ASM International N.V. (ASM) Q2 2026 Earnings Call Transcript

Good afternoon, this is the CoruSchool Conference Operator. Welcome and thank you for joining the AFM 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 zero on their telephone. At this time, I would like to turn the conference over to Mr. Victor Barreño, Head of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good afternoon, and thank you for joining our Q2 earnings call. With me today are our CEO, Visi Massa, and our CFO, Paul Verheyen. ASM issued its second quarter 2026 results yesterday at 6 p.m. Central European time. For those of you who have not yet seen the press release, it's available on our website together with our latest investor presentation. As always, we remind you that today's conference call may contain forward-looking statements in addition to historical information. For more details on the risk factors relating to such forward-looking statements, please refer to our press releases and financial reports, all of which are available on our website. Please also note that during the call, we will refer to profitability metrics primarily on an adjusted basis. Reconciliations to the reported numbers can be found in the press release and in the investor presentation. And with that, I will now turn the call over to our CEO, Rishi Masao.

Thank you, Victor, and thanks to everyone for attending our second quarter 2026 earnings call. We will follow the usual agenda for today's call. Paul will begin with a review of our second quarter financial results. I will then discuss market trends and our outlook, followed by the Q&A session. I will now turn it over to you, Paul.

Thank you, Eism, and thanks also everyone for joining our call today. So let me start with the Q2 financial results. Revenue in the second quarter of 2026 amounted to €1 billion, EUR above our guidance of 980 million and on a constant currency basis revenue increased by 24% year-on-year and by 15% compared to Q1 26. Equipment sales increased by 22% year-on-year at constant currency and were driven by record high ALD sales. Spares and 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 FAP 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. 2nm related seals accounted for the largest part, while seals in the 3nm to 7nm nodes also showed a nice uptick. After the acceleration in Q1, mature logic finder seals remained at a solid level in Q2, with China continuing to account for the majority of these seals. Memory seals 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 6 months of the year, Logic Foundry was by far the largest segment, accounting for 77% of total equipment sales. Both the leading edge and the mature segments had a solid contribution. Memory contributed 15% of the total in the first half. This is slightly below the 16% contribution report for the full year 25, primarily explained by the phasing of shipments. We expect memory sales in the second half to be substantially higher than in the first half, driven by strong demand for advanced DRAM solutions. The remainder of sales, consisting primarily of power and water vapor, represents the relatively low 8% of total equipment sales in the first half. While the power, wafer and analog revenue increased compared to prior year, it was from a low base, reflecting the continued impact of software market conditions. For the second half, we expect the contribution from power, analog and wafer to increase. Turning out the profitability, the gross margin in the second quarter amounts to a strong 51.9%. Gross margin benefited from a favorable product and customer mix, including a continued strong contribution to the China market, and also the results from improved efficiency and productivity initiatives. For the full year, we expect gross margin to be around 51%. SG&A's 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's percentage of sales to be below 8.5% compared to 9.2% in prior year. Net RMB increased 22% year-on-year constant currency in Q2. Two, 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 constant currency and the adjusted operating margin remained at a very strong 33% in line with the record level achieved in Q1. If you look at the main movements below the operating line, financial results included a currency translation gain of 22 million in the second quarter, compared to a translation loss of $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 EURUSD, and related translation differences are included in our financial results. Our share of income from investments, reflecting our approximate 24.6% stake in HMPT, amounts to $9 million in the second quarter, up from $4 million in the year ago period. Let's now move to the balance sheet and cash flow. H&M's financial position remains on a strong footing and we ended the quarter with a cash position of $1.2 billion. Free cash flow increased to a record of $355 million in the second quarter, driven by strong profitability and an improvement in working capital days. In Q1, we still saw working capital cash outflow, reflecting the strong ramp-up in activity levels and the back-end loaded nature of that quarter sales. Days of working capital improved to 50 at the end of June compared to 69 at the end of March. We believe working capital remains well under control, although it will continue fluctuating from quarter to quarter. CapEx amounted to $63 million in the quarter, and for the full year, we continue to expect CapEx to be above the higher end of the guidance range of $150 to $250 million, with the largest part related to the construction of our new site and sculpt still. In short, the quarter once again demonstrates our ability to combine strong growth with continuous investment innovation while maintaining excellent profitability. And with that, I'll turn the call back over to Hisham.

