Avino Silver & Gold Mines Ltd.

Good afternoon. This is the Coral School Conference operator. Welcome and thank you for joining the ASM International third quarter 2024 earnings call. As a reminder, all participants are in listen-only mode. 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 Vareno, How to Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome everyone to our Q3 earnings call. I'm joined here today by our CEO, Richie Massad, and our CFO, Paul Verheyen. ASM issued its third quarter 2024 results yesterday at 6 p.m. Central European time. For those of you who have not yet seen the press release, it is available on our website, along with our latest investor presentations. As always, we remind you that this conference call may contain information related to ASM's future business and results, in addition to historical information. For more information on the risk factors related to such forward-looking statements, please refer to our company's press releases and financial reports, which are available on our website. Please further note that reference in this call to profitability numbers will be primarily on an adjusted basis. Details of the acquisition-related PPA expenses can be found in the press release and in the investor presentation. And with that, I will now hand the call over to Hicham Massad, CEO of ASM. Thank you, Victor, and thanks to everyone for attending our third quarter 2024 earnings call. The agenda for today's call is as usual. Paul will first review our third quarter financial results. I will continue with the discussion of the market trends and the outlook, followed by Q&A.

Thank you, HM, and thanks everyone for joining the call. In this third quarter of 2024, our revenue increased to a new quarterly high of €779 million and 26% at constant curve compared to the third quarter of last year. Revenue in the quarter was at the upper end of our guidance of 740 to 780 million euro. Spares and service sales grew by 45% year-on-year at constant currencies. This growth was above trend, including stronger than expected demand from China, and with a relatively strong quarter for our outcome-based services. In Q4, we expect growth to return to a more normal level again. Equipment revenue in the third quarter increased 22% of constant currencies year-on-year and was led by our ALD product line, which accounted for the majority of our equipment sales. By customer segment, revenue in the third quarter was led by memory, followed by foundry, and then logic. Combined logic foundry continued to account for the largest part of revenue and decreased slightly both year-on-year and compared to Q2. Gate all around had again a solid and increased Memory sales continued to grow significantly following the strong order intake in the previous quarter. Memory sales consisted mostly of high bandwidth memory-related DRAM applications, which grew sharply. 3D NAND sales grew strongly versus the low level in the third quarter last year and were stable compared to Q2 and represent the smaller part of our memory sales. Sales in the power analog wafer segments were fairly stable compared to the second quarter. Year-to-date, sales in this segment are down by a significant double-digit percentage. This is compared to the very strong level last year and reflecting the soft demand and inventory corrections in the industrial and automotive end markets. Moving on to the gross margin. In the third quarter, gross margin came at 49.4%, up from 48.9% in Q3-23, explained by mixed effects, including increased sales year-on-year from China which was somewhat higher than expected. For H2, we expect China sales to be below H1 sales as stated before. SG&A expenses increased 1% year-on-year, reflecting our ongoing focus on cost control. For the full year, we expect SG&A to be slightly up compared to 23, excluding the incidental charge of $8.4 million in the second quarter. Net R&D expenses increased by 36% year-on-year and 16% compared to the second quarter, driven by headcount growth as well as higher amortization charges and lower capitalization. As indicated in previous quarters, several development projects are entering the commercial release phase this year, which means amortization of the related capitalized development expenses has started. Also in relation to the completion of these projects, Capitalized development expenses decreased in Q3 because some resources previously allocated to those projects are now being used for a number of months to support the commercial release and must therefore be expensed instead of capitalized. Before, we expect net R&D expense to increase between 15% and 20%. We also booked a one-off gain of €7 million on the divestment of a building in Singapore, recognized as a separate line item other income and not included in operating expense. Including this one-off gain, operating profit margin increased to 28.2% in Q3, up from 25.3% in the same period last year. The one-off gain of €7 million had a positive impact of 0.9% on the operating margin. Below the operating line, results included the currency translation loss of 48 million euro in Q3. This compared to a gain of 16 million euro in Q2 and a gain of 3 million euro in Q3 of last year. These translation results mainly relate to our cash position, which we hold for the largest part in US dollars. Results from investments, which reflect our 25% share of the net earnings from ASMPT decreased €0.7 million in the third quarter, down from €4 million in Q2 and slightly up from €0.4 million in Q3 of last year. Asian PT results were impacted by the continued downturn in the back-end equipment markets. Let's now turn to Asian order intake. In the third quarter, our new orders increased to a strong level of €815 million, up 30% year-on-year at constant currencies. In terms of customer segments, foundry was the largest segment in the third quarter, followed by memory and then logic. Combined logic foundry accounted for more than half of equipment bookings and were up compared to the second quarter. Gate all-around orders were again solid and increased sequentially, with most of the tool orders now for high-volume manufacturing. Mature logic foundry orders were also up sequentially but down compared to last. Memory orders slightly decreased compared to the second quarter, but were still at a very strong level. DRAM orders were roughly similar to the strong level in the second quarter, and again driven by high demand for high-benefit memory applications. 3D NAND orders decreased slightly compared to the second quarter, and were still at a fairly modest level compared to our DRAM orders. Orders in the power analog wafer remained at low level in Q3. Bookings from China dropped somewhat, both year on year and compared to Q2, but were still slightly higher than we anticipated at the start of the quarter. The balance sheet. We ended the quarter with 747 million in cash, up from 637 million the previous quarter. This increase was largely the balance of a very strong free cash flow of 242 million euro in the quarter, partly offset by cash spent on share buybacks. Next to the increased profitability, the free cash flow was primarily driven by lower working capital in the quarter. Days of working capital decreased to a relatively low level of 48 days, down from 64 days at the end of June. Working capital fluctuates from quarter to quarter, and in Q4 we expected to be back in the target range of 55 to 75 days. We spent 13 million euro on capex during the third quarter. Furthermore, we spent 93 million euro on share buybacks during the third quarter. On July 25th, we completed the 150 million euro buyback program that we started last May. Combined with the dividend paid earlier this year, we returned a total of 287 million in cash to our shareholders this year, up from 223 million last year. And with that, I hand the call back to Hisham.

