Over the course of 50 years we have grown to become a global company that develops innovative solutions for our customers, and manages the best interests of our investors, our employees, society and other stakeholders. Read on to discover what we achieved in 2018.

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About

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The demand for smaller, faster and cheaper semiconductor chips continues to rise, driven by advancements in cloud computing, artificial intelligence, smartphones and the Internet of Things.

MEETING DEMAND

Our technology is the first step towards making it all possible, as our R&D investment in new materials, new products and new processes means we can help our customers develop their technology roadmap, and further extend Moore’s Law.

CREATING RESULTS

In 2018, this led to the introduction of the Synergis ALD tool, which leverages the core technologies from our Pulsar and EmerALD ALD products for high productivity thermal ALD applications. The new Synergis tool allows us to address more ALD applications and therefore increases our served market. Together with our other products and services, this contributed to our strong financial results, which included:

  • net sales of €818 million;
  • bookings of €942 million;
  • operating result of €124 million; and
  • operating cash flow of €137 million.

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Strategy & business

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We operate in a fast-paced industry that continues to reshape the world, and our innovative technology enables the semiconductor industry to achieve advancements in computing, communications, energy, transportation, medicine and beyond.
To ensure that we can continue to make a difference to our customers, employees, and company stakeholders, in 2018 we concentrated on the following three key elements of our strategy.

INNOVATIVE STRENGTH

In addition to our fundamental R&D efforts, we continuously expand and deepen our strategic cooperation with key customers, suppliers, chemical manufacturers, and research institutes. This approach enables us to remain innovative and swiftly meet the changing demands of our customers.

LEADERSHIP IN DEPOSITION

We are a key player in the deposition equipment segments for ALD and epitaxy, and a focused niche player for PECVD and vertical furnaces. As a leader in the segment, ALD has turned into a key growth driver for our business, from which we support virtually all of the leading customers in the semiconductor industry. Our newest ALD tool, Synergis, is designed to address a wide range of existing and new ALD applications, effectively increasing the market we serve.

OPERATIONAL EXCELLENCE

In addition to our internal optimization programs, we are working with our suppliers to improve fundamental quality through statistical methods and process controls. In addition to addressing the technology needs of our customers, we also focus on further increasing equipment throughput and equipment reliability, thereby lowering the cost per wafer of our wafer processing systems.

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Performance review

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In 2018, we achieved revenue growth of 11% reaching a record high revenue of €818 million, with sales increasing mainly in the logic, DRAM and analog segments. By industry segment, our 2018 revenue stream was led by memory, closely followed by the logic and foundry segments.

MULTIPLE PRODUCT LINES

While our ALD product lines continued to be our key sales driver in 2018, accounting for more than half of total equipment revenue, our other product lines also contributed strongly. In our epitaxy product line we increased sales, following the strong growth we achieved in 2017, and we saw additional sales increases in PECVD and vertical furnaces.

MARKET GROWTH

Our industry experienced continued growth in 2018, with worldwide semiconductor industry sales increasing by around 14%. This was driven by high memory prices and broad-based electronics demand for cloud services, mobile devices, automotive and industrial applications. These drivers helped the wafer fab equipment market grow by around 10% in 2018.

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Governance

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Our 2018 sales grew to record levels, reaching €818 million. ALD continued to be the key driver, although the other product lines also made a strong contribution.
We benefited from a further increase in wafer fab equipment spending following the very strong market growth in 2017. Our operating profit increased to €124.3 million from €113.2 million in 2017, while the operating profit margin remained stable.

OTHER DEVELOPMENTS

New bookings increased by 22% in 2018 to €942 million, with equipment bookings for ASMI as a whole led by logic, followed by foundry and then memory. Total research and development (R&D) expenses, excluding impairment charges, decreased by 1% in 2018 compared to 2017, mainly as a result of higher capitalization of development expenses.

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Financial statements

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Our 2018 sales grew to record levels, reaching €818 million. ALD continued to be the key driver, although the other product lines also made a strong contribution.
We benefited from a further increase in wafer fab equipment spending following the very strong market growth in 2017. Our operating profit increased to €124.3 million from €113.2 million in 2017, while the operating profit margin remained stable.