Thank you, Paul. As Paul discussed, we delivered strong results with quarterly revenue exceeding the 1 billion milestone for the first time, despite increasing strain across the semiconductor supply chain. Supported by robust and 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. I4 scalers 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 node remains the largest driver of investment activity, supported by the ongoing capacity ramp and increasing adoption of gate-order-on 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 nanometers, 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 two nodes in the past couple of years. While the 3 to 7 nanometer nodes are no longer the industry's most advanced technology generation, they remain ALD and SEMS 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 nanometers, both in ALD and in APN. We are also very pleased by the recent wins for our modeling ALD offering at the 1.4 nanometer node. These trends position leading edge logic foundry to remain a key growth driver for AFN over the coming years. Let's now discuss the mature logic-foundry market. In mature logic-foundry application, particularly in China, demand remains 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 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 fondly continues to be a sizable part, But we are also seeing increasing demand from small days 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 increased output to address a 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 FinFest-based peripheral circuitry, which are expected to move to production in the 2028-2030 time frame. Synthetic-based peripheral circuitry is expected to deliver further improvement in performance and speed, while the transition to 4S2 cell architecture and vertical channel structure is targeted to enable higher grid density and continuous scaling. These technology transitions increase process complexity and are expected to drive additional ALD and EFI intensity, creating an attractive long-term growth opportunity for ASM. We reiterate our forecast that these transitions will increase our DRAM served available market by 400 to 450 million U.S. dollars over the next two nodes. Supported by expanding customer R&D engagement in 4X2 and FinTechPerry, we are targeting an increase in our demand market share. Innovation remains a key focus for ASM. As AI-driven demand continues to increase, the need for more capable and energy-efficient semiconductors. We continue to invest heavily in R&D to help enable key technology transition, including next-generation gate-order-run architecture and 4S2D-RAM. 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 ALG and Epitaxy, we continue to invest selectively in areas where we can bring differentiated technology to customers. One example is our plasma-enhanced CBT patterning solution that's gaining and encouraging customer engagement due to its excellent gap cell capability relevant to many applications. Although still in the early stage of adoption, it illustrates how, as a material discovery company, we can translate innovation in materials and process technology into future growth opportunities and gradually broaden our serve market. Let's now discuss the outlook. As communicated in our first release, we expect U3 revenue to increase to $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 company business, including solid sales in the 2 nanometer nodes, the 3 to 7 nanometer nodes, as well as the first meaningful contribution from the 1.4 nanometer nodes. We also expect our memory sales to show the 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 HVM DRAM and to a lesser extent by an improvement in memory demand in China. In the power wafer analog segment, we expect sales to increase in the second half from a lower base in the first half. Growth in this segment remains selective and is primarily linked to AI-related applications, particularly technologies supporting the increasing power requirement of data centers. The only segment expected to be done is mature logic boundary, 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. Since our investor day in September 2025, market expectations for WSE spending have increased significantly. Supported by strong order momentum and customer visibility, we now expect our 2027 revenue to exceed the top end of the 3.7 to 4.6 billion euro range we shared last year.

Thank you, Isha. 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?

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 N1 on their touchtone telephone. To remove yourself from the question queue, please press star N2. First question is from Sandeep Deshpandej, J.P. 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?