As just discussed by Paul, we delivered a solid performance in the third quarter despite continued mixed market conditions. Growth in the major economies has been relatively soft this year, and the forecast for next year does not look much better. AI is currently the main driver for the semiconductor industry, in particular boosting data center growth. Other end markets, such as PCs and smartphones, appear to be bottoming, but expectations for a more sustained recovery have again been postponed. The industrial and automotive end markets are still in a cyclical downturn with limited visibility for improvement. This picture in the end markets is also reflected in the spending patterns of our customers. Semiconductor devices that enable AI are the main areas of wafer fat equipment spending. In particular, gate all around in advanced logic foundry and high bandwidth memory in DRAM. If we first look at the leading edge logic foundry segment, momentum in gate all around remains strong. Orders for gate all around related applications were again solid in Q3, and we expect a further increase in Q4. The tools that we are shipping now are in support of the high volume manufacturing ramp in 2025. Our customers have been talking about substantial demand for two nanometer from their customers, including from AI chip makers with expectation for two nanometer being a larger node than three nanometer. News flow in this segment over the last couple of months has somewhat impacted the outlook for leading edge logic company spending in 2025. But it's still within the range of outcomes that we assumed last year when we presented our 2025 revenue targets. We are still projecting a substantial increase in our K-tolerant related sales in 2025. leading edge logic foundry spending was relatively soft for most of 2023, as well as in the first part of 2024, and is now picking up with the majority of the spend on the gate all around nodes. Second, the transition from Finset to gate all around has meaningfully increased our addressable market with several new ALD and EPI applications. This is reflected in our previously communicated estimate of $400 million SAM increase per 100K wafer capacity. And third, with customers now moving to the phase of high volume manufacturing, we can reconfirm that we have maintained our strong ALD market share in the transition to two nanometer While in EPI, we have substantially increased our share. In addition, we have strong traction in R&D with all leading customers for the next transition that are expected to move into volume manufacturing in the 2026-2027 timeframe, be it the subnodes of 2 nanometer or the next major node of 1.4 nanometer. This transition will further extend our addressable market, including the introduction and wider adoption of applications that we discussed in our investor day, such as metal ALD for interconnects and contact VS, backside power distribution, selective ALD, and also increasing FE intensity. In the mature logic-friendly business, which for us is mostly about China, the demand trends are almost opposite to the leading edge. In 2023, this business was strong, and in the first part of 2024, even at an exceptional level, compensating for the soft conditions in the leading edge. Now, demand in mature large economy has started to come down, as several customers in China are moving to a digestion phase following the substantial capacity investment in previous periods. Next, our memory business. Demand continues to be strong and mostly driven by high bandwidth memory. Our key exposure here is our HiK MetalGate ALD technology in which we are a leading supplier and that's used in the high speed DRAM chips that go into the HPM stack. We expect our memory sales to grow at a very strong rate for the full year with a percentage contribution in 2024 potentially approaching the previous peak level of 20% that we achieved a couple of years ago. In 3D NAND, demand has increased this year for our ALD gap-filled solution, but it's from a very low level last year and relatively small compared to DRAM. We are working with customers on new ALD applications for the next device generation, but in the foreseeable future, The 3D NAND business is expected to remain the smaller part of our memory sales and mostly driven by technology bias. Next, our silicon carbide business. As most of you are probably aware, conditions in this market segment have continued to soften. We are now immune, and while we have reiterated our forecast for a double-digit sales increase in this business line in 2024, the rate of increase is substantially softer than what we still expected at the start of the year. It's too early to predict if the market will start to recover in 2025, but the long-term outlook for wide bandgap materials such as silicon carbide is bright due to the increasing power efficiency requirement in EVs and longer term also in other areas such as data centers. In addition, we are in an excellent position to further expand our market share. Since the acquisition of LPE, we have already won several new customers across the globe. Earlier this month, at the silicon carbide conference, we announced the launch of our first 200 millimeter single wafer cluster tool, DPE208. We expect this tool to be a game changer. Similar to our other silicon carbide IP tools, The P208 offers best in-class film performance, excellent within wafer and wafer-to-wafer uniformity, and the lowest level of defectivity. These benefits will only become more important as our customers are planning to transition to the larger 200 millimeter wafer size. New in the P208 is its dual chamber platform, compared to the single-chamber architecture of our existing PE108 tool. This substantially increases throughput and lowers cost of ownership for our customers. We have already received multiple orders for the PE108 from several leading customers. Finally, China. As Paul discussed, our China sales held up slightly better than we expected in the third quarter. We still project, however, that revenue will be down in the second half compared to the first half, and that Q4 will be below Q3. The main delta from the first half to the second half is the mature logic foundry business in China, which was at an exceptional level in the first part of the year, and as just discussed, has now started to normalize. Let's now discuss the guidance that we issued with our press release yesterday evening. For Q4, we expect sales to be in the range of 770 to 810 million euros. Taking the midpoint, this means that second half sales are expected to be up by slightly more than 15% compared to the first half, and that full year 2024 sales will increase approximately 10% year on year. we expect bookings to decrease in Q4 compared to Q3. This is mostly explained by some orders that were pulled in from Q4 and that drove the upside in Q3 bookings. Compared to Q3, we expect gate all around orders to further increase in Q4 and China orders to be down. Looking at 2025, we now expect our revenue to be in the range of 3.2 to 3.6 billion euros. This compares to our previous target of revenue of 3.0 to 3.6 billion euro in 2025. The most important driver for us in 2025, as just discussed, will be the increase in GAPE all around related revenue. In addition, following a strong increase in 2024, we expect memory spending to be sustained at a healthy level in 2025, Again, mostly supported by high bandwidth memory. On the other hand, the power analog wafer market is not expected to recover before at least the second half of 2025. We expect China spending in the segments that are relevant for ASM to be down somewhat in 2025, but not falling off a cliff. And that includes our assumption of a limited impact from new export control regulations. Before we open up for Q&A, a few words about the longer-term outlook for ASM. After almost six months in my new role as CEO, I have only become more convinced about the great opportunities that lie ahead for our company, not only in the coming years, but also in the longer term. AI is expected to enable new and market applications and to support productivity gains in many sectors and industries. At ASM, we are using AI as just one example in the process of screening future ALD materials. This helps to increase the efficiency of the process, accelerate the time to market of new ALD applications, thereby strengthening our competitive differentiation. As AI functionality is expected to move more and more to the edge in the coming years in PCs, in smartphones, and also in industrial applications, broader segments of the semiconductor end market, in addition to data centers, are likely to see accelerated growth. To address the increasing performance and especially power efficiency requirements of AI applications, Demand for the most advanced semiconductor devices is expected to rise. This plays to ASM's strength as the next generation devices will bring smaller geometries, more 3D structures, and new materials, which in turn will require more ALD and EPI steps. We continue to invest in our infrastructure and in R&D. And we have great people in our company to execute and deliver on these growth opportunities. Also very important, we have the early and strategic engagement with leading customers. And I'd like to thank them for their continued trust that are key to enabling the next generation semiconductor technologies. With that, we have finished our prepared remarks. Let's now move on to the Q&A. We'd like to ask you to please limit your questions to not more than two at a time, so that everyone has a chance to ask a question. Okay, operator, we are ready for the first question, please.