OTHER DEVELOPMENTS

New bookings increased by 22% in 2018 to €942 million, with equipment bookings for ASMI as a whole led by logic, followed by foundry and then memory. Total research and development (R&D) expenses, excluding impairment charges, decreased by 1% in 2018 compared to 2017, mainly as a result of higher capitalization of development expenses.

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Other Information

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During 2018, we returned approximately €607 million to shareholders in the form of dividends, share buybacks and the capital return. This was up from €281 million in 2017 and €140 million in 2016.
Over the 2010-2018 period, we returned more than €1.6 billion to the financial markets through dividends, share buybacks, return of capital, and buyback of convertible bonds.

SHAREHOLDER DIVIDEND

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DELIVERING RESULTS

In 2018, we paid a dividend of €0.80 per common share and we will propose to the forthcoming AGM to declare a dividend of €1.00 per share for 2019. The proposed 2019 dividend will mark the ninth consecutive year that we have paid a dividend.

Note 17. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

FINANCIAL INSTRUMENTS

Financial instruments include:

 December 31,
 20172018
Financial assets:
Cash and cash equivalents836,461285,907
Accounts receivable163,135173,450
Financial liabilities:
Accounts payable79,34980,640

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable equal their fair values because of the short-term nature of these instruments.

Gains or losses related to financial instruments are as follows:

 20172018
Interest income1,6831,056
Interest expense(1,799)(2,466)
Result from foreign currency exchange(30,546)1,276
Addition to allowance for doubtful accounts receivable(155)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASMI uses the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1

Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2

Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3

Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There were no transfers between levels during the years ended December 31, 2018 and December 31, 2017.

FINANCIAL RISK FACTORS

ASMI is exposed to a number of risk factors: market risks (including foreign exchange risk), credit risk, liquidity risk and equity price risk. The Company may use forward exchange contracts to hedge its foreign exchange risk. The Company does not enter into financial instrument transactions for trading or speculative purposes.

Foreign exchange risk

ASMI and its subsidiaries conduct business in a number of foreign countries, with certain transactions denominated in currencies other than the functional currency of the Company (Euro) or one of its subsidiaries conducting the business. The purpose of the Company's foreign currency management is to manage the effect of exchange rate fluctuations on income, expenses, cash flows and assets and liabilities denominated in selected foreign currencies, in particular denominated in US dollars.

We may use forward exchange contracts to hedge our foreign exchange risk of anticipated sales or purchase transactions in the normal course of business, which occur within the next twelve months, for which we have a firm commitment from a customer or to a supplier. The terms of these contracts are consistent with the timing of the transactions being hedged. The hedges related to forecasted transactions are designated and documented at the inception of the hedge as cash flow hedges, and are evaluated for effectiveness on a quarterly basis. The effective portion of the gain or loss on these hedges is reported as a component of accumulated other comprehensive income (loss) net of taxes in equity, and is reclassified into earnings when the hedged transaction affects earnings.

Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are recognized in earnings. We record all derivatives, including forward exchange contracts, on the statement of financial position at fair value in accrued expenses and payables. Should contracts extend beyond one year, these are classified as long-term.

Furthermore, we might manage the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts (fair value hedges) and currency swaps, and non-derivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on receivables and payables denominated in foreign currencies. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under foreign currency exchange gains (losses) in the consolidated statement of profit or loss. Receivables and payables denominated in foreign currencies are recorded at the exchange rate at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under foreign currency exchange gains (losses) in the consolidated statement of profit or loss.

We do not use forward exchange contracts for trading or speculative purposes. Financial assets and financial liabilities are recognized on the Company's consolidated statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

To the extent that exchange rate fluctuations impact the value of the Company’s investments in its foreign subsidiaries, they are not hedged. The cumulative effect of these fluctuations is separately reported in consolidated equity. Reference is made to Note 12.

Per December 31, 2017 and December 31, 2018, there were no forward exchange contracts outstanding.

The following table analyzes the Company’s exposure to currency risk in our major currencies.