I mean, when you look at your guidance in the fourth quarter, you're close to one point, or rather implied guidance in the fourth quarter, you're looking at, say, 1.2 billion euros or so of revenues. would this be going up sequentially into the first few quarters of the year and how do you see that that trending and I have one quick follow-up I'll take the question so we are very positive indeed 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 a very early on they are they are equipment plans for 2027 and some of them actually even in 2028 so if you look into our revenue in 2026 we have said that the second half of the year is going to exceed 20% the first half making your calculation So the projection that we have made before in the investor meeting in September, where we said our revenue is going to be between 3.7 to 4.6, the lower end doesn't make sense from that point of view, because we're going to grow in 2027, and 2026 will be at 4 billion. So that's really one of the reasons we mentioned. We really wanted to make sure that you guys understand that we have to talk about this. And then, okay, we're talking about the higher range, the 4.6. I think, you know, based on the momentum that we see right now, okay, we see 2027 to be a very strong year for AFM and also for the industry. It's very early to give really specific guidance, okay, but let's discuss the trends that we're seeing right now for 2027. So, if you look into advanced logic and foundry, it's going to be really a key driver for us in 2027. This is supported by 2 nanometer nodes, and 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 minutely 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 would be the 1.4 nanometer HPM. So 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 efficiency, in power efficiency and performance are second to none. So we see customers really being very excited about that. But also we see strong growth in our memory business because customers are increasing their investment in new DRAM. We are putting more Durham capacity online in 2027 because of the very tight supply-demand condition right now. We also expect benefits from our expended position in Durham. I mean, Durham is good. And as you guys know, we are coming from a small base. But we have seen some good wins lately, and we have some wins. And because of that, we are very positive about Durham progress for us in 2027. Also, in the power wafer analog, we actually expect a recovery. We see some recovery happening right now. It's really starting, and we see it to continue in 2027. And this is really driven by power solution for that. Even silicon carbide, I mean, we also have seen the past couple of months some good activity in silicon carbide effing from that point of view. So all in all, you know, we expect 2027 to be a very strong year. And I think when we arrive in 2027, we probably will be able to give you more visibility on what's the number greater than 4.6 billion.

Regarding, you talked about on the release about this Moly win that you had. Is this an expansion of your current position where you have already had some logic wins in the Molybdenum market, or is this part of those wins you already had?

No, this is new. I mean, we talked before that we had some wins in Mali, and actually the past quarter we had actually new wins in Mali, we feel very excited about this market. This is the first time that KSM is for metal deposition market, and the customer likes the solution, and we're really excited about the latest wins that we have.

Thank you so much. Thank you, Sandy.

Next question is from Nigel Van Putten, Morgan Stanley.

Hi, thanks. Good afternoon. First question would be on the mature logic foundry segment. Unlike all the other segments, I think the entire industry is not growing into the second half. And I guess interesting the same trend we've seen last year. So just trying to understand order behavior from those customers. Would it be fair to say there's a seasonal pattern there? And maybe on that, would it be fair to assume that revenue could or maybe should recover in the first half of 27, or do you see a reason to caution against that? That's my first question, thanks.

Yeah, maybe on CureLogic Foundry and I, as Paul speaking, what we see indeed in the first half, actually in Q1, we saw an acceleration, strong acceleration, and although we never know for For sure, we mentioned that this could be related to the potential new export controls that of course are being debated but are so far still not clear if they will come and in what form or shape they will come. But for sure, we believe it plays a role why we see customers accelerating orders. In the second quarter of this year, we saw actually again a very strong quarter. So basically, as I think already said in the Q1 earnings release, that we would expect a stronger mature logic finding in the first half compared to the second. That's exactly what we see now, both in orders but also in, of course, in revenue that will follow. But the good news is that, as Susan already indicated, that we see that it's actually compensated through growth, although both from a low base in memory in China and in power wave analog. Then for next year, I don't want to say too much because, as you know, visibility in China is always low, but so far it looks reasonably good, I would say. But, yeah, there is some level of uncertainty, of course, around export controls. China's visibility is low, but based on everything we know today, it looks quite decent. But, yeah, to be confirmed, of course, going further into the year.

All right. That's very helpful. So, Paul, another question for you in terms of capital allocation. There's now $1.2 billion on the balance sheet, $900 more in investments. I think it's fair to say that free cash flow will stay very positive in the next couple of quarters. So, oh, and the share seems to be trading as a discount, both to the historical valuation also pairs. So, to me, the obvious decision would be to acquire shares in a meaningful way. But, you know, clearly you seem to have a different opinion. So, I guess my question would be, if you're looking at more sizable opportunities from an M&A perspective, perhaps in advanced packaging, and any color there would be helpful.

