Chairman of the Management Board, President and Chief Executive Officer
2018 has been a successful year for ASMI. With sales growth of 17% on a US$ basis (based on comparable 2017 revenues restated for IFRS15) we outperformed the wafer fab equipment market. We progressed well towards our strategic targets as we further expanded our addressable market in ALD and we strengthened our position in the other product lines. We stepped up our investments - to prepare our company for the next stage of growth - and, at the same time, we returned more than €600 million to our shareholders in 2018.
In the second half of the year the memory segment started to slow down. Still, ASMI finished the year with record sales and bookings in the fourth quarter as our strong position in logic and foundry more than offset the slowdown in memory spending. Supported by a record high backlog we have entered 2019 on a solid footing.
This was all done while being mindful of our commitment to being a responsible corporate citizen. First and foremost, injury rates in our operations reached an all-time low, demonstrating the value of our continued focus on Safety Leadership. Our Phoenix site water reuse system went on-line, reducing our global water consumption by almost 28% in 2018, and we achieved 100% adoption by our key suppliers of the Responsible Business Alliance (RBA) Code of Conduct.
Our industry recorded another year of growth in 2018. Worldwide semiconductor industry sales increased by 14%. In the latter part of the year, however, semiconductor growth started to decelerate, particularly in the memory segments, as economic uncertainties increased amidst international trade frictions and as end market segments such as smartphones were impacted by inventory corrections.
Estimated growth in the market for wafer fab equipment (WFE) was around 10% in 2018. While the first half of the year was still strong, overall WFE spending in the second half started to slow down, due to a substantial weakening of the memory segment. Investments in the NAND flash segment weakened in the course of 2018 and were particularly lower in the second half of the year. This was not unexpected as customers made strong investments in both new capacity and 3D-NAND conversions over the last few years, for which they now need some time to digest. In the DRAM segment, WFE spending was up for the full year, but also started to slow down in the second half.
Advanced Logic WFE was up for the full year and even accelerated in the second half, driven by investments in the advanced nodes. Foundry spending decreased for the year but accelerated in the second half, as the mix of spending started to shift towards early investments in the 5nm technology generation.
While WFE spending started to slow down in the second half, ASMI clearly ended the year on a strong note. Our second half year sales increased 22% compared to the first half, in line with the guidance we issued earlier in 2018. While we incurred a decrease in our memory sales in the second half, mainly in 3D-NAND, this was more than offset by robust traction in the logic and foundry segments. This is explained by our strong exposure to the logic/foundry space. As we indicated earlier, our total non-memory businesses accounted for clearly more than half of our equipment sales in 2018. We therefore strongly benefited as logic and foundry customers stepped up investments in the second half. Apart from an overall increase in spending, the mix in logic and foundry shifted in the second half towards the most advanced nodes of 10 and 5 nanometers, respectively. Compared to the previous logic/foundry nodes, our share of wallet in these newest nodes has increased in a meaningful way as we are engaged in a substantially higher number of layers. This also contributed to our strong performance in the second half of 2018.
Our total company’s sales increased by 17% in 2018 on a US$ basis (based on restated 2017 revenues). As such, we believe we outperformed the broader WFE market last year. We had record high sales in the logic segment, with strong growth driven by demand for advanced nodes solutions, including the 10 nanometer node. In foundry sales decreased somewhat in 2018 but picked up meaningfully in the second half, driven by early investments in 5 nanometer. In line with the industry, our sales in NAND dropped in 2018, due to the overall slowdown in this segment, and following a strong performance in 2017. In DRAM, we booked very strong sales growth compared to a lower base in 2017 as investments in new DRAM fabs drove higher demand for ALD patterning tools.
Our business in the analog segment also showed a strong performance in 2018. While this segment is smaller than the logic or foundry segment, it made a meaningful impact to our sales growth last year. Demand in this segment was driven by a broad base of customers across the globe for products such as power devices and IoT-related semiconductors.
In terms of product lines, ALD continued to be the key driver for our business and again accounted for more than half of equipment sales. The other product lines, also showed strong momentum in 2018, with solid sales increase in the vertical furnace, epitaxy and PECVD product lines, driven by increasing demand in logic and analog, where we traditionally are strongly positioned with a broader part of our portfolio of deposition products.
Our spares & service business, which is a solid and consistent contributor to our growth, increased in 2018 by 14% (based on comparable 2017 revenues restated for IFRS15).
