ASM International N.V.

Victor Bareño - IR Chuck del Prado - President and CEO Peter van Bommel - CFO

Peter Olofsen - Kepler Cheuvreux Robert Sanders - Deutsche Bank Jim Fontanelli - Arete Marc Hesselink - ABN Amro Tammy Qiu - Berenberg Johannes Ries - Apus Capital Edwin de Jong - NIBC David O'Connor - Exane

Thank you, Elisa. ASMI issued its 2017 second quarter results last evening.

For those of you who have not seen the press release, along with our latest investor presentation, it's accessible on our Web site, ASM.com. We remind you that this conference call may contain information relating to ASM's future business or results in addition to historical information.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. For more information on the risk factors that could affect results, please refer to the company's press releases, reports, and financial statements, which are available on our website.

And with that, I will now turn the call over to Chuck del Prado, President and CEO.

Okay, welcome everybody to the call today. So let's now review our second quarter conference, second quarter 2017 financial results, sorry I was still structuring my pages.

Net sales in the second quarter amounted to €202 million, a strong increase of 40% compared to the first quarter, an up 46% compared to the second quarter of 2016. Sales in the quarter were slightly above the top-end of our guidance, which was a range of €180 million to €200 million.

In terms of product lines although all product lines showed higher sales, our ALD business was again the key driver. By industry segment revenue in the quarter was led my memory followed by foundry.

Within memory sales were predominantly related 3D NAND. We recorded a growth margin of 43.7% in the second quarter, relatively steady compared to the 43.5% in the first quarter and 43.8% in the second quarter last year.

Note that we expected gross margin to show more fluctuations during 2017, compared to what we have seen in 2016. But still it was in the range of a low to mid 40s percentage as earlier indicated.

This is caused by new product introductions and related initial cost this year. SG&A expenses increased by 9% compared to the first quarter and we're up 20% year-on-year.

This increase is partly due to the higher activity level and partly due to strengthening of the organization. R&D expenses increased by 2% compared to the first quarter and by 14% year-on-year.

We generated operating income of €38 million in the quarter, with an operating margin of 19% up from 10% in the first quarter and 12% in the second quarter of last year. Financing result in the second quarter was €11 million negative, due to currency translation loss of a similar size.

In the first quarter, financing results included the translation loss of €7 million and in the second quarter last year a translation gain of €8 million. Our net earnings increased from €36 million to €130 million in the second quarter and included a profit of €84 million related to the sale of a 5% stake in ASMPT.

Excluding the profit on the 5% sale and the PPA amortization, normalized net earnings amounted to €56 million in the second quarter up from €42 million in both the first quarter and the year ago period. Let's now take closer look at ASMPT.

In the first flash during the quarter we reduced our stake in ASMPT from 39% to 34% and on April 24, we announced that we sold 20 million shares or stake of approximately 5% through an accelerated book bill with gross proceeds of approximately €245 million. Following the 13% stake sale in 2013, we have continued to regularly review our shareholding in ASMPT, with a focus on long-term value creation.

The most recent strategic review led to the conclusion last April that, a further reduction of our shareholding of approximately 5% was justified. At the same time, our view remains unchanged that a significant stake in ASMPT is of strategic value at this stage of the company.

In terms of operating results ASMPT delivered another strong performance in the second quarter. The first quarter result related to ASMPT of €34 million included a one-off gain of €10 million.

Excluding this one-off, results from investments increased from €24 million in Q1 to €31 million in Q2, despite the dilution of our stake during the quarter. Results from investment excluding the ongoing PPA amortization charge, which was €7 million in the second quarter, and is expected to amount €24 million for the full year 2017, assuming constant currencies.

On a 100% basis and excluding one-offs ASMPT's net earnings increased strongly by 38% to €88 million in the second quarter. In the second quarter, ASMPT sales rose to $569 million up 17% from the first quarter and up 20% from the second quarter of last year.

Sales in back-end equipment that increased 22% year-on-year while ASMT solutions increased by 19%. ASMPT reported bookings of $661 million for the second quarter, an increase of 9% compared to the first quarter and exceeding the forecast for stable quarter-on-quarter development.

ASMPT's gross margin improved to 41% in the second quarter with gross profit for the first half at a new record high. So let's now turn back to ASMI's consolidated operations.

Our order intake in the second quarter remained at a solid of €206 million up slightly from €204 million in the first quarter and up 29% from the level a year ago. Orders came in at the high-end of our earlier guidance of, between €190 million and €210 million.