Yeah, we, as you know, we continuously scan the market for opportunities in terms of M&A. But as we always said, it's not like that. There's a huge number of things that we believe are value creating to that. But if there are, and if we will find them, we will act. Two, we also have announced a share by back program which we will start in the second It's not huge. It's $150 million, but at least it's what we communicated already with our Q1 result release, a full-year result release that we will start at now. And then we'll see going into next year how we deal with excess cash. But you're right, we are looking at M&A and if we can find opportunities, we will act on it, but there's nothing now at this moment that I can talk about.

Much appreciated. Thanks. Thank you, Nigel.

Next question is from Didier Shumama, Bank of America.

Good afternoon, gentlemen. Thank you for taking my questions. So my first question is really for Hichem. Can you help us understand how you think about ASM revenue growth over the course of 27 and 28 relative to WFE. I think consensus expectations are for, you know, 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 ALDNAP layers, your new wins in MOLLE metalizations, and maybe in 28, the beginning of a benefit in 4S squared, you'd be comfortable to be at least in line.

Just wanted to hear your thoughts around that and I've got a follow-up thank you yeah okay thank you very much for your question I think that based on what I mentioned really earlier we are very very positive about 2027 we really are so whatever the market is going to grow we actually is going to grow at that market or even higher than that I think that we are very positive about the our position in leading edge logic and foundry our expanding market sharing 1.4 nanometer which is actually happening in 2027. We are very excited about our growth in DRAM with new applications and rents in both ALD and PTAXI. What can I tell you? If the market is going to grow 30%, then we're at least going to grow at that level. There's no question about it.

Makes sense. Thank you. The other question was about 4S2, so it might be a bit early to talk about that, but I think at least some of your customers are really investing. in 4S squared transition towards the end of 28 for maybe 20, 29, 2030 type of accelerated ramp. Some people talk about even more optimistic assumptions. But what I wanted to hear from you, Ishem, is how should we think about your market share and ALD and EPI in the transition to 4S squared? Historically, as you mentioned, you've got a, let's say, weaker competitive position in DRAM versus leading edge logic boundary. But obviously, you have a very strong position in single-way for ALD and taking share in EPI. So, would it be fair to have something in between these two market share? Or do you think you can even hope to get a single-way for ALD or EP market share consistent with LineageLogic?

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 customers. for Foresquare for both our ALD and EPI technology, but even more than that in some of the CBD technology that we have. Customers really are working with us on these applications. We understand that Foresquare is going to start in 2028, continuing to 2030. So, yes, we're coming from very small market penetration, but, you know, we are really excited. I mean, if I look into ALD, I mean, definitely, you know, there's more ALD layer happening in the thin bed. I think 4S2, with 4S2, there's going to be more thin bed. We're very excited also about the architecture, 4S2 architecture, which needs some ALD. both German ALD and P-A-L-D. EFI, definitely, we have gained share, and we think that our solution is being accepted by our customer. We're already in HVM in EFI with one customer, and we're getting there with the other customers. So, overall, you know, things are very positive from that point of view.

Right. Can I just squeeze in a quick one? I wondered, you mentioned the strength of 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? Because my mind, as we move into 1.4, you know, next generation, get around, and also 4S squared, you know, those material-based enhancement technologies will require the best precursor technology. So I just wondered how you feel about your competitive position versus your peers.

I think, you know, because of our ALD experience that started since 1998, we have a very good understanding of precursor and chemistry. And because ALD depends on that, okay? And actually, because ALD is the best technology to develop new material. So, to develop new materials, we use ALD. And with that, you know, we have the experience and the expertise within the company to develop new precursor. And we have used this expertise all along to develop new ALD processes. But also, I mean, for that, okay, we call ourselves the materials discovery company. We are discovering new materials actually every day. And these materials, we have used them for ALD, for high performance, because ALD provides high performance benefits. But also, some of these materials that we do are actually providing some benefits, for example, energy efficiency. We're taking also our material tech know-how and expanded not only to ALD, but also to other parts of our business, like EpiTaxi and PE CBD, and we see significant benefit for us. So what can I tell you? I'm very excited. I think we're using our core competency, which we had for ALD and precursor knowledge and so on, and we expanded to other parts of our business, and we see significant acceptance of that from our customers.

Thanks very much. Thank you, Jay.

Next question is from Francois Bovigny, UBS.

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

Okay, I'm going to have Paul answer your question.

