters, if you can give us some elements to understand how it's going to move.
Stephane, I just want to -- by the way, thanks a lot. I just want to confirm that your first question was our view on GDP deceleration and why it has not had, for example, an impact on our business. Is that correct?
Yes. Correct.
I will answer this, and perhaps Paul can give you more color on gross margin development over the next couple of quarters. I think the -- whether you call it GDP deceleration or the various macroeconomic uncertainties that are ongoing right now, I think they are still being worked out, to be honest, including higher interest rates, maybe inflation and stuff like that. But I think what we are seeing is, of course, that potentially this may have an impact on end user market temporarily. But as far as our customers are concerned -- and we have mentioned this quite a number of times, they are investing multiyear kind of investments. So they are very much committed to seeing through the investments that they have laid out over the next couple of years. And what we are actually witnessing today is they are not stopping. They are continuing with the investment plans that they have, plus the commitment to execute on their technology road maps. So maybe that is one of the reasons why you are seeing potentially or let's say perhaps a decoupling between end-use markets or maybe the consumer markets compared to what we are seeing.
And then on the margin question, what we've seen, a margin in Q1 of 47.8%, which was above the margin that we saw last year, in the last quarter, so in the fourth quarter, of 47%. So what's important here is maybe to remind you, we got last quarter a few times the question, why is your margin decelerating throughout the year from 49.5% gradually to 47% in the last quarter. And we always answer that, that's because of mix. And the answer this time will -- application mix. And the answer this time is actually the same. You see that this continued deceleration did not continue in Q1 simply because we had a somewhat better mix than in Q4. So also going forward, you can expect similar, let's say, swings in the margin up and down compared to the first quarter of this year. Maybe one point to note, we see that inflationary pressures are increasing compared to Q1. So that will be an additional challenge. Having said that, we have measures in place to, of course, try to manage that as good as we can. I talked about that earlier. We have been able to have price increases push through in select -- for selected products and customers. Of course, we also have suppliers where we still see further room for improvement of the prices to partially offset the other increases that we see. We have value engineering initiatives running, of course, to compensate. But all of that, of course, is hopefully all enough to compensate what we see is an increasing inflationary pressure around us.
The next question from Tammy Qiu from Berenberg.
So firstly, your order has been very strong, and you just mentioned that it's driven by very strong foundry and logic demand. Do you know specifically what node they are ramping up on? And also, at the same time, we all know that equipment lead time has been expanding significantly. Do you see the customers are ordering more because of the worry that they wouldn't be able to get the tools on time? And I have a follow-up as well.
Sure, Tammy. So on the question of orders being very strong, especially driven by logic and foundry, I think what we see generally is, as we have mentioned earlier, there is still expansion going on in the node that is just before that. But there is also a lot of expansion going on or investments going on in the new node -- the new high-volume manufacturing node. So without going into customer specifics, those are the main drivers. In terms of equipment lead time, of course, our lead time is higher. But at the same time, just would like to share that the majority of the orders that we receive, for example, in the first quarter, they are actually for delivery within the next 2 quarters. So we are not seeing customers placing orders exceedingly in advance. They are probably placing orders earlier than what used to be, but they are all targeted at the investments that they are currently going through or are about to start very soon.
Okay. And also relating to supply chain constraint, you mentioned that we're probably going to be relaxed in second half. Do you see anything change from a supply chain perspective during the March quarter versus December quarter, i.e., did it get worse or better? And also in the second half relaxing comment, do you actually see that because you've been working on things intensively? Or do you think the whole industry relaxation will start to happen?
So on the first question, I don't think there was really a lot of improvement in the March quarter compared to the December quarter. And as we have guided, we did expect that supply chain conditions in Q1 and, in fact, also going into this quarter, will continue to be tight and also challenging. I think our view of the second half is that, 2 things, we do expect that there will be some easing of supply chain constraints in some parts of the supply chain due to additional capacity coming online, which we hope will be sooner rather than later. At the same time, I think we have also shared previously that one of our efforts to mitigate the supply chain base was to qualify additional suppliers and that we are looking at getting more results coming up from that also in the second half.