The backlog remained at the solid level of €210 million, which is 4% lower than the level at the end of March, due to currency movements, but up 20% compared to June of last year. Orders in the second quarter were primarily driven by our ALD business, but also included a decent, an increased contribution from epi.

Moreover, we also received several orders for PECVD. Looking at the great down in bookings by industry segment, foundry was the largest segment followed by memory.

The foundry orders increased versus Q1 and were booked with multiple customers. This segment was driven by the continued ramp of 10 nanometer as well as early 7 nanometer related demand.

Next to ALD foundry orders also included multiple epi tools. Within memory bookings for 3D NAND again accounted for the largest part.

While DRAM bookings remained at relatively low levels. So let's now look at our balance sheet and cash flow.

At the end of June, the cash position stood at €523 million up from €379 million at the end of March. This increase was the balance of - on one hand, the proceeds of the pressure of ASMPT stake and dividend received from ASMPT of in total €264 million.

And on the other hand a negative operating free cash flow of €41 million during the quarter and cash spent on share repurchases, and paid dividend of in total €82 million. Net working capital increased from €139 million at the end of March to €176 million at the end of the second quarter.

The number of days of working capital measured against quarterly sales decreased from 86 at the end of the first quarter to 78 at the end of June. Working capital on a currency comparable basis increased was approximately €50 million, which is mainly caused by a €54 million accounts receivable increase due to the back-end loaded nature of sales in the second quarter.

Partly offset by improved profitability, the increase in working capital led to a negative free cash flow of €41 million during the second quarter, compared to €20 million positive during the first quarter. We paid €42 million in dividends during the quarter.

In the second quarter, we also spent €40 million to repurchase close to 800,000 of our own shares. This is part of the buyback programs that we announced October last year and that we increased to €100 million last March.

As of last week, we completed approximately 85% of their buyback program. As already earlier indicated, we intend to use the proceeds of the partial sales of the ASMPT stake of approximately €245 million for a new share buyback program.

This program will start as soon as, as the current program has been completed. Our commitment to use excess cash for the benefit of shareholders remains unchanged.

We earlier announced the cancellation of 1.5 million of our treasury shares which has been approved by the annual shareholder meeting last may, and will become effective by the end of this month. Let's now look more closely at the ALD market dynamics.

[Indiscernible] remains a key driver for our customers, as they are developing and introducing differentiated semiconductor devices at lower costs that are crucial enablers of new end-market application such as artificial intelligence, automotive and IoT. As our customers transition to smaller geometries, new materials and complex device architectures, we expect that more and more the position steps where we acquire, the position and control such as film conformality at low temperatures offered by single wafer ALD.

At our recent analyst and the investor technology seminar during semi-conversed conference, we highlighted several new ALD applications. One new application in 3D NAND is an ALD silicon oxide sidewall protection layer, which is deposited prior to the position of the metal source, contact material.

Another application in 3D NAND is an ALD silicon oxide layer used to fill the select gate slit. Both applications are in high volume manufacturing today.

We remain confident that the ALD market will grow to reach the size of approximately $1.5 billion by 2020, 2021 as the number of ALD applications continues to increase. Based on our customer relationships that have strengthened substantially, recent years and our broad portfolio of ALD solutions and our continued focus on innovation; we believe ASM is in a good position to benefit from these long-term trends.

In terms of industry segments of the ALD market, the outlook for the logic foundry segment continues to be healthy. The transition to 10 nanometer, already few of the significant increase in the number of ALD applications and with 7 nanometer we foresee a further increase in our addressable market.

We expect logic foundry to remain the largest segment within the single wafer ALD market this year. Looking at 3D NAND, the last few quarters marked the first meaningful deployment of seeing a wafer ALD for multiple applications in high volume manufacturing.

After we recorded in the first quarter, the first double digit percentage sales contribution from 3D NAND, we have seen a further increase in the second quarter in 3D NAND sales, both in absolute terms and as a percentage of our total sales. The strength in 3D NAND that we have seen in recent periods is driven by the continued HVM ramp of the customers that we won last year.

We continue to project a strong year-on-year increase in the 3D NAND single wafer ALD market for 2017. Longer term we also expect 3D NAND to be a strong driver behind the overall single wafer ALD market.

With the transition to 96 layers involved we expect ALD will be required for additional process steps to address the increase in complexity and high aspect ratios of these new generation devices. In DRAM, while overall investments in this segment are recovering, demand for new ALD tools has not yet picked in meaningful way.

DRAM customers are still mostly focused on technology transition was an existing fact. Looking at ALD tools for multiple patterning specifically, we notice that customers are still largely addressing their needs by reusing existing tools, which negatively affect demand for new tools.