Yes, so Francois, you're right. In H2, it's mainly capacity-driven, 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 27, maybe one or two tools this year, but meaningful revenue in 27. So, as a result of that, you will see further growth as well in 27. on top of capacity expansion.

Okay, and which application?

Yeah, I think we're not going to talk really about the applications because it's really customer-specific, but let me tell you it's a large application.

Okay, thank you. And my follow-up is a bit of a follow-up to Didier's question and digging a bit more on 27. So if I look at 26 and your guidance, even if I take a conservative number, you're going to grow 35% at constant currency most likely, which is above WFE most likely this year, which is quite remarkable given the memory, a lower exposure you have. Now, 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 I mean, it's not at least we are talking about, it's the gap the outperformance of the value 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. So is that a fair representation or am I missing something?

I think you're not missing anything and you just heard me say that we AFM are very optimistic and positive about 27 and beyond. We're really excited about our position.

Great. Thank you.

This question is from Aditya Metuku, HSBC.

Good afternoon, guys. Thank you for letting me on. My first question is just on the performance you talked about in the last couple of answers. You know, WFU numbers, if you look at it, depending on whose numbers you look at, you're basically looking at 30 to 40% growth in 27, potentially another 30% after that in 28. So if I follow on from the answer you gave to the previous question, you're essentially talking about potentially, you know, maybe 40%, you know, 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 and I've got a follow-up?

Yes, what we've said is that as a minimum we expect to grow in line with WP and most likely more. Ishim has explained the trends that we see in 27. I'm not going to do the math for you, yes, there's also other, let's say, elements that play a role. I talked about China, although today we are still positive about China, based on everything we know today, it looks actually quite good, as I just mentioned to, I think it was Nigel asked the question. But at the same time, there is low visibility, so things can still change, but overall, I can only repeat what we've said already, we're very positive, we have some nice winds, the The trends are looking good, are looking in our favor and, yeah, indeed if we grow more than 30%, yeah, you can do the math and you take 26 times 1.3 something, so you're correct, Okay.

And then just as a follow-up, some of your peers have been talking about potential delays to the 4F square transition, partly because your memory customers want to focus on adding capacity at 6F squared to meet the, you know, very strong demand that they're seeing, you know, and 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, you know, 6 to 12 months ago, any color there would be helpful?

Thank you. yeah I would take this question from you yes whenever you transition to any new technology mode architecture you might see some hiccups and so on and so forth yes the we are very close our customer and we see some of them having some some issue for the transition to four square but for us to be honest with you this is a this is not consequential or from that point of view because even in the 6S squared right now technology node, customers want to have performance. And we see penetration both in both ALD and EpiTaxi right now in the 6S squared technology node. So performance is needed. And just to be honest with you, maybe sometimes you need it more before you transition to the second generation. And if you're not getting the benefit from architecture, you need to get the benefit from material. So it's good for us.

Got it. Thank you.

Next question is from Stéphane Horry, Oddo BHF.

So, good afternoon. Actually, my first question is about the 1.4 nanometer and the MOLI recently in ALD that you have discussed. And, you know, I'd like to understand if we're talking about something that could be sizable already in 2027 and if you can maybe come back on your global market share at at 1.4 nanometer if it's just a small improvement or something more significant and I have a follow-up thank you so what I mentioned thank you for your question Stefan I mean the way to answer your question is that first we Yes, we have incrementally won a couple of more applications, the past quarter in molybdenum, which we are very excited about, and this is going to happen in the 1.4 nanometer technology

As I mentioned in previous calls, I mentioned that molybdenum is doing, that optimization is going to happen gradually from one generation to the other, and because metalization, you have dozens and thousands of layer so I mean so when you're winning you know these these ones even to this layer yes it's very good it's beneficial but it's not a very huge market for us it's really significant because this is a market that we have never 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 so overall this is exciting time but also the same time molybdenum just starting in the industry and with more and more generation you're going to see more and more implementation and proliferation of the molybdenum into the node so incremental this is an incremental benefit for us and it's going to add to our revenue and I mean this is really for me this is very exciting I think that our strategy to move into metalization metal deposition is working and we also feel very positive in the future and you'll be developing also new precursor new technology for Molly which is going to be the more and more differentiated in the future and we're working with our customers for this so So things look good from that point of view.