Okay. Just to clarify. So you mentioned that March quarter and December quarter was pretty much the same. So just to confirm that things didn't actually get worse in the March quarter versus December, right?
From our perspective, it was pretty much the same. We had the same constraints.
Next question from Robert Sanders from Deutsche Bank.
I guess we're thinking about a question really regarding how you think about the world today versus in September. The reason I'm asking is obviously, ASML, overnight, we're just talking about effectively exploring a demand scenario that was much higher for 2025 than they anticipated in September. And I assume that's based on going to customers and looking for long-term forecast and the base numbers being higher than 6 months or 12 months before. So I was just wondering if you've seen something similar from talking to your customers when you're doing your long-range forecasting, whether you think that -- maybe you're tracking to the high end because I guess, at the moment, you're still baking in the WFE expectations of TechInsights, which are basically flat from this year to 2025. But ASML seems to be pointing that to a continued growing CapEx profile from this year all the way through to 2025. So I'd love to get your perspective on that.
Sure, Rob. I think today, we look at, of course, 2022 being a strong year as we have described for all the various drivers. I think beyond -- in the outer years, '23 onwards, I think it's a little bit early to really give any meaningful comment. We do understand one of our neighbors having a very bullish outlook. And of course, on our side, we review this regularly, and we discuss regularly also with our customers. And if we feel that things needs to be changed as far as our mid-term 2025 targets are concerned, we will, of course, do that and inform everybody. But based on today's view, I think we are actually very comfortable with what we have set for ourselves as the 2025 targets. And we are actually confident that we are working towards those targets.
And kind of just for my follow-up, just -- if you could just be a bit more specific about what types of components actually you're seeing in shortage. There was an article in The Nikkei newspaper recently talking about valves having 12-month lead times -- pumps. I was just interested whether you thought it was more of a semiconductor issue or actually more to do with the rather nonsemiconductor components, which obviously includes some semiconductors but maybe could be related to nonsemiconductor issues in the supply chain as well.
I think the bigger constraint is still in semiconductors and related electrical components or components that uses semiconductors. I think that is still, by far, the biggest constraint. We do, of course, see long lead times and constraints in other areas, such as in perhaps specialty materials such as corks. But the bulk of it, I think, today is still in the semiconductors and related components.
The next question from Janardan Menon from Jefferies.
I was just following up on Rob's question, which is -- but looking at it from a point of view of capacity. Your neighbor, ASML, has decided to increase capacity very substantially from their previously stated plans of increasing capacity to 2025. You've sort of said that your -- the second floor in Singapore would be sufficient to triple your capacity from 2020 to 2025, and that should be sufficient to meet your current 2025 expectations. But given the sort of steady, increasing trend in your order book and the very strong demand trends and the sort of geopolitical-led new fab construction announced by some of your biggest customers, is there a reason to revisit that plan and, therefore, think about additional capacity, which could be brought on board, say, by around 2025 in order to just give yourself some cushion on how demand may have come through over the next couple of years? And if you did have to make that decision, by when would you have to make that decision in order to ensure that you are in a comfortable place by 2025? And I have a brief follow-up, please.
Janardan, thanks a lot. I think the announcement from our neighbor, I would call them, was, of course, very positive. One of the things that we will have to look at, of course, is going forward, should we -- is there going to be a significant change that might require additional capacity. I think that's something that we do regularly. And based on what we see today, we feel that with the second floor of our Singapore facility coming online early next year, with the tripling of our global capacity, we are actually covered for our mid-term goal of between EUR 2.8 billion to EUR 3.4 billion in terms of sales. Now having said that, of course, we have to review this regularly. And should there be a need to add more capacity, I think our past experience so far, which has been very fortunate for us, is that we want to be ahead rather than behind. And that's been proven with our Singapore facility, which came in very timely for the increased demand that we are seeing now. In terms of what is the required time to build, for example, a new fab or new factory and so on, it could be anything between 18 to 24 months, depending on where you're going to build this. So that is probably the guideline that we will have to use as the amount of time that we will need to make sure that we have enough capacity. Should we have increased capacity, we need to be planning about 18 to 24 months ahead.
