ASM International NV (OTCQX:ASMIY) Q3 2022 Earnings Conference Call October 26, 2022 9:00 AM ET
Company Participants
Victor Bareño – IR
Benjamin Loh – President and CEO
Paul Verhagen – CFO
Conference Call Participants
Stéphane Houri – ABN Amro-Oddo
Francois-Xavier Bouvignies – UBS
Didier Scemama – Bank of America
Janardan Menon – Jefferies
Tammy Qiu – Berenberg Bank
Sandeep Deshpande – J.P. Morgan
Adithya Metuku – Credit Suisse
Robert Sanders – Deutsche Bank
Timm Schulze-Melander – Redburn
Michael Roeg – Degroof Petercam
Operator
Good day and thank you for standing by. Welcome to the ASM International Q3 2022 Earnings Call. At this time all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand over to your first speaker Mr. Victor Bareño. Please go ahead.
Victor Bareño
Thank you, Ravia and welcome everyone. I’m joined here today by our CEO, Benjamin Loh; and our CFO, Paul Verhagen. ASM issued its third quarter 2022 results yesterday evening at 6 PM Central European Time. For those of you who have not yet seen the press release it is available on our website asm.com along with our latest investor presentation.
Please let me remind you that this conference call may contain information relating to ASM’s future business and results in addition to historical information. For more information on risk factors related to such forward-looking statements, please refer to our company’s press releases, reports, and financial reports, which are available on our website. And with that, I’ll turn the call over to Benjamin Loh, CEO of ASM.
Benjamin Loh
Thank you Victor and thanks to everyone for attending our third quarter 2022, results conference call. The agenda for today’s call is as follows; Paul will review our third quarter financial results, I would then continue with a discussion of the market trends and the outlook, followed by our usual Q&A session. And before I hand over to Paul, let me first comment on the impact of the new U.S. Export Control Regulations as we also reported in our press release. These new export regulations were announced by the U.S. government on October 7th and restrict the export of certain technologies to advanced fabs in China. Compared to the previous regulations, the new regulations are much broader in scope. As a result we expect these regulations to negatively impact our sales in China as also indicated in our press release. Paul, will explain later more about the impact on our Q3 order intake.
As we discussed at previous occasions, we grew our sales in China to more than 10% of our total group in the last couple of years and step by step, we further expanded our position in the Chinese market, including local customers in the logic foundry, memory space, and the market for power, analog, and wafer manufacturers. In the first nine months of 2022 our equipment sales in China accounted for 16% of total revenue. Our focus is to serve all our customers in the best possible ways while always complying with the applicable regulations. And with that, I hand over to Paul.
Paul Verhagen
Thank you, Benjamin and thanks to everyone for joining this call. Let’s go to the third quarter results. In the third quarter of 2022 our revenue increased to €610 million up 9% from the second quarter. Compared to the third quarter of last year, revenue increased 33% at constant currencies and 41% on a report basis. Revenue in the quarter was above our guidance of €570 million to €600 million, despite continued supply chain challenges in the quarter. Spares and service had a solid quarter with growth of 17% of constant currencies, and equipment revenue in the third quarter increased 37% also at constant currencies driven by high record ALD sales and also Epi sales increased strongly and reached a quarterly high.
By customer segment revenue in the third quarter was led by foundry, followed by memory, and then logic. Both logic and foundry shows decreased somewhat compared to the previous quarter but were up year-on-year. Memory sales increased strongly to a new quarterly record, especially driven by 3D-NAND and following the increase in memory bookings in the previous quarters. Gross margin improved to 48.1% up from 47.5% in the second quarter, and from 47.2% in the third quarter of last year. This increase was mainly driven by stronger application mix.
Cost inflation has continued to go up. So far, we’ve been able to manage it well. In 2022 we have been able on average to reduce the relative cost of goods of our tools in particular in the first half of the year and to a lesser extent in the second half of the year. For next year, we project cost of goods to increase although it’s too early to tell to what extent. To offset these cost increases, we will focus on increasing sales prices where possible and so far we’ve seen initial success. SG&A expenses increased 41% at constant currencies mainly due to headcount growth and higher employee-related compensation. As explained in previous quarters, we have been strengthening various parts of the organization such as in customer field support and IT. And in the fourth quarter, we expect a gradual increase in the SG&A compared to the third quarter.
Net R&D expenses increased by 51% year-on-year at constant currencies. In view of a strong pipeline of new applications and upcoming inflections, we continue to grow our investments in R&D and for Q4, we expect a further sequential increase. Below the operating line the results included a significant currency translation gain of €25 million in Q3, similar to the gain in Q2. We keep a significant part of our cash in U.S. dollars and the strong appreciation of the U.S. dollar was the main explanation for the translation gain in the quarter. Our reported net result includes an impairment of 321 million of our stake in ASMPT in Q3, triggered by the reduced market valuation in the recent periods. There is no cash impact. Following these impairments and in line with our accounting policy, the changes in the market value of ASMPT will be included in our quarterly net results in case of further decline or until the impairment charge has been reversed.
Let’s move now briefly to ASMPT, the normalized results from investments, which reflects a 25% share of the net earnings from ASMPT excluding the impairments decreased to €20 million in the third quarter, down from €27 million in the second quarter and down from €28 million in the third quarter of last year. ASMPT reported sales of $581 million, down 12% compared to Q2 and down 27% from Q3 last year. Bookings amounted to $462 million U.S. in the quarter, down 22% sequentially and 37% year-on-year.