For the full year 2017, we do not expect multiple patterning in DRAM to be a meaningful driver of the single wafer ALD market. Next to ALD, we expect our epitaxy product line to have a meaningful contribution to ASM's overall top-line this year.

Earlier this month, also in connection with semi-conversed, we officially launched our new INTREPID ES. The benefit of this tool include amongst other substantially improved temperature control capabilities and a more efficient reactor clean cycle.

As a consequence INTREPID ES offers both enhance performance and cost of ownership reductions. With this tool we regard advanced applications in logic foundry and also in the memory market.

With the INTREPID ES, we believe we have substantially increased our addressable market in epitaxy. With our Q1 results last April, we announced that we won first process tool of record selection for the INTREPID ES for an advanced epi application at the leading foundry.

And that we booked the first high volume manufacturing order intake. In the second quarter, we booked multiple orders as part of this selection.

So looking at the, let's now look at the broader market environment. In their most recent updates market researchers like Gartner and VLSI Research increased their forecast for wafer fab equipment in 2017 to approximately 17%, 18% positive year-on-year, compared to 8% to 9% positive earlier this year.

The reasons for the strengthening of the forecast, our continuing strong spending for a logic foundry and 3D NAND and an increased spending for DRAM following the low investment level in DRAM in 2016. So, let's now look at our guidance, the company guidance that's included in our overnight press release.

So for Q3 we expect the sales level of between €170 million and €190 million on a currency comparable level. While for the second half of 2017 as a whole, we expect the sales level higher than in the first half of this year.

And after the very strong quarters in the past two quarters, we expect order intake in Q3 at a still healthy level of €150 million to €170 million also on a currency comparable level. So at this point, we are more than happy Peter van Bommel, CFO and myself to take any questions that you may have.

We would like to ask you to please limit your questions to not more than two at a time. So that everybody as a chance to ask a question.

All right Elisa, we are ready for the first question.

Good afternoon gentlemen. I just want to clarify the comment on epi where you talk about several orders.

So these are several orders by still from the same customer that you highlighted in Q1. So that means we have yet to see a broadening of the customer base, is that basically what you are saying?

That's correct, short answer Peter, but that's correct.

Okay. And then in terms of broadening of the customer base, apart from logic foundry I think you are also mentioning opportunities in memory, what kind of horizon, should we think of in terms of epi gaining traction in memory, if it sound, you might already see later this year or should we more think of 18, 19?

Okay. So, to just repeat the bigger picture, I don't know it's, it was a great opportunity for us, first of all to remind that for the audience, refresh that for the audience that we, this penetration really opened up for us, the epi market beyond let's say the $100 million market that we have been so focused on so far, which will see analog power part of the markets.

And as a total addressable market in epi is around $600 million and is expected to grow in the coming years. So a healthy cager is forecasted for the epi market in the coming years.

So, we invested for the last couple of years in several areas in the epi's phase and of which this foundry area was just one, and we really indeed have now first victory in that area with multiple orders. And we continue to seeding in other areas which includes indeed the memory space.

But it's just too early to claim any victory. Again we have been working in those areas for a significant amount of time, basically for the last two years.

We have been resting in that area internally and incorporation with customers. It's just too early to claim victory, but we target to see results there, let's say within the next 12 months.

That's what we are targeting.

Okay. And then in memory you are addressing both DRAM and 3D NAND?

Yes. One area is maybe, we are targeting both areas and certain applications are more let's say shorter term than other applications, but we include, we focus on the whole, memory space.

Okay. Then my second question, I think for Peter relates to the CapEx which was a bit higher in Q2 than what we have seen in previous quarters.

Is that just some quarterly volatility in there or is it kind of indication that we are going to see higher levels there going forward. And related to debt again you confirm that giving your outsourcing model, you are able to grow volumes in a meaningful way without major CapEx need?

Few remarks there, indeed there is no, never a straight CapEx amount per quarter. We are improving and increasing our R&D facility so the forth coming period.

So, hence it's likely that our R&D of our CapEx will be a little bit higher than what we have seen in the past, in the next three to four quarters. But all-in-all in general that remains the same, so it's more related to the R&D area than to manufacturing and given our outsource model, we think that we can deliver the requirements that the customers are asking for.

Okay. Thank you.

You're welcome.

Hi, good afternoon. Maybe first question EUV, given that ASML is now saying that EUV will be used up for up to 14 layers.

What does that do to your self-aligned opportunity given that patterning as a big part of ALD? And I have a couple of follow-ups from me.