So that would mean perhaps if that capacity is needed by 2025, sometime towards the end of this year or early next year is when you would have to sort of press the button on that one?
Yes. And just to repeat, again, at this moment, that is not our view. Our view is still that we have enough capacity to meet our mid-term target of 2025 that we have stated last year.
Got it. And to follow up on the second question point, I'm just trying to get an idea for how much clearly higher implies for you in the second half. Your backlog has been growing -- going higher and higher, and the gap between the backlog and the sales trend has been widening now for about 4 to 5 quarters. Would you think that in the second half, with the easier component available you've been expecting and your expectations of orders, et cetera, that you could be able to start to bring down that backlog? Or would the backlog continue to be sort of elevated or even going up further through the next few quarters?
Janardan, that is our plan and also our hope that with easing in some parts of the supply chain, with some of the progress that we are making in terms of qualifying additional suppliers, that we will be able to convert more of the backlog into revenue. And hence, also one of the, let's say, reasons why we have guided that, we do see that the second half is clearly going to be higher than the first half, of course, depending on the supply chain conditions.
Thank you, Janardan.
The next question from Didier Scemama from Bank of America.
Thanks for taking my question. I've got a couple. First, I would like to just discuss your Q2 outlook versus virtually all the semi cap peers. You're the only one to really have been able to exceed expectations. It feels like your supply chain is under better control than perhaps some of your peers. So I just wanted to understand, is that a function of maybe simpler manufacturing or better availability of components? Is it because you are more vertically integrated, maybe some geographical differences in terms of where you source your components and your modules? And I've got a follow-up.
I actually can -- we are also impacted, of course, by the supply chain issues. And I think I have much more [ quite ] ahead to approve that for the last 1 year. I think when we look at are we doing a better job managing the supply chain constraints, I think we look at it in 2 different ways. One, of course, is I think we were very fortunate that, in terms of internal capacity, we had no problems because our Singapore -- our new Singapore with expanded capacity came online just right in time for us to meet the additional demand. I do believe that some of our peers, some of them did have also internal capacity, let's say, issues. So that's one. Secondly, I think we have, especially with our team, done a great job in collaborating with both the customers and the suppliers in trying to make sure that we are able to minimize the impact of the supply chain constraints by ordering very early, ordering larger quantities and also, as I have described earlier, actively looking at source -- qualifying additional suppliers. I think those measures have helped us by and large, and I don't think we really have a magic or silver bullet that enable us to do things better than our peers. I think we just executed on them well. And a lot of, let's say, thanks to the ASM team, together with our suppliers and, also, of course, with our customers.
Clearly, very good execution. My second question is on the second half outlook and, in fact, trying to pin you down to a number for the full year. So I suspect you won't answer, but I wanted to understand, relative to WFE [indiscernible] to upper teens, can you just give us a sense of the contribution maybe from NAND, from DRAM, from foundry/logic to the second-half outperformance versus WFE, whether you could help us with that number? And if you don't want to give us what the second half is going to do versus the first half, maybe help us understand how much of your business is driven by foundry/logic versus memory and power/analog. That would be good for us so that we can have a good gauge of your business.
Okay. Of course, we will not go into the breakdown or, let's say, quantify the, let's say, second half or full year 2022 number at this stage because, as we have explained earlier, there are still some areas of the supply chain where we have limited visibility, and we would like to refrain from maybe quantifying the upside at this point in time. But I think the second half, the revenue is still going to be driven, first and foremost, by logic and foundry. It's still the biggest driver for us. I think for the other 2 segments that we play in, memory and the smaller segment of analog/power and wafer makers, I think we would also see strong growth in those areas. So by and large, we are seeing -- we are going to see broad-based growth throughout the industry also in the second half.