Now turning back to ASM’s consolidated operations. Our new orders in the third quarter were 670 million, down from 943 million in Q2 and up from 625 million in the third quarter of last year. Our Q3 orders included a negative impact from the new U.S. export regulations, as just mentioned by Benjamin. We expect more than 40% of our sales in China to be impacted by the new export restrictions based on our preliminary assessments and taking a conservative view we decided to fully de-risk the backlog by taking out all orders that we expect we cannot ship to Chinese customers in the coming periods based on our assessment of the new export restrictions. We reduced our Q3 order intake and the related backlog with all such orders received during Q3 and in prior quarters that are still to be shipped in the next quarters. Excluding this negative impact, the decrease in our order intake compared to the record high level in Q2 would have been much more moderate. We’ve also taken the expected impact into account in our Q4 sales guidance of €600 million to €630 million. And even including the adjustment related to China Q4 sales are expected to be roughly flattish or up compared to the level in Q3. And finally, as we also mentioned in the press release, China has been a growing part of our business with in general above average margins.
If we then look at the breakdown of bookings by industry segment, foundry was the largest segment in the third quarter, followed by logic, and then memory. Combined logic foundry bookings were down sequentially but were up year-on-year and continue to account for the largest part of our bookings. Memory orders were down both compared to the record high in Q2 and year-on-year. DRAM accounted for a large part of memory bookings. The order intake in Q3 also includes a very solid contribution from the power analog and wafer manufacturers segments. By product lines bookings continue to be led by ALD. Of note were also are Epi bookings that very strongly increased to a record high in the quarter.
Now turning to the balance sheet, we ended the quarter with €670 million in cash, up from €552 million the previous quarter. Please keep in mind that we closed the acquisition of LPE on the 3rd of October, so the cash position at the end of the third quarter did not yet include the financing of the acquisition. As announced, we paid 283 million in cash in addition to 603,000 ASM shares for LPE. The increase in the cash position at the end of Q3 was driven by a solid free cash flow of 122 million in the quarter, including €17 million in dividends received from ASMPT. The increase in free cash flow was supported by the continued solid operating profitability, along with a lower cash outflow working capital compared to the second quarter.
Working capital at the end of the quarter amounts to 432 million compared to 386 million at the end of June 22. This was mainly driven by higher inventories, which can be explained by the ongoing supply chain issues. CAPEX in the third quarter amounts to €21 million and year-to-date, capital expenditures amounted to €64 million. We still expect CAPEX for the full year to come in towards the higher end of the range of €60 million to €100 million. And with that, I hand the call back to the Benjamin.
Benjamin Loh
Thank you, Paul. Let’s look in more detail at the trends in our markets. We delivered a solid performance in the third quarter. Our revenue reached a new quarterly record in Q3. It was the eighth consecutive quarter of sequential revenue growth, despite the supply chain challenges that also persisted in the last quarter. Our team continue to execute well in close cooperation with our suppliers and customers, and we also benefited from actions we took earlier, such as the qualification of additional suppliers. For the fourth quarter overall supply chain conditions are likely to show moderate improvements, but we don’t expect the constraints to be fully resolved.
Operator
Ladies and gentlemen, please continue to stay on the line, your conference will resume shortly, thank you. Ladies and gentlemen, please continue to stand by, your conference will resume shortly, thank you. Now reconnected. Please continue.
Benjamin Loh
Everybody apologies. I think somehow we got disconnected. So I’m going to start with the market trends again. We delivered a solid performance in the third quarter. Our revenue reached a new quarterly record in Q3. It was the eighth consecutive quarter of sequential revenue growth, despite the supply chain challenges that also persisted in the last quarter. Our team continued to execute well in close cooperation with our suppliers and customers, and we also benefited from actions we took earlier, such as the qualification of additional suppliers. For the fourth quarter overall supply chain conditions are likely to show moderate improvement, but we don’t expect the constraints to be fully resolved. WFE for the full year 2022 is now expected to increase by a high single digit percentage. This is a reduction compared to the earlier expectation, which was an increase at the low end of mid to high teens percentage. Taking into account the guidance we provided for Q4, we expect to clearly outperform WFE this year.
During the third quarter, the semiconductor end market further slowed down with significant declines in the PC and smartphone segments. Combined with an expected deceleration in global economic growth and the impact of new U.S. export regulations, WFE spending is forecasted to be down in 2023 in particular, the memory segment. It is too early to provide guidance for next year, but ASM is well positioned with an expected robust backlog by year end and on the back of our leading position in the leading edge logic foundry segment which accounts for the largest part of our sales and good traction we are having with our new products and applications.
If we now look in more detail at the different segments, a leading edge logic foundry demand remains strong. We continued to benefit from solid spending by leading customers as they are ramping their newest notes into high volume manufacturing such as the three nanometer node in the foundry segment. The mix of these newest nodes in which we have strong share wallet has further increased in the quarter. While parts of the logic foundry end markets have also been slowing down, we expect investments in the most advanced known capacity to continue into next year. The midterm outlook remains strong. ALD and Epi are key enablers of gain all around technology. Our R&D engagement with logic foundry customers continue to be very strong and we are confident the transition to gain all around will drive a significant further increase in our served markets with a continued leading position for ASM in ALD.