Okay. So, well, so on the EUV in general, we expect patterning to let's say patterning deposition related, deposition related patterning to remain solid part of our decision of the single wafer ALD market in the coming years.

Even with the introduction of EUV at 7 and 5 nanometer, patterning complexity overall continues to increase and, we'll offer is our belief besides the opportunities for let's say the EUV litho vendor, opportunities for the deposition players and such forward to signal way of ALD market. Secondly EUV patterning also, requires more complex film stats, in order to overcome certain, limitations or challenges that EUV introduction brings.

And that may also open up additional opportunities for in the ALD space and such for us. So that's how we view in it general and besides that what we would like also to emphasize that, patterning as we said, it stays well, a solid contributor to the market.

But versus 2015, the percentage contribution to the single wafer ALD market has gone down in 2016 and is believed to further decline in 2017. So, in that way, let's say the dependency on that part of the market has gone down compared to let's say two years ago.

Got it. And just on the largest 3D NAND play, you've obviously had success with two of the largest, the top 5, but one of the big hopes was that you would get into the largest 3D NAND player for next year.

It does look like they've now allocated vendors for that, they've done the plan of record certainly your peers are talking about, having already being selected. So, what are you thinking there about your penetration into that large account into 2018, especially given the tail is saying that the own ALD revenue is growing, actually doubling year-on-year, with that semi batch tool?

Thanks.

We're not allowed of course to talk about specific customers, but in general we can say that we still target and count on expanding our presence in terms of numbers of customers in 3D NAND as the industry goes to let's 96 stack. So that let's schedule that those objectives have not changed.

Got it.

And we think that, the seeding efforts on that are ongoing in, if you see in several areas and we think that real HVM materialization will come in the course of 2018, maybe some issue of visibility will come in towards the end of this year, but real material impact will be in the course of 2018 in our P&L.

Got it. Just lastly on the Q4 guidance, the implied Q4 guidance is quite vague in the sense that you talk about growth half-on-half, but I mean frankly that could mean a wide range of numbers for the fourth quarter, it could be 170, 180, 190, 200.

So, can you just be a bit more specific about what kind of growth you're expecting half-on-half in the second half of 2017? Thanks.

So, because our formal guidance doesn't not include Q4, because we normally only look one quarter out, but as you know there is no straight line in this industry, when it comes to order intake on a quarterly basis. And we just had two, three quarters of very strong bookings.

So, apart from the fact that we cannot comment specifically on the Q4 bookings level, we can't say something about let's say the top-line for the remainder of the year. As we included in our guidance, we expect the second half sales level to be higher than the first half, and if there would only be a minimal difference of €1 million or €2 million then we would not have included it in the guidance, that's one.

And then secondly, we do expect to outgrow the WFE market based on let's say looking at the current forecast for the WFE market in 2017 if you look at our top-line projections for this year.

Got it. Thank you.

Okay. You're welcome.

Thank you. Good afternoon.

So, you kind of alluded to part of first question on your lost on, so which is just, how you expect ASMI's top-line to look relative to wider WFE spend over the next couple of years, you're talking about outgrowing it this year. But I guess, even assuming a 190 or 200 million number for the fourth quarter, you will be outgrowing it maybe by couple of points this year, and it would be interesting to hear your perspective on the degree of outperformance you might expect from ASMI or ALD versus wide WFE into 2018 and 2019?

So that will be my first question.

Jim, I, that's a clear question, a understandable question, because 2016 of course we underperformed the market. In 2017, you clearly see first of all that the single wafer ALD market is expected to show clear improvement after decline in 2016, which offered, that's one dimension along which we can show a better performance this year.

But, if you look at longer term, I think over a longer period of time, because I think your question is related to get them on average, we are of the opinion that in the coming years single wafer cager is expected to outgrow the WFE market. On average, let's say over a 5 year period of time that, the potential of the single wafer ALD market is really there as we also alluded to further in our introductions.

So that's one area along which the company has potential to grow. Second pillar is that, we're also working hard and been investing in technology in customer relationships last few years to grow served available market in the total addressable market for ALD in the coming years.

So that's an pillar along which we viewed at, we have potential to grow. And then thirdly, which first evidence is there, maybe on with somewhat smaller skill in, already in this year, is that we intend to grow in all of our products, like epi and PECVD.

By expanding also our served available market, basically it's through focusing more on those products; we further expand our served available market and deposition. So not only that in ALD, but also outside ALD in other areas, where we so far have had more of a niche strategy and that will go gradually, but every gradually increase immediately could have meaningful impact to the top-line of this company.