And can I squeeze in a tiny follow-up for Paul?
Yes, sure.
Yes. No, I just wondered if you were capable of telling us if you would think that your operating margin could expand this year?
Yes, I think I can repeat what I just said is that mix is the key driving factor. So compared to first quarter, where we had 47.8%, there might be some quarters where it's higher, but there might also be some quarters where it will be somewhat lower. And in addition, what you should take into account as I already mentioned is, of course, that all the supply chain issues, inflationary pressures, of course, are not helping. We have multiple measures in place to mitigate that, to offset that and try to execute on that. But of course, it's not helping. So also, that should be taken into account. But it's too early to say where we will end for the year. But you've seen from last year, within the year, between the highest and lowest quarter, I think there was something like 250 basis points difference. And the same might -- a similar thing might happen this year, again, depending on mix, which again, is too early to guide on. And then the operating margin, there, I think you've seen a margin increase adjusted for the reclass that we've done in Q4 in Q1 in the SG&A cost. And that has everything to do with the fact that we need to invest and need to prepare for the growth that is ahead of us. We still stay to our -- keep our guidance in place, which means that, by '25, we go to high single digits. So as percentage of revenue, the SG&A cost, of course, over time is going to decrease. And for R&D, can also repeat, based on what we said before, it's unchanged. We are expecting to move to -- high single digits/low teens. And for the quarters of this year, just expect what I mentioned already, a gradual increase in SG&A but also in R&D.
Thank you, Didier.
The next question from Timm Schulze-Melander from Redburn.
Thank you for taking the question. Two quick ones, if I may. The first one, you talked about how you have existing assembly capacity footprint that's enough to capture even the top end of your revenue range in 2025. Can you maybe just let us know what percentage Europe would account for of the output in that 2025 scenario? And if you come in to the lower end of that range, would that require restructuring? And then I have a follow-up.
So I think your question, Timm, was based on our, let's say, expanded capacity, including the new manufacturing flow coming online next year, how much of that capacity would be used for Europe customers. Is that what your question is?
No, it was more about your European footprint today. If we look at 2025 and we look at the revenues at the top end of that EUR 2.8 billion to EUR 3.4 billion range, how much of that would be coming from your European cost base?
Actually, in Europe, we don't -- we hardly do any form of manufacturing today. We have a small facility here in the Netherlands where we primarily do refurbishing. So most of our manufacturing is right now focused or concentrated in Singapore with a smaller part in Korea. I would say that when we look at the range that we have provided of EUR 2.8 billion to EUR 3.4 billion all of them should be coming out from Singapore and some of it, to a little smaller part, they're from Korea.
Okay. That's very helpful. And then the second one, in your prepared comments on your work with the supply chain, your suppliers and that intimacy, you also said that you are extending your order horizon. Could you just give us some details on sort of how far ahead you're booking and if there are particular components or subassemblies that you're booking especially far ahead?
Sure. I think given the supply chain constraints and shortages, we have steadily increased our -- what we call the window of purchase or purchase window, and there are certain, I would say, components parts where we order as much as 1 year in advance. So we give them orders that stretches out for the whole of the next 12 months, just because some of the lead times for some of these components are that long today. I would say, in terms of trying to break this down, some of the materials, I did mention something called cords. Cords has extremely long lead time today. So that's one where we place orders very much in advance. Some of the semiconductor-related electrical components, the lead time is also fairly long today because of the shortage of the controllers and so on. Those are also the ones that we place orders very early and very much in advance.
The next question from Nigel van Putten from Kempen & Co.
Most of my questions have been answered. Maybe one on the language specifically in your press release about your ability to outperform the market. I think you've added the word confident now. Now just to make sure this is a dollar market while you report in euro. And in the press release, you pretty much diligently mentioned the FX impact on every line. So can you confirm that this expectation is also sort of on a dollar-to-dollar basis? Or should we assume sort of the FX tailwinds as well or within that?