Thank you. This is the Coral School Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one under touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Andrew Gardner with Citi. Please go ahead.

Good afternoon, gentlemen. Thank you for taking the question. I just was interested in a bit more detail around the date all around transition. Hashim, you mentioned that you're now shipping tools into the HVM platform. production lines. So we've seen the shift from pilot to HVM begin. I'm just wondering about your visibility into next year. You've revised your guidance for next year, but for ALD in particular, given the timing of the ramps, would you expect a stronger first half than second half? Or, you know, any additional color around the timing would be helpful. Thank you.

Okay, thank you for your question. I think when we limit our comments here to the full year 2025, it's really too early for us to be specific quarter or over quarter of the trajectory within 2025. Regarding backlogs and sales in next quarters, yes, there's of course a relationship, but it's not linear. Sometimes we work on the basis of forecasts and can shift the tool within the same quarter as the order.

Okay, thank you. And a second one, if I could, you also mentioned the sort of the strength and engagement that you're having below the two nanometer nodes. You shared the sort of the 400 million of additional addressable market for every 100,000 wafer starts per month for two nanometer. Do you have a similar sort of guideline for us at the sub two nanometer nodes?

No, we have at this moment in time at least not externally communicated. I think what we typically communicate, Andrew, is that with every, let's say, major node change, there's a double-digit increase, a meaningful double-digit increase. But we have not, let's say, quantified precisely what that means in terms of incremental SAM per 100 K labor starts per month at this stage. We might consider to do that in the future, but that has not yet been done. but it will be again a step up. Thank you.

The next question is from Tiffan Ouhi with OdoBHF. Please go ahead.