Next memory. Even though memory is becoming a more sizable part of our business, it is still a relatively smaller part of our total revenue. We are on track for very good — for very strong growth in this segment in 2022. This reflects the success of our newly introduced applications in particular with high K-metal gate in high performance DRAM and ALD gap fill in high spectry [ph] DRAM devices. As just mentioned, the slowdown in end markets such as PCs and smartphones has impacted the memory segment in particular. To address the market slowdown, some of our customers have announced substantial CAPEX cuts. As a result, for next year, a meaningful double-digit drop in memory spending is likely. While we expect continued benefit from our new application wins, the weaker market conditions are also likely to result in somewhat slower ramp of new and most advanced capacity, and this will also have an impact on the demand we are projecting for 2023. We are confident that based on current R&D engagements, we have solid opportunities in front of us to further expand our memory position as our customers move to next generations of DRAM and 3D-NAND in the coming years.
Finally leading edge. Our presence in this part of the market is mainly limited to a number of niche positions, especially with our Vertical Furnace and Epi tools in the segments of power, analog, and wafer manufacturers. We’re much smaller than our leading edge business. We have been recording very solid demand in this niche segments in the recent periods. Apart from the growing market demand, a meaningful part of this growth is also driven by the success of our newly introduced products.
In Vertical Furnace we continue to have a good traction with our 200 millimeter platform, A400 DUO and with our new 300 millimeter system Sonova that we launched last year, we have gained quite a few new positions. In Q2 we already booked multiple tool orders from several customers. With our Intrepid ES Epitaxy tool that we introduced last year, we have also won multiple new customers. For instance, in 300 millimeter power and wafer for which we expect an increased sales contribution in the coming quarters. In the third quarter, demand in the total power, analog and wafer markets remain very strong for us, especially for automotive related capacity, but recently we noticed some signs of weakening for demand related to consumer applications.
Looking beyond 2023 at the longer term trends, ASM continues to be well positioned for continued solid growth. Structural growth in data intensive end product applications such as in cloud and AI will require continued innovation towards faster and more power efficient semiconductor devices. Our ALD and Epi technologies will play an increasingly important role to help our customers address the challenge of 3D structures and new materials in next generation logic, foundry, and memory devices.
Finally, with LPE we are adding a new growth driver to our portfolio. As Paul mentioned, we closed the acquisition earlier this month. LPE is experiencing strong demand for the silicon cover Epi tools as customers continue to expand capacity for a large part driven by the growing electric vehicle markets. Supported by a substantial backlog, LPE is on track for revenue in excess of €100 million in 2023 as we have communicated earlier. LPE also has strong R&D engagements for 200 millimeter tools with several of the leading silicon carbide device manufacturers, which we expect to further strengthen our position in the silicon carbide Epi market in the coming years.
To sum up, ASM is on track for a solid performance in 2022. For 2023, WFE is expected to weaken with especially memory down but ASM is well positioned thanks to strong exposure to leading-edge logic, foundry and solid traction in new applications and products, while prospects for the longer term continues to be strong. With that, we have finished our introduction. Let’s now move on to the Q&A.
Victor Bareño
We’d like to ask you to please limit your question to not more than two at a time so that everyone has a chance to ask a question. Okay, Ravia, we are ready for the first question.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. The first question comes from the line of Stéphane Houri from Oddo. Please ask your question. Your line is opened.
Stéphane Houri
Yes, good afternoon. Actually, I have indeed two questions. The first one is about the impact of the U.S. restrictions and the quantification that you have made. Can you please help us understand why you seem to be a bit more impacted than ASM, for instance, while you’re not a U.S. company, so is it a question of IP, of number of employees working in the U.S., can you please help us clarify this point? Thank you. And I have a follow-up.
Benjamin Loh
Stéphane, good afternoon. Thank you. So, as we have communicated, we are — let’s say, impacted by the new U.S. Regulations that came out or that were announced October 7th. And the regulations are actually very much a broad based at this time. And we have assessed the regulations and to be perfectly honest, we are still in the process of doing further assessments and also getting clarifications. It’s a very huge regulation, many, many pages, and we are combing through it. What we have seen or what we understand so far is that in terms of products or technology, there is really no change for us, not much. Basically, it’s the same as the previous regulation, more or less. However, the new regulation has the additional requirements of U.S. persons. And U.S. persons, the way that it is defined is very broad. And of course, for our company, we are much more a global company, geographically dispersed.
We have a substantial presence in the U.S. but at the same time, I think what’s really important is that we have executives that are classified as U.S. persons. What we have done really is take kind of like a worst case scenario and say look, okay, for some of the advanced steps, because it really impacts the advance, what is classified as advanced steps in China is to say that okay, for the advanced steps, let’s take the assumption that we will not be able to continue shipping or selling to them. And with that, we have taken a decision that we want to make the necessary changes at this moment in Q3. So that, of course, impacts to some extent, our Q4 revenue. But at the same time, for the Q3 results, we have looked at the so called orders that we have received from these advanced type customers, including from previous quarters, and not just from Q3, and we have wheedled them out from the backlog that we have. So that’s actually what we have done.
Now, again, maybe a little bit of a clarification here. We have mentioned that sales in China has grown to more than 10% of our total. And on this call, we wanted to give you a little bit more color. So for the first nine months of this year, sales to China was actually about 16%. And of that 16%, if the regulation had come out earlier, we would have been impacted with about 40% of the sales. And if you look at that, you can probably do the math and say look, it’s a single digit percentage that we are impacted, and that is what we have done in terms of making sure or in terms of putting in place, taking a very good approach and say look, let’s take this out and because going forward there is a high possibility or there is a possibility that we may not be able to ship there.
Stéphane Houri
Right.
