Q4 2016 Real-Time Call Brief

Highlights

Despite strong gains in the logic and foundry segment, the single wafer ALD market showed a double digit drop caused by a weaker demand from memory customers.

This caused our revenue to drop by 11% in 2016.

Net sales in the fourth quarter came in at EUR173 million, up 20% from the third quarter, and up 19% compared to the fourth quarter 2015.

Sales in the quarter, beat the top end of our guidance, which was a range between EUR150 million and EUR170 million.

By market segment, fourth quarter The gross margin increased to 44.9% compared to 44.2% in the third quarter.

SG&A expense has increased 8% to the previous quarter, and were roughly flat compared to the year ago period.

R&D expenses were almost stable compared to the third quarter, and dropped by 35%, compared to the fourth quarter of 2015, which included EUR60 million in impairment charges.

Operating income increased strongly to EUR30 million in the fourth quarter, up from EUR17 million in the third quarter, and EUR4 million in the fourth quarter of 2015.

Financing results in the quarter was EUR19 million positive and mainly consisted of translation gain of similar size.

The financing results included the EUR3 million transition loss in the third quarter and a gain of EUR6 million in the fourth quarter of 2015.

Results from investments, which reflects our share apart from approximately 39% of the net earnings from ASMPT amounted to EUR18 million for the quarter down EUR27 million in the third quarter and up from EUR2 million in the fourth quarter of 2015.

These figures exclude the ongoing PPA amortization charge, which amounted to EUR7 million in the fourth quarter and for 2017 this amortization charge is projected to be EUR27 million.

In the fourth quarter, ASMPT sales amounted to US$455 million down 16% from the third quarter.

Compared to the fourth quarter of 2015, sales increased by 20% which was better than to high single-digit increase that ASMPT had guided for.

ASMPT reported strong bookings of US$471 million for the fourth quarter, up 24% year-on-year and up 8% from third quarter.

ASMI's net earnings on a normalized basis amounted to EUR69 million in the fourth quarter, up from EUR40 million in the third quarter and EUR18 million in the fourth quarter of 2015.

Our new orders in the fourth quarter amounted to EUR177 million, up 44% from the third quarter and up 31% from the fourth quarter of 2015 and also clearly higher than the range of between EUR130 million and EUR160 million that we had guided for.

Our net sales in 2016 decreased by 11%, reflecting the contraction of the single way for ALD market as a whole, during the year.

Gross margin was 44.2% in 2016, marginally up from 44.1% in 2015.

Our targets remain to run operations at a gross margin percentage level of low to mid 40s, bearing a market downturn for which target is high 30s level.

SG&A expenses dropped by 5% and increased as a percentage of sales from 14% in 2015 to 15% last year.

Total R&D expenses increased by 2% and as a percentage of sales from 13% to 15%.

Excluding the impairment charges in 2016 and excluding R&D capitalization and amortization, R&D rose by 10% in 2016.

Operating profit dropped from EUR111 million to EUR82 million and the operating remained in double-digit area at 14% compared to almost 17% in 2015.

Results from investments on a normalized basis increased from EUR43 million to EUR68 million on last year.

Total sales as reported by ASMPT increased by 10%, to US$1.8 billion in 2016.

Sales of the back end equipment business increased by 23% in 2016.

Sales of ASMPT, sort of several technology solutions dropped by 4% for the full year, but return to growth in the second half of the year.

ASMPT increased gross margins from approximately 36% to 37.6% in last year.

And this was the balance of the strong 4% improvement for back end equipments, offset by a 2 percentage points decrease in ASMPT.

Normalized net earnings decreased by 12% to EUR163 million.

On a per share basis, normalized net earnings decreased by 8% to EUR2.65.

At the end of December, cash amounted to EUR378 million, up from EUR363 million at the end of September.

This increases mainly explained by positive currency effects with free cash-flow of about EUR10 million in the fourth quarter, offset by cash used for share buybacks.

At the end of December, net working capital stood at EUR155 million, up from EUR127 million at the end of the third quarter and EUR114 million at the end of 2015.

The number of outstanding days of working capital measured against quarterly sales increased to 81 days the end of December, up from 79 days last September and 69 days at the end of December of 2015.

For the full year 2016, free cash-flow dropped to approximately EUR20 million, down from EUR104 million in 2015.

During the year, we used a total of EUR140 million in cash for dividends and share buybacks, up from EUR116 million in 2015.

We spent EUR13 million during the fourth quarter to repurchase approximately 250,000 of our own shares.

As of last week, we have spent approximately EUR20 million of this program.

Yesterday, we announced an increase in the current share buyback program from EUR50 million to EUR100 million, which is enabled by our continued strong financial positions.

In addition, we have announced that we will proposed a dividend of EUR0.70 per share, which is stable compared to last year.

We intend to cancel 1.5 million treasury shares.

After a strong growth in 2013 to 2015 period, the single wafer ALD market went through a double-digit contraction in 2016.

We forecasted single wafer ALD market to reach a size of US$1.5 billion by the 2020, 2021 time frame.

We early expect that the market to reach to US$1.5 billion level by 2019.

Our updated forecast implies a solid double-digit growth for the coming years.

In Foundry, our revenue increased significantly worth of 50% year-on-year to a new record high, and well above previous levels.

Taking a longer term view, we see 3D-NAND as an important drive behind the expected double digit growth of the overall single wafer ALD market in the coming years.

The wafer fab equipment market had solid year in 2016 growing by almost 10%, with increases in logic/foundry and particularly 3D NAND offsetting declines in the DRAM.

Market watchers such VLSI and Gartner expected again a mid to high single-digit increase in the WFE, wafer fab equipment spending in 2017.

While the increase in semiconductor end markets is expected to accelerate from 2% growth in last year to 6% growth this year.

We project a year-on-year sales increase for the first half of 2017 whereby we expect a sales level of between EUR135 million and EUR145 million for Q1 and between EUR160 million and EUR200 million for Q2 both on a currency comparable level.

The order intake in Q1 is expected to remain healthy at a level of somewhere between EUR170 million and EUR190 million also on a currency comparable level.