Yes, hello. Good afternoon. Actually, I've got two questions. The first one is on China. I would like to come back on what happened during the quarter. You talked about pulling orders in Q3. Could you help us to understand To quantify, I understand there was also an impact on revenues, then on gross margin. Also, quantification here could be helpful to understand what's going to happen in Q4 and what would be, for instance, the gross margin without these additional revenues from China, and I ask for a follow-up.

Thanks for the question, Sam. Indeed, we saw somewhat stronger than expected sales and orders in China in Q3. It did not change our view that, as we just said, for the second half that China will be below the first half and where we also said that Q4 will be below Q3. So that still stands. The orders that we saw were amongst orders related to to spares and services. You've seen the relatively high growth in spares and services, which you should not get used to. We see this as more an incidental quarter, which was partially, not only, but partially contributed by China, but also because of good growth in our outcome-based services. Then, in addition, we saw some higher sales in memory in China, which, as you know, is the smallest segment over a number of quarters. Of course, from quarter to quarter, it can be different a little bit. But if you take a number of quarters, the smallest play for us in China is memory. But this quarter, it was relatively high compared to other quarters. But it doesn't change the fact that it's still our smallest play in China. So that was another, let's say, dynamic that we saw in Q3. And I think also material logic found was maybe slightly higher than we initially thought at the beginning of the quarter. Then, obviously, that has, as you all know, typically everything else equal a creative impact to margin. So knowing based on our view today and expecting that Q4 China sales will be below Q3, it is also likely, again, everything else equal, because there's other elements as well that play a role in the margin development, but everything else equal that indeed margin in Q4 would come down compared to Q3. That's a very fair assumption to take into account. I hope with that I understand. I prefer not to guide specific on margin development, also because there's a lot of impact, as you might appreciate, in terms of mix, so it's pretty hard. We have several scenarios, of course, that we take into account. There's always pulls in and pulls out every quarter, so it's difficult to precisely say this quarter, but it will be somewhat lower than that. we will not be falling off a cliff. So the same remark that we say for revenue, we can also say for money.

Okay, thank you. And so the second question is about the guidance for 2025 now that you have reworked a little bit the assumptions. It's a bit of a general question that what needs to happen for you to be at the top end and what needs not to happen to be at the bottom end. Some general ideas would be very helpful. Thank you.

The reason for actually, let's say, increasing the bottom end of the range is based, one, first and above all, maybe get close to next year. So there's a little bit better visibility, but there's still quite a few moving parts, as you know. And two, We, based on everything we know today, and also based on all kinds of external research, we believe that the WFE market will continue to grow next year compared to this year. And with that, given that we have basically guided for revenue this year north of 2.9 billion, we would expect to grow as well next year, and which would bring us then, of course, higher than, let's say, the lower end of our range. So the first, and I think most important one, will be the development of the overall WFE market. The second one, of course, will be the mix development within that market. If leading edge goes faster than non-leading edge or mature, that's, of course, better for us and would bring us more close to the higher end of the range compared to the lower end of the range. Of course, if, let's say, somewhere in the year, as Hichem already said, some markets that today are still sluggish or in a cyclical downturn, even when they start to recover, that will also, of course, be a positive for next year. Yeah, I would say the logical things that you would expect, but the overall market is, I think, the most important data point, and the second one is the mix, of course, in that overall market.

Okay, thank you.

The next question is from Aditya Metuku, HSBC. Please go ahead.

Yeah, good afternoon, guys. Thank you for taking my questions. So firstly, I just wanted to get some clarity on OPEX in 2025 to the extent that you're able to comment. How should we think about R&D and SG&A growth in 2025? Any color there would be appreciated. And then I've got a follow-up, which I can ask afterwards.

In absolute terms, for sure, R&D will continue to grow for two reasons. One, our growth investments will further increase, given, again, all the opportunities that we see ahead of us. And two, amortization, as you've already seen in this quarter, was up, I think, 6 million, so quarter and quarter. simply because we have started to amortize a number of projects that are now into commercial release mainly related to gate all around type of applications. Capitalization you also saw this quarter was higher. I would expect that maybe not in Q4 but beyond that to get back to a higher level than we have seen in Q3. That was actually even lower than what I would have expected, to be honest, at the start of this quarter, but that was mainly for the reasons I mentioned. So, anyhow, adding that all up, you will see an increase in R&D. As I said before, it is even possible, but don't take this as a guidance, that as a percentage of revenue, we will be at the higher end of the guided range, as we said, the low high single digits to low double digits for R&D, so we're at the higher end of that range, and in the initial years, maybe even slightly higher, given the number of opportunities. So that's the best that I can give you now, for the reasons I just mentioned.

Yeah, if I add something here on OPEX for 2025, as Paul has mentioned in his remarks earlier, we showed that our SG&A expense have decreased 1% year-on-year, which reflects our focus on cost control. We're really focusing on cost control. We're focusing on efficiency and improving our business processes. So from that point of view, we're watching our SG&A part of our business for 2025, and that's something we're taking very seriously.