I think what we are seeing, Nigel, is that, based on what we have in terms of demand coming in from our customers, the very strong backlog that we have and our own, let's say, forecast of the WFE market growing from mid- to high teens, we are confident that we will be able to outperform that. I'm not really sure whether we looked at whether this is constant currencies. I think it's constant currencies, I believe. And that maybe in terms of that, Paul has a better view of that. I'll let Paul answer you on that.
Yes. So when we guide, basically, we -- this one is at constant currencies, Nigel. But typically, we take into account the latest available month end rate that we have because that's where we base our forecast on. So if you want the official answer, it's actually based on the month end rate for the prior month. But given what we see in our order book, given everything we see, we can also say that, dollar-for-dollar, we are also confident that we outgrow the current WFE market growth forecast, which is mid- to high teens.
Great. Maybe a quick follow-up on customer concentration. I think 59% of revenue from top 3 customers. I think the first time I see a specific number there, but it's been around that level, I think, for the past couple of years, as you've mentioned, brought raised strength. Should we sort of expect that number to stay the same? Or do you expect further concentration as the leading-edge logic nodes are sort of outperforming in your revenue?
Nigel, of course, I think we do continue to expect -- or we expect that logic/foundry is going to continue to be strong over the next couple of years. Now whether the number is going to stay the same, I think, will also depend on how much progress, for example, we make in increasing our share in terms of memory, which we are actually also in good traction to increase our share. Even though it's a smaller part of our business, we are actually having good traction, increasing our share in memory and also in terms of the more mature nodes in the power, the analog and the wafer maker markets. So I think my best guess, we have not done this analysis. It's probably going to stay about the same.
The next question from Marc Hesselink from ING.
I have a question around the -- actually, on the memory segment. So you make also in this call a few comments on the -- on your progress there in the ALD for memory market. Could you give a bit more detail? And so I think in the past, you said you win applications in high-performance DRAM and periphery and also gap-fill in NAND. Are there other applications that you're seeing that you can win, applications where you currently have evaluation tools in the field? And maybe to put a little bit to a number to it, if you would say ballpark your market share in ALD for memory, where it is today and where you think that can move with those wins.
Sure, Marc. I think we have always explained that for the last couple of years, we have been working with both 3D NAND and DRAM manufacturers on advanced or, let's say, future requirements for ALD applications. And the efforts of that is that we have actually developed a pipeline of applications that some of them will become adopted for high-volume manufacturing when the customers go into the next nodes. And the first success of that was last year when high-k metal gate was adopted for DRAM periphery, and that's continuing to grow very well. We spoke about gap-fill applications for 3D NAND, which we do expect that we will gain some additional business from that particular application as customers that we are working with move into a high-volume manufacturing at the next nodes. In terms of the kind of work that we are doing, we do have, I would say, quite some evaluations and projects which are continuing with both 3D NAND and DRAM customers. And we do expect that some of them, especially in the time frame end of this year to next year, some of them will move into high-volume manufacturing and thereby increasing our shares in memory. As far as a breakdown of what kind of a share we have for ALD in memory, unfortunately, we will not give a breakdown by segment.
Okay. Clear. But do you then already know yourself that you had the design wins? Or you also still -- those design wins still have to be confirmed for you?
Marc, I would say both. Some of them, we know that we have the design wins. Some of them, of course, they are still going through the evaluation, especially that's where the evaluation tools have been used to develop, to some extent, the process with the customers. So we have both.
Okay. And on the level -- as a follow-up on the level of the evaluation tools, it moved down a little bit at the end of last year, and now it moves up a little bit again. But still a little bit below the level that we saw in '21 in most quarters. How do you expect that to evolve? Is that -- will that be trending up again over time?