Okay, thank you. And the second question is about the gross margin trajectory, because you have always been a bit conservative with your pretty wide guidance from 46% to 51%, and you've been more or less constantly above. So you explained this with the size of China, which is quite easy to understand. But when we heard the conference call of ASML, they 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. So, are you thinking about expanding your gross margin above the high end of the current guidance, which is 51% and are you thinking about price increase, I mean, the reasonable price increase, but still price increase that would help the gross margin?

Yeah, thanks for the question, Stefan. On the margin, we've seen it in this quarter we guided around 51%, which indeed is a high It could be slightly higher, 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 others also to deal with some of the cost inflation that we see happening from our supply base. So, as a minimum, we want to pass that on into our supply chain. Two, we still do value-based pricing. We still believe for the medium to long term is the best way to do it. But what you see is one of the reasons why the margin is so good is not only China. China is definitely still a part of it. But also because we have a relatively high share of advanced products, which typically, not always, but typically you have a higher margin which is value-based because the more complex certain deposition rates become, the more complex our tool becomes, the higher the value we can offer. We, of course, try to also reflect it in our price. That's another reason why we have been actually at the higher end, so maybe even above the higher end of the range, so that you should also take into account. And last but not least, we talked about a number of initiatives and prior calls on the standardization platforms, on merchant transit. So we also put a lot of focus and effort on becoming more efficient and working on our costs. So that's another element. So if you add it all together, you get what you see now. And of course, we will try to continue to do that and see if you can get it structurally at a higher level. But for now, we're not changing the guidance other than that you said for this year, we will be around to around 51%.

Thank you, Stefan. Okay, thank you very much.

Next question is from Jacob Bluestone, BNP Paribas.

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

Okay, so So, to answer your question, I think that, yes, we heard the news about DQV in China. We also know that there's competition in China from different players. In China, actually, we're working on, like we mentioned, we're working on natural logic node and also we work on memory and power rate analog and not of course we don't ship the tools for the leading edge devices and we see our position to be good you know in those in those markets I mean the competition is there but I think we've been we see some some wins and continue to really to do well from this point of view. I think by keeping really continued on innovation, which we are doing incessantly for us to really compete in the China market, which is very cost-competitive from this point of view. So we have to improve our cost of ownership, and we're using innovation technology and process innovation to really achieve a lower cost of ownership. And we've been able to win in that area. And I mean, that's really one of the reasons that in the Matthew notes, which is, you can think of it as very, very 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. So right now, I think 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 but if we continue to innovate and which we have done both in technical benefit and also in cost of ownership production I think we should be able to continue to do that.

Understood. Paul I think you mentioned export controls potentially earlier just interested are you seeing any sort of or are you currently seeing in the ordering extra inventory build because of that? I'm not sure if that's something you can comment on.

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

Thank you, Jacob.

Next question is from Tim Schulter-Merender, Rothschild & Co. Redburn.

Hi there. Thanks so much for taking my question. The 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 EPI, CMP as a tuck-in. I just wanted to ask, is there strategically an asset or a capability that you don't have right now that you think would fit very well? And number two, just an update on how the integration of those is going, and then I had a follow-up.

Is there a strategic capability? Yes and no. What you've seen in the past mainly is that we accelerate access to certain technology. Quite a few things we could have done ourselves, but for a number of reasons, because there was an opportunity we decided to do it 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, but also it helps us in our strategic objectives to grow in advanced packaging. So there was another reason to do it, but again, there was also a clear leverage with some of the deposition that we do, so that's always important. So, we have typically a choice to do things organic, but, of course, doing things organic takes a longer time. But, 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...

Very clear. And then just looking at the revenue mix, I mean, I can't imagine it's ever been any better than it is right now in terms of just the strength in these key segments that are all showing incredibly strong growth into next year. You know, as we talked about blowing through the revenue guide, Surely a very strong tailwind on gross margin for 27, 28, just given the size of those numbers. What are the off-takes? Because, I mean, you talked a lot there about productivity. Is there anything in the supply chain, lead times of suppliers, anything that we should think about that's going to sort of curtail the enthusiasm for the gross margin trajectory on a kind of one- or two-year view? Thank you.