Benjamin Loh
I think that answers your question.
Stéphane Houri
Yeah, yeah, a little bit. The 16% multiplied by 40% makes like 7%, I guess. So that’s what you’re talking about?
Benjamin Loh
Somewhere around.
Stéphane Houri
Yeah, okay. So the question here is, if demand is so strong in the rest of the business, like in the leading edge with TSMC, Samsung, is it possible that some of the tools that you were supposed to sell to China would be redirected to TSMC, Samsung or Intel or any other that would be taking the tools, are their lead times long enough?
Benjamin Loh
The quick answer, Stéphane would be yes, but we have to be sure and as I said earlier, we are still in some areas clarifying with the U.S. government. So until we are very sure, it’s also a little bit premature for us to start moving things around. At the same time, most of the tools that we sell, kind of customize for customers. So it’s not really a plug and play. I mean, of course we can take some of the components and move them along and so on. And, once we have a clear definition or clarification, that’s probably what we will do. But I think you will see more of the impact starting from next quarter if we do this.
Stéphane Houri
Thank you very much.
Operator
We are going to proceed with the next question. Please stand by. We have the next question coming from the line of Francois Bouvignies from UBS. Please ask your question. Your line is open.
Francois-Xavier Bouvignies
Hi. Thank you very much. Can you hear me?
Benjamin Loh
Yes.
Francois-Xavier Bouvignies
Great. So my first question is, maybe looking at 2023 and you mentioned, the wafer fab equipment spend that will be likely down. Now if I look at 2022, you’re going to significantly outperform the wafer fab equipment by more than 20 percentage point if you look at your guidance versus the current wafer fab equipment spend from a gross perspective year-over-year. Now, if I look a bit beyond 2023, you mentioned in your presentation, we have posted potentially high exposure to logic, which is going to be less down potentially than memory. You have the ALD exposure with the no transition. You mentioned the below seven nanometers of share going up to 45% from the 2020s. Adoption of high chemical gate in DRAM, ALD gap fill in 3D-NAND. So all of this, I would assume will continue in 2023. So my question is the outperformance that you saw in 2022, is there any reason why you wouldn’t outperform the wafer fab equipment again meaningfully into next year, given all the drivers that I just mentioned that you mentioned in the release? That’s my first question.
Benjamin Loh
Okay. Sure. I think, this year we are very confident that as you currently mentioned of outperforming the WFE market. And of course, 2023 is still left to be seen. A little bit early for us to maybe give guidance on what we expect. I mean, we already have been reading all kinds of third party data research companies, analyst reports, and it looks like there’s going to be quite some reduction in 2023. From our point of view, we continue to benefit from Brazilian advance or leading edge, logic and foundry. As we have explained before, the investments at the most advanced note are multiyear. So I think that’s going to continue. So that’s going to be good for us because that’s also the largest part of our revenue.
Memory, of course, we do see weakness as with everybody else. So we do expect it to be down. And finally when we look at the power analog wafer manufacturers part of the market, we expect that the demand there will continue to be good. As far as we can see, that is probably going to happen in 2023. In terms of contextualizing that and coming up with a number I think it’s too early. But we see good prospects for us going into 2023. Now beyond 2023, we remain confident that the role in the markets that we play in, especially in the ALD market and in the Epitaxy market, will continue to grow just because of the technology inflections. We have seen and have a lot of customer engagements in the logic foundry space. So we are not sure, but we can guess that probably the transition to get all around will happen in 2024, or will start to happen in 2024. And that’s going to lead to increasing usage of ALD and Epitaxy.
So on the whole, we, we do believe that what we have shown at our Investor Day last year, that’s still — there’s no change. And we — if there’s any further, let’s say, update, we will provide them in the future.
Francois-Xavier Bouvignies
Okay. Thank you. I mean, just with the — what you mentioned, it’s ASMI or with a fab equipment spend, memory down, etcetera. Did you talk about the wafer fab equipment or just ASMI?
Benjamin Loh
Just wafer fab equipment in general, yeah.
Francois-Xavier Bouvignies
Okay. Because irrespective, whatever, it’s 70 billion, 60 billion, whatever happens to the wafer fab equipment spend, is it fair to assume our performance meaningful again because of the drivers you mentioned, just all the — relative to the fab equipment?
Benjamin Loh
I think it’s difficult for us to say, at this moment to talk about our performance. I think first of all, we need to have a clearer view of what WFE, for example, is going to be in 2023. And our opinion is it’s still a little bit too early. Things are still moving. It’s still not finalized. But we do remain confident that we have a solid position in the leading edge, logic and foundry. and also with the strong demand in the trailing edge in power, analog and wafer manufacturers. And together with solid backlog going into 2023, that’s going to cushion us very, very well.
Francois-Xavier Bouvignies
Okay. Thank you very much Benjamin. And maybe my follow up quick one, really, it’s on the China exposure. Can you maybe, give more color if it’s more memory driven or logic foundry, just give more color on that? And thank you very much.
Benjamin Loh
Sure. So we have actually made a lot of progress in China in the sense that we have a broad base of customers. So we, for example, sell to the logic customers, the memory customers, and of course, the trailing edge power, analog and wafer customers. And, what has come out from the U.S. regulations is, what is this, mainly targeted is two things. One is advanced fabs, which is actually, just logic or foundry that is 14 nanometer and below. And, DRAM 18 nanometer and below, and, 3D-NAND 128 layers, and above. They are not really the most advanced, but they are considered advanced by China standards. We do sell to these customers. In fact, if you look at the advanced fab category, we probably have between 5 to 10 customers. We will not come up with a specific number. So, when that area has restrictions that we, of course, will be impacted. But again, I would like to say that at this moment we have taken a very prudent and conservative view while we work through all the clarifications, and discussions to make sure that we comply with the rules. But we have taken kind of like the worst case at this moment.