So for us, again, if you look to our guidance based on what Issam just said, there we said a high single moving graduate was a high single digit. We're now still in the double digit figure, so we should move, of course, to a certain extent depending on revenue, but also, of course, based on our actions to control cost and improve processes, we should move to the high single digit era next year.

Understood. And then just as a follow-up, now with the changing dynamics in the Logic Foundry and markets with three customers potentially coming down to one at the leading edge, I just wondered if you could give your thoughts on how you see pricing pressure for your products. There's been some concerns about what it may mean for the overall semi-cap industry and maybe more specifically for you. But also if you could also comment a bit on how your ALD intensity might change For example, some customers have tended to be more ALD intensive in their recipes than others historically. So what do these changing dynamics at the leading edge between these three customers mean for ALD and epitaxy intensity and your share gains that you've talked about before? Any color there would be very helpful. Thank you.

Okay. So as Paul has mentioned earlier, I think the move to a nanometer technology node has really increased our DLD intensity. Yes, there are some differences between customers depending on their integration scheme, but that difference is really minuscule or small compared to the major increase going from three nanometer FinFET technology node to two nanometer technology node. So that delta from one customer to a customer is really immaterial. We still see a significant increase in LD intensity going to two nanometer. Right now, we're working with our customer, actually, on even the next generation, 1.4 nanometer technology node, which will be in production in 2027. And we see even further increases in ALD intensity with the three customers. So we don't really see a difference between whether, you know, it's customer A or customer C. Understood.

Any thoughts on price pressure or? Any thoughts on pricing pressure that the industry might see given the changing dynamics, if you're able to comment?

I can comment on your answer. I think that pricing pressure really depends on value. So if you provide value to your customer, I think that you should be able to gain business and profitable business. I think what's important for us is really to provide the value, I think, and what we do usually is making sure that we innovate, making sure that we constantly, you know, improve productivity, improve reliability of our tools, of our machines, and I think with that, you know, you can still continue to be profitable. So I think pressure, I think it's really immaterial as long as you continue innovating and providing value to your customers.

Understood. Thank you.

The next question is from Francois Bouvigny, UBS. Please go ahead.

Thank you very much. My first question is maybe a clarification on, you know, the dynamic with Samsung and Intel. I mean, we saw in the press and we, of course, saw ISML guidance revision. You mentioned as well the outlook, you know, somewhat changed. But it seems that, you know, you confirm, you know, and you even upgrade 25. So we're just wondering, did you have any impact? I mean, from that, you know, Samsung, Intel, you know, because maybe you asked from confirmation of orders and or maybe like your orders are coming more from one customers. Did you factor anything from what's going on at Samsung, Foundry and Intel? I just wanted to make sure. Because when I read it, it doesn't seem that you are impacted. You include the guidance. You say that you had confirmed orders from everybody and that get all around is going to be very strong next year. So I just wanted to clarify maybe if you had any impact.

I think to be sure, you know, I mean, we're not going to be talking, you know, from one customer to the other. But what I can tell you is that, I mean, we have seen an impact in 2025, but it's not really a huge impact. And it's still within the range of expected outcomes that we talked about. It does not change our view that gates are underrated sales. We really still continue to see substantial increase in 2025.

And why it's not huge? I mean, it's two big players. They spend a lot of, you know, capex and you are less exposed to memory, more logic. So I would think they would steal material. So why is it not big?

I think maybe the reason why it's not so big is because what we see today is that this change to gate-over-wound is important for all, let's say, three customers. it's important that they become successful, and they will continue to invest to become successful in this transition, which is a new architecture, which is strategically important for them, not only for next year, but for also, let's say, medium to longer term. So the cuts, as we see today, that they might talk about publicly, are not so much, let's say, in the field of gate all around, but more in other areas. which impacts us less.

Okay, makes sense. Thank you very much. And maybe my second question is on MOLLE. I mean, you talked a lot to Capital Markets Day. You know, some of your competitors are talking about this from, you know, the migration from Tungsten. And I was wondering how you see, you know, as, you know, the layers are being laid out, how your share is evolving. I mean, do you still feel strong about your share in MOLLE to increase? If you could update on that front, it would be great. Thank you.

I think if you talk about metalization, what the industry is experiencing recently is really a generational shift in metalization, from moving from tungsten to molybdenum. This is an area, metalization is a new area for us. This is something that we didn't play in, and this is the first time that we, ASM, have entered the metalization market with molybdenum ALD. And this molybdenum is really, like I mentioned, a generation shift. It's going to be applied in 3D NAND. It's going to be applied in DRAM, and also it's being applied in logic. We are actually working with all customers on the three technology areas. We have made some wins in some markets. We're actually shipping molybdenum reactors as we speak. for our customer for two nanometer technology node production. So we feel good about our position. This is a newer area. We see introduction in logic happening right now in two nanometer nodes. But I think as you go to the 1.4 nanometer technology node, you're going to see more and more Mali applications. DRAM is slower. from that point of view, but it's going to happen soon. And there's more and more layers happening in Molybdenum, so we are very excited about this market, and we look to be an area of growth for us in the future.

Great. Thank you, Jim. Thank you, Francois.