Last but not least, during the year we achieved our target to more than double our sales in the Chinese market compared to a limited base level in 2017. The investments we made to step up our presence in this market started to bear fruit as we strongly expanded the number of engagements with domestic customers in China during the year.
With solid momentum in broad parts of our portfolio our sales increased in 2018 by 12% on a reported basis, and by 17% on a US$ basis, (both percentages based on comparable 2017 revenues restated for IFRS15) to a new record high. Gross margin showed a moderate decrease from 41.5% to 40.9% due to the impact from investments in new products and growth initiatives. With operating expenses under control operating profit increased 14%. Free cash flow in 2018 decreased slightly to €23 million which is explained by the investments we made in the two new facilities. In view of our long term growth projections we are stepping up our investments, as we announced last year. In October of last year, we completed our new facility in Dongtan, South Korea. This new facility includes an expanded state-of-the-art R&D lab and is much closer located to our key customers in South Korea. In addition, we made the first investments in the construction of a new manufacturing facility in Singapore which investments will continue in 2019.
ASMI’s financial position continues to be healthy. While the cash balances decreased from €817 million to €286 million, this is fully caused by the more than €600 million in cash that we returned to our shareholders in 2018. Using the proceeds of the ASMPT stake sales in 2017, we executed more than €350 million in share buybacks in 2018 and we distributed €4 per share to our shareholders in the form of a tax efficient capital return. In 2019, underlining our confidence in the prospects for ASMI, we will propose to the Annual General Meeting of Shareholders an ordinary dividend of €1.00 per share, which is an increase of 25% compared to the dividend paid in 2018.
In 2018, normalized result from investments, which includes the contribution from ASMPT, decreased from €112 million to €61 million. In part, this reflects the full year impact from the stake reduction in 2017 when we lowered our shareholding in ASMPT in two steps from 39% to 25%.
Despite the slowdown in the back-end equipment market towards the end of the year, ASMPT increased its sales by 12% in 2018. Its SMT solutions activity had a notably strong year, growing sales by 19%. In its Back-end equipment activity, ASMPT strongly improved its position in the key growth market of Advanced Packaging, which accounted for more than 10% of divisional sales in the fourth quarter.
2018 marked ASMI’s 50th anniversary. Our company made important contributions to many of the breakthrough innovations that have shaped our industry over this period. We can be proud of the leading position that ASMI has achieved. Our leading principle during all these years has been to support our customers with differentiated and cost effective solutions that enable them to transition to the next technology nodes. The opportunities ahead of us to further build our key role in the semiconductor industry remain strong.
ALD continues to be a key driver for ASMI. With an expanding number of applications, we remain confident that the single wafer ALD market will over time grow as a percentage of the total deposition market. An important pillar of our growth strategy is to increase our addressable market within the single wafer ALD space. To this end we have committed, and continue to commit, significant resources in further enhancing our leading platforms and to grow the pipeline of new ALD applications. An important milestone during the year was in this respect the launch of the Synergis last July. This newest addition to our family of leading ALD platforms offers excellent film uniformity and chamber repeatability in a lower cost of ownership configuration. Furthermore, Synergis supports a wide range of films, film properties and material compositions and as such will enable a meaningful expansion of our served available market. Customer reception has been strong and revenues as well as the order backlog at the end of 2018 already include multiple Synergis tools.
Furthermore, in January 2019, we announced the formal launch of the XP8 QCM tool for high-productivity plasma enhanced atomic layer deposition (PEALD) applications. This newest addition to our portfolio of leading ALD platforms allows for the integration of up to 4 modules each containing four process reactors, on a single platform. The XP8 QCM is already in HVM at multiple customers.
In terms of applications, during 2018, we were selected for multiple new applications for the 5 nanometer foundry node. In DRAM we continued our focus on developing new ALD applications beyond traditional patterning. In NAND, we made further progress in the number of applications in which we are engaged, which we expect to contribute, step by step, once the 3D-NAND industry moves to the next generation higher stack devices.
Next to ALD, as part of our growth strategy, we are also focused on driving structurally higher sales in our other product lines. Epitaxy is a key growth area for ASMI and delivered again a solid performance in 2018. After we started shipping our Intrepid ES system in 2017 we focused in 2018 on supporting the HVM ramp of this leading foundry customer. In addition we improved our position going from 7 to 5nm. In vertical furnaces and PECVD we are making targeted investments to enhance our niche positioning in these markets.