Francois-Xavier Bouvignies
Okay. Thank you very much.
Operator
We are going to proceed with the next question. Please stand by. The next questions come from the line of Didier Scemama from Bank of America. Please ask your question. Your line is open.
Didier Scemama
Yeah, thanks very much, and good afternoon, gentlemen. My question is regarding your backlog. So you’ve got about €1.5 billion backlog at end of Q3, curious to have your thoughts on what bookings might do in Q4? And then the other question related to the backlog is, can you give us a sense of the maturity profile of that backlog, how much of that is expected to be recognized over the next 6 to 12 months? And I’ve got a follow-up. Thank you.
Benjamin Loh
So Didier, the first answer to your first question of course. So again, the backlog of 1.5 billion is for delivery within the next 12 months. So, in that sense you could say that recognition is within the next 12 months, a way of looking at it. And, when you look at the Q4 bookings, so of course we have had a couple of quarters very strong. And we do see that also with a little bit of the slowing market, various impacts and so on. We normally do not give guidance for bookings anymore, but we think that okay, for this one time may be it is good to give some color. We do expect that going forward, especially starting from this quarter, that book to build is going to normalize, become more normal, and that we will be able to catch up on converting more, I would say, of our backlog. Hopefully the supply chain situation also gets better as we move into 2023.
Didier Scemama
Excellent. And my follow up is on the back of the comment that you made on China being above average profitability. So maybe Paul if you could quantify the impact on the gross margins going forward, does that change your long term model but more importantly, does that have an impact in Q4 in the following quarters? And then related to that as effectively 40% of your business in China has disappeared overnight, are you taking actions also when it comes to OPEX, are you taking those OPEX out of the model? Thank you.
Paul Verhagen
Yeah. [Indiscernible] in the press release, and also just in the remarks that the margins we make on some part of our sales in China that were impacted are above average. So strong contribution to the group profitability. So from that point of view you know that the short term, the biggest driver of margin is mixed. So this obvious is not favorable to our mix. So we’ll have some impact most likely in Q4 and beyond. I’m not going to quantify, but you can, with the numbers we’ve given, you take certain assumptions. Obviously, it’s 60% of revenue, it’s around 40% of that revenue is impacted, and that we have somewhat higher margins than we see, normally for the groups. So you can do certain simulations, I believe. Then, in terms of OPEX, at this stage maybe first R&D, we are not planning to make any adjustments there downwards, only upwards. I mean, as you know, there’s a lot of opportunities ahead of us. There’s quite a few inflections ahead of us. We want to stay ahead, so we will continue to invest in R&D. That’s a lifeline that’s very important. So that will not stop, that will actually increase. For SG&A you’ve seen, also quite a significant increase in the last few quarters, where we needed to step up. Given the growth of the company and also prepare of course, for ongoing growth. That increase will slow down a lot. So we will definitely be more frugal in terms of SG&A cost. I don’t expect any major restructuring or so at all to be very honest. But again, all that is too early to tell. We have to see how revenue will develop but the key thing is that for now, R&D will continue to increase. And SG&A we will mitigate for sure the increases that you’ve seen in the previous quarters.
Didier Scemama
Okay. That’s brilliant. And maybe just one tiny one. I think given the sort of surprise today by the market of your China exposure and the impact on the restrictions, I mean, would you consider changing the disclosure, perhaps going forward, so disclosing what China is about on your revenues and more importantly, perhaps cause you are the only really semi cap not giving that detail, giving us the split between foundry, logic, memory, and perhaps analog power and wafers, because I think that would really help the market better understand the risks and obviously opportunities of the business?
Benjamin Loh
I think what we would like to do is, take that under consideration. We actually will think about it and part of the problem is if we give too much color, it also gives too much — a lot of information to our competition. And that has always been one of the reasons or main reason why we are not doing that. So we will take that under consideration, but I cannot promise you that we will do that.
Didier Scemama
Okay, many thanks.
Operator
We are going to proceed with the next question. The next questions come from the line of Janardan Menon from Jeffries. Please ask your question. Your line is open.
Janardan Menon
Hi, good afternoon. Thanks for taking my question. Just on this preliminary assessment, can you let us know roughly how long it will take you to come to a final assessment? And is that mainly, the procedure for that, is it just discussions and clarifications with the U.S. government officials and until you get the right answer or the correct answer from them, you will continue with this preliminary assessment? And if you do come to that conclusion of a final assessment, will you let us know whether the assessment is either continuing to be a current one or if it changes in any shape or form? And the second question is just on the order outlook. You said that you expect a book to build to normalize, I assume that you mean it’ll trend towards a one. You are at about 670 right now. Your revenue guidance is in the low 600s. So does that assume that you are sort of looking at a flattish order profile in coming quarters, is that what we should be modeling, or is it that with the component shortage are easing, and you are converting more of your backlog, your sales will rise and that would also sort of add to that normalized picture on your order book?