The next question is from Sandeep Deshpande, JP Morgan. Please go ahead.

Yeah, hi. Thanks for letting me on. My question is, how many wafers of GAA do you expect, how many wafers do you expect to transition to GAA in 2025? And given what we had heard from some of the other players that they've seen some kind of slowdown, has the number of wafers that are transitioning to GAA in 2025 changed? Has it gone up or has it gone down since the changes have occurred in the industry? That is my first question. Thanks. And I have a quick follow-up after that.

So I think, as we mentioned earlier, we see gate-tolerant in 2 nanometer to be a strong node driven by AI. There's a huge demand for AI chips. There's a huge demand for gate-tolerant chips. So it's actually in our remarks earlier, we said that 2 nanometer, which is GAA, is going to be a bigger node than 3 nanometer Finset. So it's really strong, and I cannot give you the actual numbers, but what I can tell you, it's a significant note, significant investment in Tunan Emica happening right now.

But is it bigger than what you had previously forecast, or is it lesser than what you had previously forecast?

Actually, it's the same as we previously forecast. It's still very strong.

Understood, thank you. My follow-up question is on China. I mean, you've had a stronger three-third quarter than expected on China. Many of the players exposed to the China market have not been able to forecast China that accurately. So do you actually have a clear visibility into China into 2025? Or is this your view into China and the decline into China a view of ASM or rather what you see in terms of orders? Because, I mean, right through this year, China has surprised most companies on the upside rather than on the downside.

Yes, thanks for the question, Sandeep. I wish we had good visibility. So similar to other companies, we also have limited visibility. And as you heard, we also have been, I think, positively surprised somewhat, at least in Q3, for the two quarters to get it or not. We still believe that H2 will be below H1. We've said that from next year we expect more normalization of sales compared to what we call the exceptional high sales, let's say maybe in the last six quarters or so, six thousand quarters. How much? There's of course different assumptions. In addition, you have export restrictions that are not yet fully clear. Also there we've made certain assumptions. in, of course, the guidance that we've given and now, but that's still to be seen how that will play out. So we have some level of visibility based, of course, on all our discussions with all our customers, all our intel that we have. But, yeah, at the same time, also as we've seen in prior quarters, that might still change. But at least we have taken into account a more normalization of the sales that we have been, I think it's one of the first ones we've been talking about already. that might happen in 25 compared to 24. And that's reflected in our current guidance.

Thank you. If I add a couple of notes regarding China to what Paul has mentioned. For us, really, China is different from many other players. I think for the major, bigger player than us, China, they are very fond of the mature technology nodes. We don't have, because we are an ALD company, We don't have much CLD in this material technology node. Our bigger play is really as a company is in the power analog wafer market in China. That's really the difference between us and our biggest competitor. We see the power analog wafer market has slowed down from the start of 2024. I think the softness for the global power analog wafer market continue through 2024, and we don't know when it's going to recover. Is it going to recover second half of 2025 or 2026? That's something really to wait for and to watch in the future.

Thank you, Sandy. Thank you.

The next question is from Robert Sanders at Deutsche Bank. Please go ahead.

Yeah. Thanks for taking my question. Um, I was just a few questions just about, um, the last one, one question about 3DD REM. Um, there's been a bit more news flow about the companies outlining, you know, basic kind of structures and how that might work out. Do you think that that is still in the path finding stage or, or, or, you know, IE five years away plus, or do you think that there are some memory companies now moving into more firm development stage?

So I'll answer this question. I think that what we have mentioned in our last previous conference call is that we know what's going to happen. We have better visibility on the DRAM roadmap. So we talked about the success square cell architecture that's happening right now, and then the the industry is moving to 4F squared, which is really shrinking of the cell, so that's actually gonna happen, and it's gonna happen in two, three generations in the future, which really delays the 3D era, to 2030. That's really what we have mentioned. Right now we see actually 3D DRAM to be in production in 2031. That's the earliest we see it right now. So in DRAM, the next few years it's going to be big in the 4F2 architecture, which, by the way, opens many new layers for ALD and Epitaxy.

Got it. And on molybdenum, you mentioned the transition from tungsten. Is there not an opportunity from copper as well? And isn't that as large an opportunity?

Yes, I think MOLLE replaces both tungsten and copper. I think the beauty of MOLLE as a metal is that it does not need a barrier layer when you deposit it. Copper, everybody knows that copper diffuses a lot. It's a very high diffuser as a metal, so in order for us to stop the diffusion of copper, we have to put a barrier layer. This barrier layer that we deposit increases the resistance of copper, the final resistance of the copper. Well, with molybdenum, you don't need to use this barrier layer because molybdenum does not diffuse. It's a big molecule. very big atom, so that's not diffuses. And with that, actually you achieve much lower resistance. Absolutely. Molybdenum is replacing both tungsten and also copper in metalization. Thanks a lot.

Thanks a lot.

The next question is from Didier Simama, Bank of America. Please go ahead.