We continue our relentless drive to Deliver Excellence through focused annual structural improvement in our business operations that improve ASMI’s performance and benefit our customers. Our 2018 objective again focused on a set of 10 key improvement projects, of which selected examples include further strengthening the safety of our global R&D labs, strengthening our global software engineering team and processes, implementation of a leading-edge global product development environment, constructing our new R&D and manufacturing facility in South Korea, and further deployment of Process Control Systems in our supply chain to improve quality. Many of these projects are multi-year efforts and are key to enable our further growth and results.
Our overall progress in operational excellence is increasingly recognized by our customers. Last December, we were honored to receive, for the third time, an Excellent Performance Award from TSMC.
As we enter 2019, supported by a record high order backlog at the end of 2018, we expect sales to remain at solid levels in the first and second quarter of 2019, based on the guidance that we provided with our fourth quarter results. Looking at 2019, average expectations are for WFE spending to show a year over year decrease of a mid-to-high teens percentage. This is expected to be the balance of a substantial decline in memory spending and a more resilient outlook for logic/foundry. With the 3D NAND market still in oversupply, spending in this segment is likely to further drop in 2019. DRAM investments are also likely to drop in 2019 compared to the strong level in 2018. WFE spending in the combined logic/foundry segment is expected to be healthy in 2019, driven by spending on the most advanced nodes. We expect our strong position in logic/foundry to support our sales performance in 2019.
We would like to thank our employees for their continued dedication and hard work that contributed to the successful results in 2018. We also want to express our appreciation towards our customers for their trust and our shareholders for their continued support. Our focus remains the creation of sustainable value for our all our stakeholders.
March 5, 2019
Charles D. (Chuck) del Prado
President and Chief Executive Officer
Over the past 50 years we have grown to become a leading global supplier
of semiconductor wafer processing equipment. A company that develops
innovative process solutions for our customers, and manages itself in the best
interests of our investors, our employees, society, and other stakeholders.
Yet now is the time to enter a new era of innovation, to embark on the next
phase of growth. We understand that this requires commitment and strength
across many areas. From innovation in R&D, to advancing new technologies
and addressing new applications. From developing our people, to creating
even stronger relationships with key customers.
This is how we will take the next leap forward.
ROADMAP TO THE FUTURE
Our roadmap to the future will enable us to not only
achieve our next phase of growth, it will ensure we
can continue to help our customers achieve their
technology roadmaps for next-generation devices.
Our technology helps drive innovation, increasing the number of scientific breakthroughs, many of which are achieved from our advanced process equipment that deposits new materials with precision and productivity, positively benefiting society in sectors from healthcare and education, to transport and energy.
For semiconductor manufacturers, scaling chips
to smaller dimensions is an ongoing challenge.
Our innovations and equipment are vital in helping make many of these transitions happen.
Striving for efﬁciency ensures that our
customers get the products, services,
and results they expect. Intensifying
our focus on efﬁciency will make us a
stronger company, ready to take the
next leap forward.
We are a multinational company that
embraces diversity in every sense
of the word. With 29 different
nationalities working across the
company, we combine our talents
to drive innovation.
Achieving our ambitions takes intelligence, knowledge, skill,
determination, and dedication. And it is this combination of
qualities that we nurture in our people.
Our goal is to impact tomorrow’s generation
as positively as we’ve impacted today’s.
Making this happen takes the xtraordinary
talent of our people, who work together
to drive innovation and deliver excellence.
Collaboration is fundamental to our
continued success; from working
with our customers to optimize our
equipment and processes to enable
their technology roadmaps, to
creating partnerships on cutting-edge
research and development.
Operational excellence is one of the essential
pillars of our strategy, which enables us to provide
our customers with the high-quality, leading-edge
products and services they demand.
R&D is central to our development,
leading to new device architectures,
new materials, and new processes
that strengthen our competitive
positioning and enable our customers
to deliver the next-generation chips.
By extending our technological scope with a
more diverse product portfolio, we can help our
customers continue to advance their business
while growing our own in new market segments.
We create long-term value for our
stakeholders in a variety of ways.
From working with our customers
to develop innovative solutions, to
ensuring value creation growth
and positive investor returns.
We are committed to positively
contributing to society and
reducing our impact on the
environment. Only then can
we truly say we are helping
create more with less.
We believe sustainability takes many forms.
From developing sustainable technology
roadmaps for our customers, to creating
a sustainable living environment for all.
Safety is a front-line requirement,
which is why our ZERO HARM!
policy outlines our vision on product
safety, and our CR policy lays out
our commitment and expectations
towards health and safety.