Benjamin Loh
Janardan, thanks. So, on the first part of the assessment, maybe just to give again a little bit more explanation, we are in the process of seeking clarification, for example, with the authorities. We are also or we have also engaged external counsel, legal counsel to help us understand the regulations and so on. How far or how slow this will take it’s hard to predict, because we need clarifications on certain things, and hopefully we get them much earlier than later. But our intention, of course, is to speed this up as much as we can so that we have clarity. And I think we know to a large extent, most of our peers are also in a similar situation trying to seek a further clarification. Some of them have already made certain assessments, and perhaps even announced, but some of them are still in the process as well. So again, no, no, let’s say a definitive kind of answer on when we can do that. But, the plan is we want to do this as soon as possible, so that we don’t hold things up. On the Q4 order, let’s say description, I think — Hi, Janardan are you still on the line. I am sorry we got cut off.
Janardan Menon
Yeah, I’m on the line and we heard the answer to the first question, but not the second question.
Benjamin Loh
On the booking side, I think the main thing is, when we were asked for example or we tried to give a little bit more color and saying that Q4 is going to probably normalize, I think there’s, there’s a couple of things there that we should also take into consideration. Janardan, one is we do hope that supply chain conditions are going to get better. I think we do see moderate improvements, but in certain areas there are still certain pockets of certain stuff that is quite restricted. We hope that that becomes better. Second thing is, with a slightly slowing kind of a market, we do also expect that the longer, let’s say or the early order or early placement of orders, that is going to slow down significantly. So that is why we kind of are predicting or projecting that is going to be normalized towards as you correctly mentioned it, unity or one to one kind of ratio as we go forward.
Janardan Menon
Understood. Thank you very much.
Operator
We are now going to proceed with the next question. Please stand by. The next questions come from the line of Tammy Qiu from Berenberg. Please ask your question. Your line is open.
Tammy Qiu
Hi. Thank you for taking my question. So Benjamin, first one, can I just clarify because of I understand historically a lot of your R&D and IP was developed in Phoenix in the U.S. So from a technology or technology ownership perspective, should we actually look at ASMI as a U.S. company instead of a European company? That’s the first one. And the second one is, can you talk a little bit about your traction with three nanometer, I understand that three nanometer at one of the large Asian foundry player has a couple of versions with different designs. So can you talk about your involvement in different design, are you more involved in certain designs, but not so much with the others? And I have a small follow-up.
Benjamin Loh
Tammy, thanks a lot. So maybe a little bit of how ASM is organized. Of course, we do a significant or substantial what do you call a product development in Phoenix. In fact, we have products that are designed and developed there, but at the same time, we have products that are also designed and developed here in the Netherlands, designed and developed in Japan and designed and developed in Korea. So we are kind of geographically dispersed and all over the place. So it’s difficult for us to kind of classify are we a U.S. company, EU — European company. I guess the best term that we would like to use is we are a company that is listed on the Netherlands or the Dutch Stock Exchange, but we are really a global company. So in that sense, our IP is developed all over the world. So I hope that answers your question.
On the three nanometer foundry. Okay, without going to, for example, any kind of customer specifics, of course they are working on what you call different versions. The good thing is we are involved with them with all the different versions, number one, and at the same time, we are heavily involved with them actually also on the next, and the next, next nodes. So I would like to, maybe just add that, in terms of R&D engagements that we have with all the logic and foundry customers, we have a significant amount of R&D engagement either at this moment, both, whether it’s a three nanometer or the next node or the next, next node. I think it’s probably fair even to say that we have probably the highest amount of R&D engagements that we have ever seen in our company.
Tammy Qiu
Okay. Thank you. Just to clarify, relating to the IP and global presence part, take a tool, let’s say part of for example, would you say the contribution from U.S. in [indiscernible] is about 25%?
Benjamin Loh
Are you talking about the technical content?
Tammy Qiu
Yes, yes. I mean, from a contribution — IT contribution perspective?
Benjamin Loh
I think the easiest way to understand that is that we of course have to follow what is called deminimus rule. And most of our products are not affected by that, because we do not reach the level, and hence prior to the October 7th regulations that we could, and we have shared with everybody, we were able to sell and ship our products freely. Now with the new regulations, there is one which is kind of a technical, let’s say a regulation. But even with that new technical regulation, it has almost no impact on us. So actually, it doesn’t change. The impact on us today is more the U.S. person requirement, and that’s where we are seeking a lot of clarifications today.
Tammy Qiu
Okay. Thank you. A tiny last one, I promise. So from a Q4 perspective, given you are very conservative, can we see actually in Q4 when you’re reporting in January or February to say, actually I was able to ship those tools, which I would cut off today, but actually I have done the paperwork and I could actually ship it. Can we see that potentially?
Benjamin Loh
Tammy, I think that’s difficult for us to answer at this stage. As I said, we are still assessing the situation. There is a possibility, but I would prefer not to speculate at this moment.
Tammy Qiu
Okay. Thank you.
Operator
We are going to proceed with the next question. The next questions come from the line of Sandeep Deshpande from J.P. Morgan. Please go ahead.
Sandeep Deshpande
Yeah, hi. Thanks for letting me on. Some of these questions have been asked, but I’m trying to understand your exposure going forward from here. How should we be looking at now that China has been de-risk from your numbers, how should we be looking at your memory and logic exposure going forward from here, excluding China?
Benjamin Loh
Sandeep, thanks. I think, probably the easiest way to look at it is the — our exposure to, for example, what is the advanced steps, which is advanced logic foundry in the China context and memory. I would say that it is still a relatively smaller part of our business. So we continue to have a leading position especially in the leading edge, logic and foundry, which is way by and far larger part of our business. And at the same time, I think we have carved for ourselves a nice position for ourselves or increase our position in memory outside of China. Unfortunately, of course, we are going to see a memory — a CAPEX for reduction in next year. But we’ll see how that plays out. At this moment, we think that, as far as we are concerned because of the reason the application wins, the impact will be there, but maybe not so big.