Okay. That's clear.

And I guess, you're point around the second pillar which was increasing the term within ALD that would imply some sort of market share relationship right, I mean you are effectively implying, the potential to take back market share by addressing it increasing, an increase in number of applications within ALD is that, is that a sort of color what you were talking about with your second pillar?

Yes. If you look at now we have of course, if you look at the increased share of wallet going for in logic, logic foundry for example going from 16, 14 to 10.

Basically we have increased our served available market in logic foundry there, basically and we are aiming to further increase our served available market also beyond let's say the current notes, not only in logic foundry, but also in the memory space. For example, what we are developing now in 3D NAND is basically increasing our served available market on ALD and the same we intent also to look in DRAM, what overtime, we can do beyond let's say the patterning space that we are engaged in at this moment in time.

We will let have an impact immediately short term on our P&L note, but it will gradually become visible in our P&L, that's what we are working towards.

Okay. That's clearly thanks.

And I guess secondly maybe on a sort of shorter term thought prices, but obviously you talked about the strategic review of ASMPT stake on the incremental 5% stake sale. But, given PT's stock the other night and obviously the reflections through to the ASMI share price this morning, how you view the ongoing PT stake given that, you're clearly showing improving operational performance within ASMI, you talked about the opportunities lying in front of you, not just the ALD but for rest of the business.

And, with the day three or four numbers your stock prices dominated by, what's happening with PT in the back-end. How you thinking about that sort of the strategic review option against that backdrop?

Well, it would not be good if our strategic reviews would be led by market, stock price movements in 24 hour time space. That's not how we run our company.

And so if you look at a little bit more detail to the PT results, then we think PT again delivered strong quarter. If you look at bookings after the strong Q1 order intake, they improved with an order 9% to $661 million against $561 million in billings.

So that means book-to-bill of 1.2 at the current billing levels with expectations for further growth in Q3. And just to take one other indicator, gross margins they are now at 41% level, while adjusted net income improved to 17% of sales.

So, if so if you look through the emotions of the day, and look at the numbers, the results of PT in a little bit more detail that maybe people will overtime come to a different opinion. But that's at least our view and Peter you want to add something to that.

I think that you look to the PT performance and you all can have believed that, so their bookings increased in the first half of this year is compared to the second half of last year with 40% when you look to the billings which Chuck already mentioned, we saw a solid improvement quarter-on-quarter 17% gradually. Their gross margin is improving and that's a function of all the things that have happened in the past period.

And so the underlying quality of the results is improving further. Well they have a strong position in most of the segments that they are playing.

So, I think that is the long-term view that should be substantiated also in our view about the performance of PT.

Great. Thank you.

That's very clear. Maybe just very quickly one clarification, Chuck did you say that you are expecting to ship ALD units into the 96 layer HVM ramp next year, did I hear that right?

Just before I answer that Jim, I just wanted to clarify that the way I answered to your earlier question on ALD and I try to provide little bit more color to the audience on the, let's say the overall growth potential of the company, I was not talking specifically to ALD market shift and that's as long as you really understood my answer well in that context.

Okay.

So then, secondly the 96 stack indeed we are targeting to participate in the 96 stack of beyond the current customer base that we have HVM business at this moment in time. For 3D NAND let's say as of, let's say in the course of next year, probably by mid next year or so, it depends sort of bit on the timing of the customer, what timing they used to ramp that…

Okay. So, you'll start shipping units at some point in the second half of next year?

That's what we are here, again that's what we are focused on, we are again they have not made their final decisions yet to bring R&D partners to really freeze their processes for the areas that we are engaged on. But that could happen and let's say this; we do expect that they will start to do that in the second half of this year.

So, we have no final yes yet, but if you look at the level of engagement then we trust that we are on the right track.

Great. Thank you.

You're welcome.

Yes. Thank you.

First question is on the order guidance for next quarter slightly at the lower level, obviously to very strong quarters in the first half. So, what is that slightly lower level what's driving that, is that simply digesting of the orders that we've seen in the first half of the year or is it also that in logic foundry you passed a little bit the, the peak of this cycle?

You're talking about bookings in general?

Yes, yes.

I think the way you really issued viewers that, that in this industry and you know this industry well, again like I said earlier, there is no straight line in terms of order intake every quarter. And we really had two around 200 million quarters Q1, Q2 also Q4 as strong quarter in terms of the bookings.

And Q3 is not that good, but not as good as Q1, Q2. We think it's still at a healthy level, but beyond Q3 and looking to 2018 also, we believe that the company is well positioned that the underlying trends as far as customers provide us visibility is healthy.

