Letter to Shareholders
Record financial results
2014 has been an important and successful year for our company. Our combined ALD and PEALD business had a great year as we further expanded the base of HVM customers. ASMI net revenue increased by 21%, marking a record high level for our Front-end operations. As such, our company again outperformed the wafer fab equipment market in 2014, which increased by approximately 15% in 2014.
Spending in the second half was not as strong as the first half of the year as some customers were absorbing the investments they made in the earlier periods. Overall growth in WFE spending in 2014 was for a large part driven by strong increases in the memory sector.
ASMI profitability increased substantially, which also reflected execution of our supply chain programs. Strong cash generation allowed us to announce a €100 million share buyback program.
After strongly recovering gross margins in 2013, the gross margins increased by a further 400 basis points in 2014. Next to the solid development in revenue, this improvement also reflected execution of our gross margin improvement programs. In 2013, we started a number of programs to increase the efficiency and flexibility of our supply chain, from which we saw the benefits in 2014. Measures included new outsourcing initiatives with a focus on the sourcing of complete subassemblies and the migration of a larger part of our supply base to Asia.
The operating margin increased from 9.9% to 17.1%, surpassing the previous high of 2011. The combination of improved profitability and increased working capital efficiency contributed to a sharp improvement in operating cash flow.
With the publication of the third quarter results we announced a €100 million share buyback program, to be executed in the 2014-2015 timeframe and as part of the company’s commitment to use excess cash for the benefit of its shareholders. At the end of December we completed approximately 30% of the program and per the end of March 2015 approximately 60%. The balance sheet continues to be strong. We ended the year with €386 million in cash and no debts.
The current share buyback program is in addition to our policy to pay a sustainable dividend. At the 2015 Annual General Meeting of Shareholders we propose that the Company declares an ordinary dividend of €0.60 per share, an increase of 20% compared to the dividend of €0.50 paid in 2014.
Another strong year for our combined ALD and PEALD business
Following several years of rapid growth in customer deployment and the development of new applications ALD and PEALD has turned into a key growth driver for our company. Our combined ALD and PEALD product lines accounted for more than half of total equipment revenue in 2014. Over time we have established ALD and PEALD as mainstream technologies for the advanced nodes in close cooperation with several of the world’s leading semiconductor manufacturers. Some of our leading customers have already ramped multiple technology generations using our ALD equipment. In the more recent years, we have successfully penetrated additional customers. In 2014, we have seen several of these new customers deploying our ALD and PEALD systems for the first time in substantial volumes.
Driven by the success of our ALD and PEALD technologies, we have steadily expanded our presence in the logic/foundry segment and also built strong customer relationships in the memory sector. Our PEALD equipment is an enabling technology for spacer-defined double patterning, which supports our customers in staying on Moore’s Law. With this application we have achieved a strong position with virtually all of the leading memory customers. On the back of our increased exposure to the memory segment we were able to take full advantage of the strong demand from memory customers for leading edge equipment during the year.
In 2014 we have stepped up our efforts to become a leader in responsible, sustainable business practices. During the year, we established a dedicated internal Corporate Responsibility organization. We also made significant progress on embedding the Electronics Industry Citizenship Coalition (‘EICC’) Code of Conduct throughout our organization and into our supply chain, led by the formation of a Senior Management EICC Committee. In 2015, we are also releasing our first Corporate responsibility report with the 2014 Annual report.
In March 2013, we sold 12% of the total ASMPT shares outstanding, reducing our stake from 52% to approximately 40%. At that time, we returned the largest part of the proceeds to our shareholders and used the balance to strengthen our financial position. As of the date of the stake sale we deconsolidated the back-end business and since then our consolidated results only reflect our Front-end operations.
We believe this step has increased the visibility of the strong performance of our Front-end business in the market and contributed positively to shareholder value creation.
Our 40% shareholding in ASMPT contributed positively to the increase in ASMI’s normalized net earnings in 2014. 2014 marked a year of strong recovery for ASMPT. From a leadership in the market for traditional Back-end equipment ASMPT has expanded in recent years its addressable market to include SMT equipment, which it further strengthened by the acquisition of DEK in 2014. On the back of the rise in revenue and improving margins, ASMPT increased net profits threefold during the year.
The overall strong performance of ASMI in 2014 strengthens us in our belief that we have taken the right strategic steps over the last years, aimed at creating sustainable value for our shareholders, customers, employees and the communities in which we operate.
The semiconductor wafer fab equipment market has started the year 2015 with good momentum, with healthy spending in DRAM, on the 20nm node, and NAND flash on the 18-16nm node. Industry observers expect mid-single digit growth year-over-year for our industry in 2015. While in the logic/foundry sector wafer fab equipment spending is expected to be driven by investments in the 16nm and 14nm nodes, the exact timing of these investments is still uncertain.
Smartphones are again expected to account for the largest part of the semiconductor market growth thanks to continued volume growth and enhanced functionality. A new long-term driver is emerging in the form of the Internet-of-Things. Advanced connectivity of devices will be the next step in our increasingly connected future. The infrastructure needed to process and store the data created by an ever higher number of connected devices will also increase the demand for more advanced semiconductor devices.
Our customers continue executing their roadmaps towards ever smaller, faster and more power efficient semiconductor devices. Complex node migrations are more and more enabled by the introduction of new materials and three-dimensional chip architectures such as FinFET. The need for more precise and highly conformal thin films at the next generation technology nodes is expected to drive a further increase in the use of ALD and PEALD. As a market leader in ALD we are well positioned for further growth.
We are proud of the outstanding commitment and hard work of all our employees that contributed to another year of success and achievement. We are also grateful for the trust of our customers and the continued support of our shareholders. Our focus remains the creation of sustainable value for all our stakeholders.
April 9, 2015
Charles D. (Chuck) del Prado
President and Chief Executive Officer