Sandeep Deshpande
Okay. And then how do you look at your lead times coming in given that now the supply is normalizing, so do you expect that to have an impact on orders as well, were customers ordering because they expected a lengthening of your lead times, and now with lead times coming in they reduce orders because of that?
Benjamin Loh
Sandeep, as I kind of alluded earlier, I think the so-called excessive, maybe to some extent early ordering, I think that’s probably going to be reduced going forward. Now as far as lead times coming down, I would maybe exercise a little bit of caution. Like I said, we still have certain parts of the supply chain that is severely constrained, and we are still working through that. So it is like are lead times back to normal, the answer is no. We are still seeing extended lead times, but hopefully over the next couple of quarters when we get to a more normal situation, and we can get back to our usual lead times as well. When that happens, I think you’ll see a much more normalized kind of order revenue type of pattern.
Sandeep Deshpande
Thank you.
Operator
We are going to proceed with the next questions, please stand by. The next questions comes from the line of Adithya Metuku from Credit Suisse. Please ask your question.
Adithya Metuku
Yeah. Good morning, guys. Sorry, good afternoon. I had two questions please. Yeah, two questions please. So can you — I was just wondering, would it be possible for you to change the configuration of your employees so that your shipments are not impacted by this U.S. person’s rule. So can you move people around so that the teams that are shipping have more European and nation based employees, is this a possibility? And, and if it is, how long might it take you, to, to install this configuration? And, then I’ve got a follow-up.
Benjamin Loh
Adi, thanks a lot. That’s a great question. I think the answer to that is something that we probably will have to look at if our worst understanding of the regulation stands. And at this moment, I think our primary focus or most urgent focus is to try to understand the full definition of U.S. person and how this impacts any — not just us, but any of our peers or any equipment supplier as well. And then once we are able to fully have a full understanding of that, if it’s still necessary, the answer is, we’ll probably have to refine the way that we can change the configuration of our employees. Short answer is, that’s something that we will have to look at. It’s probably impossible.
Adithya Metuku
Got it and my follow-up is just on your exposure to your domestic customers ramping very quickly this year. Is it — would it be fair to say that your domestic Chinese customers are using more ALD than other memory and logic vendors, the non-Chinese memory and logic vendors and their recipes and is this the reason why you expose yourself growing very quickly this year? And secondly, I just wanted to know if you look at the exposures to the domestic Chinese customers, would it be fair to say that it’s mainly ALD or are there other products which are also affected by this DOC rule changes?
Benjamin Loh
Okay. Sorry. Again maybe just to confirm, you wanted us to kind of a contrast domestic let’s say China customers against non-Chinese customers. Is that what you’re asking for?
Adithya Metuku
Yes. So for example, if I were to take a like a large Korean memory guys and look at their NAND products. Would they be using CBD for certain steps whilst the Chinese vendors so these NAND products for the same steps and that is why your exposure to domestic Chinese customers has been growing strongly, stronger than your group revenue, would that be a fair assumption?
Benjamin Loh
Actually I do believe that the reason why we have been a growing our positions for example with what is classified as advanced logic or memory with the domestic China customers is it’s two fold. One is they have been trying to move up of course the technology chain as well. So they started with low — much let’s say order technology and they have things start to move up and with the move towards smaller notes, more advanced technology, that has caused them to require I would say more layers of ALD and that is not something which is unusual from what we have seen with all of our other customers. So that’s one. Second, I think if you asked us if our exposure, mainly in ALD, I would say that it’s a mixture. We do have of course with the more advanced fab customers more ALD but at the same time again just to emphasize that part of the business falls in China is 40% of 60%. So it’s not really a major big exposure for us. And the other part of our business in China, which is more than 50%, is in the power, analog, and wafer manufacturers, and that’s marked the ALD. That’s mainly, [indiscernible] and Epitaxy.
Adithya Metuku
Got it, very clear. Thank you.
Operator
We are going to proceed with the next questions. The next question comes from the line of Rob Sanders from DB. Please ask your question.
Robert Sanders
Yeah, hi. Good afternoon. I just had a question about ALD market share. So — they’re taking share in ALD and logic foundry, yet last time I remember within logic foundry you have a very dominant position in the front end of line, so the gate is stacked. So is it more likely that they would be winning share in more mature applications or is it really feasible that they may have entered your domain, your home territory if you won? And my second question is regarding push outs. We haven’t — you haven’t discussed whether you have seen shipment date adjustments for tools in the backlog, like other deposition and edge players have talked about. So, have you seen that yet, I mean, as you know your largest logic customer is facing big demand challenges and technology challenges, and memory CAPEX cuts seem to be ring-fencing EV, but not ALD. So, have you seen push outs so far? Thank you.
Benjamin Loh
Rob, I’m really sorry, but halfway through your question, I got cut off. Could you please repeat the question again?
Robert Sanders
Okay, I apologize to everyone on the line. So yeah, the first question was regarding LAM taking share in ALD and logic foundry. Is it possible that they could have taken share within the most advanced applications within logic foundry or is it more mature applications? And the second question was regarding push out. Have you seen any shipment date adjustments for tools already in the backlog like other players have? Thank you.