So you're right. I mean, the trends that we see in the market and our position in the market looks really Misham talked about it. He named it one by one, so I don't have to repeat that. At the same time, I talked about cost inflation, so there is definitely cost inflation that we need to offset through pricing. 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 are, they don't put this on, they don't let's say give it away, they will fight for it. So at the same time, increasing prices is not always easy, but sometimes we can. Again, depending on the value that we deliver, so there are 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, and if you add it up over a number of years, it also starts to count. I talked already about China and export controls. there could be some of that there's some level of uncertainty but that today it looks good but yeah we'll see what will what will happen there we don't know so overall things look and look pretty good I mean I cannot say otherwise so thanks very much thank you next question is from Tami to Berenberg Tami to your line

Hi, sorry, technical issue. Thank you for squeezing me in. So firstly, on your 1.4 nanometer outlook, did you see more customers getting more aggressive on 1.4 nanometer from a time-high and volume perspective compared to last quarter? And also the second question is, can you talk about your China business mix potentially into 2027, i.e. mature-edge Foundry Logic has been very strong driving China in this year. Do you see memory in China picking up and sustaining the strong momentum China has?

I think that it's very clear that for the 1.4 nanometer node, it's already public. There's more than one supplier for that node. And as such, that's number one. Number two, you know, 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. So based on that, you know, based on the fact that you get more performance and energy efficiency, the investment in 1.0, and the fact that's okay, you know, also the 1.4 nanometer, there's publicly more than one supplier. Yeah, we see investment in that node right now. from from that point of view and yes that's happening and you know I mean to be honest with you I mean we I mean we play in the front end of line of the devices and and things from that nature in the transistor in the gate around so I mean we are the we might be the first company that see and have a visibility to what's going on from that point of view because I mean happy is one of the first tools they need to an LD would be the one of the first tools that you need to order in a start from the point of view since it's on the transistor never that you see that so we have good visibility and with our very strong

position there we are very confident about what's going on under 1.4 nanometer note and maybe on China they mean what what what we see today mean first maybe the disclaimer, because China has always low visibility, so the more detail we go, the more swings you will see. But based on everything we see today, what we expect next year is, again, the bulk will be mature or low defundry, but yes, there will be further growth in memory somewhat, but from a low base. We're not very strong in memory in China so far, but we would expect it to grow unless in varying unforeseen circumstances, so again, actual controls, you never know. and we would expect the same in far-wave analog where we see now, let's say, also the start of a recovery still from a low base, but we would expect that to continue into next year.

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?

In the previous quarter, we already knew which customers we would, let's say, shift 1.4 nanometers, so nothing changed, and maybe other than that maybe it has increased a little bit overall, but no, no, we're working with all customers, as he already said, and that already was known also last quarter.

Okay, thank you.

Thank you, Tammy.

Final question is from Robert Sanders, Deutsche Bank.

Yeah. Thanks for taking my question. I was just wondering about your supply chain and whether you – your backlog, in particular, how much of your 18-month deliveries over the next 18 months are kind of already sold And is your supply chain now a potentially bigger limiting factor than clean room availability? And I have a lot of things.

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

Of your backlog today I mean 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?

As Ethan said we get very good forecast from our customers there are some accelerations in orders but you know our order book typically is six to nine months so so that didn't really change maybe it's a little bit better than than normal but what has changed is let's say the commitment although it's not yet a formal order but the level of commitments and and transparency that we get from our customers that's definitely Yeah, more firm than what we have maybe seen in prior years. So that's positive. But as we said in the press release, orders in Q1 were, sorry, orders in the first half were very strong. You also expect strong orders in H2 and on the back of that, yeah, that's what we said about our confidence level in 27.

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?

I would not talk about the grass release today, we don't see that yet. We do expect further growth again from a low position in memory in China, but it goes too far to say that that would be an aggressive growth. is if that's coming we haven't seen it yet in our in our projections there are no more questions registered at this time okay thank you everyone also on behalf of the patient and paul for attending our call goodbye ladies and gentlemen thank you for joining the conference is now over

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