In the 3D NAND space, in the foundry space, regard separate for maybe some timing differences one or two months pulling in or pushing few things out. But 3D NAND foundry healthy, logic spending pattern was, just maybe so far this year not as high as maybe a lot of players expected at the beginning of the year still to be seen how that will develop towards the end of the year going into next year.

But I think there only could be likely there is more upside there and downside in the logic space, as we view it now. And then DRAM, but they are telling to us only the upside, because the contribution there has been relatively low.

So far as we elaborated all in the introduction.

Okay. That's clear.

So don't, you should not read too much in the number in Q3 is if its, if we would, we don't view it to be here as a long term trend. That's not the case at all at this market.

Okay. That's clear.

Thanks. And then the second one, is on DRAM, as I don't remember correctly you said always that the, you're reusing some machines and that's the reason why you don't see that, there is no capacity being at it, there for from your perspective?

Is that something that, how long can that still continue, is there a lot of room for them to reuse machines or when do you think that it, that will end and that you see some strength coming into that DRAM space?

That's a great question. As we would love, we know the answer, but like we said overall investments in DRAM having been recovering to some extent across the board.

But if you look at specifically new ALD deposition tools for patterning, then the demand is still modest, because of the fact that most of the advantage occurs in existing fabs. And, we are dealing with big memory customers that, then find a way to reuse equipment from the DRAM or the NAND area, and that's what they that have been providing most of their additional capacity so far.

And as we look at for the remainder of the year, we don't expect DRAM to be a meaningful driver for the single wafer ALD market. But, 2018 we don't know, it could change and as I said earlier based on the Jim's question, we are ready for the patterning part of the DRAM market when it recovers.

We're ready to engage with competitive products in our view and then besides it, we're working hard also to look for ways to expand our served available market in a medium and long term in DRAM, in DRAM ALD beyond patterning and also outside the ALD. So that's, but that's some for somewhat medium and longer term.

Marc does that answer your question.

Yes, it does. Thanks.

Just one short one, is on the OpEx, the SG&A was maybe or the cost there it was a little bit higher than what was expected therefore a little bit less leverage on your additional revenues. Can you talk about what it driving that, is that preparation for the future or?

Let's put it a little bit perspective there, because due to the higher sales we had 26 million more gross margin and of that 26 million we used approximately less than 3 million of OpEx. So that's about the leverage, but when you look to the cost increase then in SG&A approximately half of that amount is related to increases which are due to the fact that we have an higher activity level.

So some cost are related to that activity level and the other half is indeed strengthening further strengthening of the organization that we do in particular areas, especially to cope with opportunities that we see that Chuck already was referring to.

Okay thanks.

You're welcome.

Hi guys, thanks for taking my question. So the first one is on the progress of 10 nanometer, 7 nanometer ramp and then that you said that, you have already seen 7 nanometer demand, I'm just wondering if 10 nanometer build already done from your perspective, from equipment perspective and if 7 nanometer kind of so at earlier stage there is more to come and if there is more to come what is the rough timeline?

Tammy that we are engaged, we see order so far in 2017 for both note 10 and 7. In the course of the year, of course the level of 7 nanometer, business increases whether, the 10 nanometer really has stopped, I think that's too early to, that's too early to conclude.

That's not what our customers have told us, but I think the ratio will, if you look at the ratio 10, 7, then 7 will, the ratio will shift more towards 7, towards the end of the year and going into next year. There is more to come definitely and on 7 going into 2018.

And, we are now carefully listening and waiting for guidance let's say from the leading foundry customers on 7, on how soon we have to ramp for them. But, let's say we don't have visibility going into 2018 yet on that Tammy.

Okay, thanks. So really 7 nanometer is a 2018 story and 10 nanometer has to support the order level from foundries for this year?

Well again we have already business in this year for 7. So there an issue pilot capacity is being built already this year and what we do see is that there is pilot capacity invested in new applications.

Also applications beyond let's say the current 10 nanometer engagement. But, how quickly they will ramp from let's say pilot volume levels to really full flash volumes that's still to be seen, from our customer and probably also there, their supply chain.

Okay, thank you. And the next question is about the demand level in foundry logic for 5 nanometer, beyond 7 nanometer, when you can get confirmation say okay you are selected for certain application, I'm just to trying to get a view about, what are you doing and what is the progress for you to presenting your market share in this market, or maybe even gaining back market share?