Benjamin Loh
Well, thanks a lot. I think the competition with our peer and of course, we respect and we compete together with them, in all areas actually, not just in logic and foundry, but also in memory and I think we are competing in all the most advanced technologies as well. I think it’s difficult for us to be able to give a clear picture as to whether they are gaining share or whether we are losing share, or whether we are gaining share. I think we still have to wait, hopefully until the year ends. And then, we have a12-month kind of cycle where we can also do our own assessment and look at some validation from the data research companies, but I do believe that we based on the engagements that we have. We are in very good position to maintain our share and of course, in memory, it’s not just with the hike in gate but with — ALD gap fill but that we have as I’ve always explained, a pipeline of applications that we are working on. So I think we — there we have confidence that we are in a good position.
On the push outs, it would be of course the one area where the industry is having some stress, of course, is memory. And we are in discussion with some on a certain push outs but they are not major but it’s just maybe a delayed acceptance of tools and so on. And we do have some of that. Yeah.
Robert Sanders
Okay, thank you.
Operator
We are going to proceed with the next question, please stand by. The next questions come from the line of Timm Melander from Redburn. Please ask your question.
Timm Schulze-Melander
Hi there, can you guys hear me okay.
Benjamin Loh
Yeah, Tim, thanks.
Timm Schulze-Melander
Perfect. Thank you. So, had a few little questions please. The first just in your China business. Just broadly speaking power analog and the wafer manufacturers, sort of proportionately. How sizable would they be within that China business? Please.
Benjamin Loh
The power, analog and wafer part of the business, I would say it’s slightly more than 50% of our total business in China.
Timm Schulze-Melander
Okay, then in terms of the deep booking activity, does that mean that you would expect to return customer deposits in 4Q?
Benjamin Loh
We unfortunately, did not have any kind of luxury of getting a deposit from our customer. So we are not — we don’t have to return anything. We just have to kind of take them out of the backlog, that’s about it.
Timm Schulze-Melander
Got it. And then, just maybe two other quick questions in terms of, maybe this is for you and Paul, just looking up 4Q and into early 2023, do you anticipate any changes in your reserving against inventory values, is there anything that you’ve already baked into your gross margin guidance, I think you Paul you discussed that the margin would have some headwinds because China was higher margin in terms of mix. Is there any element of inventory reserving that you’ve booked into your expectations?
Paul Verhagen
At this moment, no special or additional inventory let’s say reserves that we have taken beyond what we normally have. Let’s say there’s always a little bit of energy, of course and that one way or the other will be impacted. And obviously, our inventory is significantly higher than last year due to all the supply chain issues that we have faced due to all advance booking that we’ve done. Of course with changes in the — now with China let’s say excluded for a certain part as we talked about, maybe there is some push out left and right in memory, don’t know yet, it seems not very big for the moment at least. There could be some based on initial tests we have done. I don’t expect any material changes here at this moment in time. But of course, we have a higher inventory, and of course there is always some high-risk. But at this moment in time it is not anticipated that we will see a significant change or material one also in that respect, it is not expected to for now at least based on everything that we’ve done so far.
Timm Schulze-Melander
Very clear.
Victor Bareño
Thank you. I think we are running out of time so we have to move on, I am really sorry. Operator, we would like to move on to the final question.
Operator
Yes, we are going to take the next question from the line of Michael Roeg from Degroof Petercam. Please ask your question.
Michael Roeg
Yes, good afternoon. I have a question on the technology of the products that you can no longer ship and by giving an example of ASML, the immersion tool can do 28 nanometers but also 10 nanometers. So you could not ship it to a mature node customer because it could also be used for leading edge nodes, is this same with your tools that you can no longer ship to China?
Benjamin Loh
Michael, thanks. I think for us of course there are certain let’s say customers, China customers that are classified as advanced fabs. And it’s actually very complicated. So we need to — there is a classification or definition of what is meant by advanced technology and we also need to look at for example, if they are buying for filling a technology if it is in the same facility and stuff like that. So it’s a little bit complicated. It’s also complicated by the U.S. person, which is probably the most difficult to seek clarity. So that’s where we are today and we are still trying to seek further clarification, especially on the U.S. person requirement.
Paul Verhagen
Maybe just to add, try to make it as simple as possible, basically, the tools of technology, the equipment I mean, so the tools in itself basically are barely impacted because we don’t meet the 25% deminimis rule. So what has impacted as Benjamin has stated before is broadening with U.S. persons, that is what is now really hurting us and that we need to clarify. So, that’s the key point.
Michael Roeg
Okay, that’s clear. Thank you. Can I squeeze in a second question?
Benjamin Loh
Yes, please.
Michael Roeg
Okay. Based on the numbers you’ve provided to over the first nine months of the year, you’ve basically sold about 14 million per quarter for the equipment that is no longer allowed to ship, had. Have there been no restrictions would you have been able to guide for sales of 640 to 670 or is that too much for their supply chain?
Benjamin Loh
I think if you just assume the same kind or you can just extrapolate, that is not an unreasonable assumption.
Michael Roeg
Okay, well let’s hope that your final assessment will make that possible. That’s it. Thank you.
Benjamin Loh
Thank you, Michael.
Operator
I would now like to hand over the conference to CEO for any final remarks. Please go ahead, sir.
Benjamin Loh
I would like to thank you all for your attendance today. And, of course also on behalf of Paul and Victor. We hope to meet many of you in upcoming conferences and other investor events. Thank you once again and stay safe and goodbye.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect your lines. Thank you.
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