Thank you so much. Good afternoon, everyone. A couple of questions. So first, a big question for Paul. I think you said spares, obviously, was a pull-in in Q3 from China, but that's going to normalize. You said it's a one-off. Just give us a sense of what Q4 is going to look like. What is a normalized level? Or is that going to take several quarters to go back to a normalized level? That would be my first question, and I've got to follow up. Thank you.

What we've seen, DJ, in spares is actually quite a few quarters in a row, a pretty strong double-digit growth, but not to the level that we've seen in Q3, obviously. I would expect to be a little careful here, but I would expect it to go back already in Q4 more to a normalized level that we've seen in the last few quarters. at this moment in time, it would be a positive surprise if you would see something similar happening as in Q3, and I don't think that will happen, so I would not, at least so far, we have not gotten those indications that it's going to happen in Q4.

Okay, but a normalized level is, what, 123 that you had in Q2? Is that what you're thinking about?

It's a specific number, of course, but, yeah, it's definitely in Q3, but, yeah, if you look at, let's say, over the last few quarters, I think that's something that is likely going to happen.

Okay, brilliant. And a follow-up to Hichem. So congratulations going into high-volume production for Gatoron equipment. My question is, when you look at your leading customer, I think the intention is to build about 40K of WFSTO capacity for Gatoron. but given the lack of customer support for calendar year 25, I mean, there is no smartphones at all, you know, some low volume HPC customers or maybe crypto miners. Are you worried given what you've shipped already for the pilot line? Are you worried at any point over the course of calendar year 25 over their pocket? Or do you think that actually, you know, this is going to carry through calendar year 25 because 26 is, you know, the capacity should get double. And as you mentioned, you know, two nanometer capacity build will be bigger than three. So just trying to understand a little bit whether you think there is a risk to the extent that there is no high, you know, high-end smartphones ramping, you know, Gator around in 25.

I think Gator around is really driven mainly by data centers more than smartphones. So the demand for that is very significant, and it dwarfs the 40K wafer stock amount that you're talking about. As we mentioned, 2025 will see significant investment in 2 milliliters in HVM, and we think this is going to continue in the future.

Super. Thank you so much.

Thank you, DJ.

The next question is from Tim Schultz-Malander, Redburn Atlantic. Please go ahead.

Yeah, great. Thank you for taking my question. First question was for Hisham. So, congratulations on the insertion into volume manufacturing. How many customers do you expect to put MOLLE into high volume in 25, please, and then have a follow-up?

We're not going to really talk about the number of customers in production because of a different factor. Some customers really have different technology. For the same technology node, they have a different integration scheme whereby, okay, they will introduce Molybdenum in one generation, not the other one, so that's a difference from one customer to the other. But we see some customers who are more aggressive for some configuration reasons. They need molybdenum to produce molybdenum in this first generation rather than the second generation. And when I talk about first generation and second generation, is that okay, when you look into the two nanometer, two nanometer is a big node. So two nanometer can be 2.0, can be 1.8, can be 1.6 nanometer. So there's a different sub-node. So as the sub-nodes continue, you see more and more molybdenum being introduced in those layers. And the same thing is really, we see the same thing for happening in the other technology, be it 3D land or, you know.

Okay, but so it's more than one process tool of record. The others are not still development tool of records. They've moved on to PTOR kind of level of conviction, I guess. Maybe a question for Paul just on the SAM uplift per 100,000 wafer starts a month. Could you just give us a kind of sense of scale of what the base is? Is that a 400 million uplift on a base of 100 or 400? Just some color there would be really helpful. Thank you.

Yeah, it's a very fair question, Jim, but actually we've never quantified that externally at least. It is compared to the FinFET node, so it's from an API and ALD combined. So that's the $400 million we have referred to. So unfortunately, I cannot give you more. I don't even know the precise answer by heart, to be honest, but we have also not disclosed that yet. But it's compared to the FinFET node, it's more than double-digit. It's meaningful double-digit, as we always say, but that's maybe not very helpful, but that's as far as we have given insight into the markets.

Okay, but it's not triple-digit, I guess, is also similarly helpful. Would that be fair?

No, it's not. All right. And the other thing, earlier in the call, of course, with every subsequent major node, there will be incremental SAM for us because of shrinking and or going 3D. It's the perfect development for ASM. All right. Thank you. Good luck.

Thanks, Tammy.

The next question is from Tammy Cui of Berenberg. Please go ahead.

Hi. Thank you for taking my question. From GAA perspective, relating to ASMI's ALD penetration, does a different player ramping up in a different volume make any difference for you, i.e. your market share is different between various GAA players? And also, how do you think about your ALD market share or time expansion when all the three main chip makers go into backside power relating to the ALD marketplace?

If you look into ALD, I think your first question was talking about ALD intensity in nanometers. That's the first question. Am I right?

Yes.

I think, you know, like what I can tell you there is that, you know, for, and which really was talked about earlier, one of your colleagues has mentioned that, okay, some customers use more deposition layers than others, et cetera, et cetera. That's true, okay? I mean, it really depends on letho. It depends on, okay, if you have more aggressive letho, then you have less patterning layers, et cetera, less patterning layers, so you have less ALD. But in the whole scheme of things, these delta changes between one customer to the other is small compared to the double-digit significant increase in ALD intensity going from Finset to Gatorade. So for us, it's really immaterial from that point of view. It's really very small from that point of view. So that's really the answer for your first question. And your second question, remind me of your second question.