Well for 5 nanometer that's ongoing now, I think in the next let's 12 months already, lot of directions are being defined by customers, so on 5 nanometer, certain we're now already talking about 5 nanometer engagements in having sheeting systems at the customer to work on 5 nanometer, that's ongoing as we speak. And that will likely only further develop in, let's say in the coming quarters.

But its ongoing now already.

You do anything to protect your market share to make sure that you are not losing market share any further or maybe gain back market share?

Well, I think it's just, we're focused on expanding our engagement and, of course it's working on 5 it's also on protecting your existing engagements its always, but it's both. Its we're working on both directions to expand into more applications and at the same time make sure that we can provide continuity and continuity can be from a cost point of view, but it can also be from a technology point of view, it depends a little bit on the application.

Okay. And last question, on epi tools do you have the forecast on the tools to addressable markets for epi similar to the one you have on ALD?

Are you asking for the size?

Size, yes. What is the future addressable market for you?

For us, well basically we said that, we were engaged -- little around U.S.$100 million addressable market and now we are identifying opportunities in the broader, let's say U.S.$600 million market, are we immediately engaged in all the applications that make up that U.S.$600 million of course not. But we are developing our, and strengthening our platform and our creators in such a way that we are viable alternative in many more areas of that U.S.$600 million market.

That is the market size today or that's your forecast?

No. That's basically how Gartner estimates the market today.

And the cager for epi for a number of years its depending on what firm you work with, but it's a small double-digit cager percentage that this forecast is for the epi market, so little more than 10%. And that of course changes and that's on average over a 5 year period of time.

But, it's definitely a growth area, perceived as that epi is, applications are going to grow in both logic foundry and in the memory space in the coming years.

Okay. That's very helpful.

Thank you, guys.

Thank you. You're welcome.

Yes, good afternoon, only one last question follow up to, the latest we have on epitaxy and PECVD, you mentioned as the market size you mentioned that you gradually can grow in this space to different application and that could be meaningful for the company maybe in two years that happen so, could be the gross rate, because you mentioned given that the epi market is growing around 10% and you are maybe winning shares now and moving in new market segments, could, this is the area will be growing into same ALD going forward and how was the margin profile compared to ALD?

Johannes, I think your question, its that's just too early to tell, we now have the initial gains, but we have, the established strong competitor and that will also fight for their business. So, we will gradually, we scheduled to plan to gradually build a position there.

And but, we have a healthy ambition. We also view like, now introduced the tool that semi-conversed, the INTREPID ES tool and we presented there that we viewed the tool some intrinsic capabilities that make it pretty competitive for a number of applications.

And we are going to build on that. And it's to us to convince our customers that, we are right with our view and, this market is now basically one vendor market and I think it would be a win-win situation for the industry.

It's we would be able to develop our position, but again let's say for us to prove and it's too early to share any projections. We just, first want to do our homework and then step-by-step, we will share our results with the financial market.

Johannes, your question about the gross margin, is that in line with the other activities. There the answer is, in time we do not expect that the gross margins as well on the INTREPID ES, on PECVD it will not be different from the average that we see in our organization.

However in the initial phase, you can imagine that we have more of course, then you introduce complete new products where you include vendor. So, you have to go back to your supply chain, so they have initially higher cost.

The customer comes back to you and wants to add additional things and especially since we got all new products for us. The initial phase there the margin is a little bit under pressure, and that's one of the reasons why we have given that guidance are so, that we expect a little bit more volatility especially in the 2017 area, where we are bringing those first product into the market.

Okay. Clear answer.

Thanks for that.

Thank you, Johannes.

Yes. Good morning.

So I had a question on CapEx, I think you mentioned this year it will be probably higher, but I wonder in terms of CapEx to save, what are your expectations in the mid-term basis? Thank you.

In the mid-term basis, we expect that the CapEx would be slightly higher, so than what we have seen in the past. But, on the longer term we expect that the build to be back again on the numbers that we have initially mentioned that's €20 million to €30 million on an annual base.

Again, it's a little bit dependant on the applications that we are bringing into the market new application that we bring into the market, because that might lead to some additional, own equipment that we have to put into all epi finance.

Okay. Thank you.

You're welcome.

Good afternoon gentlemen. And few questions, maybe I have missed about, on the gross margins.

For you Peter maybe, going into Q3, Q4, can you give a little bit more color on the moving parts there?

The biggest moving part is in principal is the mix and what we have indicated is that, of what I just answered to the question of Johannes, is that, in principal then we have complete new products. When you have ALD products there you have really lot of experience with.