Yes, Marc, this is Paul speaking. The very short answer is yes. We expect it to trend up. Please also note, of course, the depreciation is going on. So you saw a EUR 3 million increase compared to the end of Q4. But actually, if you again adjust that for the ongoing depreciation of the -- what was in our -- what was out there end of last year, it's actually a higher increase than EUR 3 million. But the net balance is expected to go up. So the EUR 67 million that you saw at the end of this quarter, I believe, it was, by heart -- we'll expect to increase further.
The next question from David O'Connor from Exane BNP Paribas.
Maybe firstly, just a clarification on your H2 comment higher than H1. Implied within that, do we -- can we assume that Q3 is growing over Q2 and also the Q4 is going to grow over the Q3? That's my first question. And I have a question on competition after that.
Sure. So I think I'm not sure whether this was in the prepared remarks, but with easing in some parts of the supply chain and efforts to qualify additional suppliers, we do expect that, on a quarterly basis, we'll be able to convert more of the backlog into revenue. So in that sense, Q3, we do expect to be higher than Q2. Whether it's directly going to be one-for-one extending into Q4, I think that's still left to be seen. But overall, if we add 3 -- Q3 plus Q4, together, we do expect that the sum of that will be higher than our first half.
Okay. Okay. Maybe turning to competition in same vein as the last question. One of your U.S. peers, Silicon Valley, last night talked about seeing significant momentum in ALD metals and dielectrics at leading-edge logic/foundry node. Can you talk a bit about your competitive positioning there on the -- on those particular AMD applications and whether you think you're retaining share?
So of course, we are probably the major provider of ALD, let's say, tools for both, I would say, for most of the ALD applications that are used in logic and foundry. So we do provide our customers with, not just metals but also dielectric applications. And we are actually quite confident of maintaining our leading position as far as the logic and foundry segment of the market is concerned.
Okay. Understood. And in terms of competition you're seeing, are you seeing an intensification of competition across either logic/foundry or across 3D NAND?
I think the competition has already intensified over the last couple of years. So it's not something that is new to us. I think with ALD becoming really mainstream and potentially being the fastest-growing part of the deposition market, I think we are seeing all of our peers also trying to move into the market. So it's not something new to us, and we compete on providing the best technical solution with the best cost of ownership to our customers, and we are confident of our position.
Thank you, David. We are running out of time. [Operator Instructions] If you didn't have the opportunity to ask your questions, please reach out to us after the call.
The last question from Michael Roeg from Degroof Petercam.
Well, most of it has already been answered. I just have one question on the conversion of your second floor. That's basically going to double your sales potential. And I was wondering what the investment would be from turning it from a dark, empty room into a floor where you can assemble at full capacity. How much money do you have to invest in machinery and tools for 100% utilization?
Let me take that question. I believe we have not disclosed that other than that it's part and included in the range that we have been guiding for, so EUR 60 million to EUR 100 million. And amongst all for this reason, Michael, we have guided that we will be towards the higher end of the range. And of course, the floor is only a certain part of it. It's just basically equipping one floor, which is already there with a clean room and some equipment, of course. So yes, we have not given specific guidance on the investment, but it's part of our CapEx guidance towards the higher end of the range this year.
Okay. But I assume that the investment you'll be making this year and, say, early next year is probably only going to be for, say, 1/3 utilization of that clean room, that floor because your...
We're going to fully equip it, which basically gives us flexibility to basically ramp up to the extent we need to ramp up in the course of '23.
Okay. That's quite promising. So you're actually going to be ready in 1 year from now for full utilization.
As we said already, I think Benjamin mentioned it earlier, we try to be ahead instead of too late. So we prefer to have indeed some capacity maybe sitting there idle instead of being a few months too late.
I think we have come to the end of the Q&A. So thank you all for attending our call today also on behalf of Paul and Victor. We hope to meet many of you during one of our upcoming investor events, virtually or in person. Stay safe and goodbye. Thank you very much.
That conclude the conference for today. Thank you for participating. You may all disconnect.