So basically, how does your ALD market or TAM or market share change when all three mainstream makers start to use Backside Power?

Yeah, I think that what I can tell you, you know, that our market share is good and strong for all three players. I think in ALD, we are a leading player in ALD. And as I mentioned in my remarks, we're actually keeping a good market share. in ALD from the transition to FinTech to get around.

Okay, thank you.

Thanks, Tammy.

The next question is from Nigel Van Putten. Morgan Stanley, please go ahead.

Hi, thanks. A follow-up on DRAM in China. Maybe reading too much into this, but is your visibility of healthy demand into next year for DRAM, and also saying that China will only be moderately lower in the first half of 2025, Are those related? So are you seeing China memory business becoming more of a tailwind into next year? That was my first question.

Yeah, thanks for the question, Nigel. That is difficult to say. We have, of course, a certain level of visibility. As I said, it's likely to be silver. especially if you take a number of quarters, I mean, from quarter to quarter, there can, of course, be some facing difference or lumpiness or whatever, but if you take a few quarters, memory is the relatively smaller part of our China business. So for us, most important is actually, at least in the last, whatever, six, seven, eight quarters, mature logic foundry and before that it was power wave analog and that might become number one again now that mature logic foundry is likely to come down somewhat unnormalized we don't know yet how it will play out next year but in all scenarios that we're looking at today memory is still the relative the smallest part of our play in China got it and not any sort of view today that that could change into next year

There's no reason to believe that.

Yeah, I don't want to speculate, but no. The current, if you have our base case scenario, which you don't have, that's not what we assume. But having said that, there is a limited amount of visibility. I'm never going to say it's not possible, but I don't expect that. We don't expect that.

Got it. Maybe a second question on DRAM broadly. So I think for HBM, a lot of conversion going on of the install base, some of it coming from non high K nodes into high K nodes. So my question is really like, is there a double benefit today that you're sort of getting conversion to the latest nodes? But in addition, there's the high K and as we maybe move into next year with high K conversion, maybe, you know, at least partly completed, I think you've been going at it for a while now. Uh, Is that maybe not a headwind, but could that slow sales as you're sort of normalizing the demand drivers?

Well, I mean, I'll answer this question, Nigel. I mean, the way I look at the HPM, I look into the GAA. If the GAA is strong, HPM is going to be strong because, I mean, those two chips go hand in hand. What we have seen that the GAA is really very, very strong for 2025. So from that point of view, we see that HVNs do continue to be stronger in 2025.

Okay, understood. Thank you.

Next question is from Mark Hesseling, ING. Please go ahead.

Thank you. My first question is actually a bit of a question on the pooling of the orders. I think you discussed it before, it was partly China and then also, I think, Gatorland. Is the Gatorland part the biggest part? And the reason why I'm asking is that historically, actually, with these kind of technology transitions, whenever you saw those pooling of orders coming in, there was typically very positive signs for more poolings in the quarters to come. Just want to understand that dynamic a bit.

There's not one specific reason for the put-in. So you should not read too much in it, Mark. I mean, if we say put-in, it's based on, let's say, our expectation that we have based on customer forecast. So we, although we don't guide on orders, we still have our own expectation what orders will be, of course, for the next quarters. And then when we see that some orders come in, let's say, earlier than what we had in our forecast, that are basically customer forecasts, that's when we speak about... about pull-ins, it's not one specific segment or one specific customer. Sometimes it can just be a few weeks earlier and sometimes it can also be a few weeks later. You should not, there's no real hidden message in this remark. So yeah, that's basically what it is.

Okay, that's very clear. And then my second question is on your position in DRAM outside HVM. I think Gary has always in the past said, okay, we start with HBM and then eventually we also expect to win layers in the DDR part. Can you maybe give a bit of an update there?

Yes, I will take this question. I think, you know, like for DRAM, you know, like DDR is also still a high-performance memory. So you see with this high-performance memory, you see high-key MetalGate incorporation in DDR5, DDR6. So you see more and more ALD layers incorporation. And also, so we see better ALD layer and also more epitaxy also being implemented in DDR, DRM from this point of view.

Okay, so you're winning market share also and taking out the HBM part.

I think once you go to high-key MetalGate, we have a leading position in high-key MetalGate from the many years we've been doing this in Logic. So, yes, we have quite a few customers running high-key MetalGate, ASM high-key MetalGate.

Sure. Okay, thanks.

Thank you, Mark. I'm afraid that we have run out of time. There are still a couple of callers in the queue, so if you didn't have the chance to ask a question, please contact us after the call.

So if there are no more questions, sir, I turn the conference back to you for any closing remarks.

So on behalf of Paul and Victor, I would like to thank everyone for attending today's call. We hope to meet many of you at the upcoming conferences and other investor events. Thanks again, stay safe, and goodbye.