So that impact initially on the where you introduced new products on the gross margin is limited of scale. On the moment that you introduce complete new products like the INTREPID ES that you mentioned like in launch that we are making on this moment to PECVD.

Those products will have initially, a lower margin, because the supply chain is not used to making this sort of products. We are in aligning those, the details of the products with our customer base.

And as a consequence of that, you have initially higher cost. And we expect that, the period of two to three quarters before switching product is going back into a more normal gross effort.

So the gross margins that we are seen in Q2 that's maybe also good guidance Q3 and Q4?

Now what we have indicated is that we expect so much more volatility and the volatility is in line with the margin indications that we always have given for low to mid 40s. Again it depends highly, very strongly on how much of those complete new products that you are delivering in a certain quarter?

Okay I can't imagine. Okay, and then on the PECVD, so we heard that semi-conversed, and some of that guiding the opportunity that you have there also in pre-event.

And do you, maybe you have a little bit of feeling for how big that market could be in the PECVD?

Well PECVD is a very big market and in terms of size, but there are quite a few established players there, different from the epi market. There are few U.S.

companies, there are few Korean companies. So, we have to carefully choose what customers and what application we would like to engage on.

And so we think, our view is that there is room to improve, but it will go step-by-step.

Not in the way it went, with the epi at the end?

Could you repeat that one more time?

Not that the space that it went with the epi, sort of the epi gaining a lot traction all of a sudden in a few quarters time, and that's not the profit that you would see for PECVD?

I think, we again we are just focusing on the number of new applications with specific customers. And what you have seen already that we have an engagement in PECVD in 3D NAND.

So, and which we did not have let's say last year. So, but it's one application, one customer, so and we grow from there.

So, the only thing I want to say is that the market PECVD market is even, is much bigger than the epi market. For those sort of number of players is also bigger.

So both areas we intent to grow gradually in a smart focused way. So, it will not be a hockey stick effect, but the good thing is that every opportunity we have to grow there, the impact to our top-line given the size of this company could be meaningful.

That's clear. Thank you.

You're welcome.

Great, good afternoon gentlemen thanks for taking my question. Two from my side, if I may, firstly maybe on the strategic review which prompted the ASM the big stake sale, Chuck can you give me some idea of how often you intend to redo that exercise, is there is more once every three year type exercise or something a bit more dynamic and I have a follow-up on China.

Thanks.

Well, the first one, we are not going to do on certainly based on today's stock price movement. That's a first remark, because we are, we just do this on a structural way, we review our strategic portfolio and our strategic direction of the company multiple times a year among management.

And also regularly we review it with our broad. And that's why we will continue to do, and again we did that of course on our way to, we did earlier in the year and we again did on our way to the AGM, because of course that subject was on the general of the AGM.

But it's not that as of, as a result of today, that we immediately would have to revision, our exercise of let's say one or two months ago. But, all those elements are of course always taken into account in the regular strategic reviews that we will do in, the future.

And that's it, but the strategic importance, the strategic value of PT to ASMI as expressed at the AGM that position today is not changed.

Okay and thank you for that. And as a follow-up on China, can you talk a bit about the opportunity in China among particularly the new domestic memory players, how are you developing the relationship with them, when do you expect some orders or your seeding tools, any color on that opportunity with the domestic memory players in China and timing would be helpful?

Thanks.

We, few short answers. The revenue in China this year although let's say still at a low base compared to let's say the other regions in a row, is significantly higher than last year.

We expect next year to significantly increase compared to this year and the number of engagements, the number of let's interactions with customers grow every month, if we look at let's say how our activity level in China has developed over the last six months. And as a result of that, we're basically also ahead of that, because it's a little bit chicken and the egg.

On the one hand, we decided to increase our, to strengthen our infrastructure in China significantly, and that has resulted more context, but also the intensity level has triggered us also to do that even more in actively.

Very helpful, thank you.

So, in general the activity level in China is increasing, but again from a low base, because historically in China lot of investments were done in all the technology notes which did not fit well with our, the majority of our product portfolio. But more and more we are aligning our portfolio with, the need of the China market and that also of course what helps it at in time, they need more event technology.

We still have people in the queue, but we are running out of time. So we have to conclude the conference call.

That for any remaining questions, please contact us after the earnings call.

Okay. So Victor that mean, so we now conclude the call.

Yes. Operator?

Okay. I, before the operator concludes the call, sorry if any of your individual questions have not being answered by now, also on behalf of Peter.

Of course feel free to contact us after this call, is there is any remaining questions you may have through Victor. And so reminds me to say thank you very much for your interest today.

And let's stay in touch.