 December 31,
 20172018
(thousand)USDJPYKRWSGDUSDJPYKRWSGD
Accounts receivable129,3612,978,67019,223,588889118,1985,138,4175,028,459337
Cash and cash equivalents328,620889,63735,695,10413,889240,6312,103,9996,932,1067,153
Accounts payable(28,114)(2,873,963)(19,536,521)(21,187)(39,884)(2,091,110)(14,857,084)(14,397)
Total429,867994,34435,382,171(6,409)318,9455,151,306(2,896,519)(6,907)

The following table analyzes the Company’s sensitivity to a hypothetical 10% strengthening and 10% weakening of the US dollar, Singapore dollar, Korean won and Japanese yen against the euro as of December 31, 2017 and December 31, 2018. This analysis includes foreign currency-denominated monetary items and adjusts their translation at year end for a 10% increase and 10% decrease against the euro.

 Impact on financial instruments
 (EUR thousand)20172018
10% increase of US dollar versus euro35,84327,855
10% decrease of US dollar versus euro(35,843)(27,855)
10% increase of Singapore dollar versus euro(400)(443)
10% decrease of Singapore dollar versus euro400443
10% increase of Korean won versus euro2,760(226)
10% decrease of Korean won versus euro(2,760)226
10% increase of Japanese yen versus euro7374,095
10% decrease of Japanese yen versus euro(737)(4,095)

A hypothetical 10% strengthening or 10% weakening of any other currency against the euro as of December 31, 2017 and December 31, 2018, would not result in a material impact on net earnings.

Interest risk

We are exposed to interest rate risk through our cash deposits. The Company does not enter into financial instrument transactions for trading or speculative purposes or to manage interest rate exposure. As per December 31, 2018, the Company had no debt and was not exposed to interest rate risk on borrowings.

Credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and derivative instruments. These instruments contain a risk of counterparties failing to discharge their obligations. We monitor credit risk and manage credit risk exposure by type of financial instrument by assessing the creditworthiness of counterparties. We do not anticipate non-performance by counterparties given their high creditworthiness.

Our customers are semiconductor device manufacturers located throughout the world. We perform ongoing credit evaluations of our customers' financial condition. We take additional measures to mitigate credit risk when considered appropriate by means of down payments or letters of credit. We generally do not require collateral or other security to support financial instruments with credit risk.

Concentrations of credit risk (whether on- or off-balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.

We derive a significant percentage of our revenue from a small number of large customers. The ten largest customers accounted for approximately 79.2% of net sales in 2018 (2017: 83.1%). Included in net sales are revenues of approximately €350 million (2017: €437 million) to customers contributing more than 10% of total net sales. Sales to these large customers also may fluctuate significantly from time to time depending on the timing and level of purchases by these customers. Significant orders from such customers may expose the Company to a concentration of credit risk and difficulties in collecting amounts due, which could harm the Company’s financial results.

We invest our cash and cash equivalents in short-term deposits, money market funds and derivative instruments with high-rated financial institutions. We only enter into transactions with a limited number of major financial institutions that have high credit ratings and we closely monitor the creditworthiness of our counterparties. Concentration risk is mitigated by not limiting the exposure to a single counter party.

The maximum credit exposure is equal to the carrying values of cash and cash equivalent, and accounts receivable.

Liquidity risk

Our policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

Our liquidity needs are affected by many factors, some of which are based on the normal on-going operations of the business, and others that relate to the uncertainties of the global economy and the semiconductor industry. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with our principal sources of liquidity are sufficient to satisfy our current requirements, including our expected capital expenditures in 2019.

We intend to return cash to our shareholders on a regular basis in the form of dividend payments and, subject to our actual and anticipated liquidity requirements and other relevant factors, share buybacks.

The following table summarizes the Company’s contractual and other obligations as at December 31, 2018.

TotalLess than 1 year1-3 years3-5 yearsMore than 5 years
Accounts payable80,64080,640
Income tax payable6,6636,663
Accrued expenses and other payables98,99398,993
Operating leases32,11511,11912,5024,4394,055
Pension liabilities6,7334897001,5733,971
Purchase obligations:
Purchase commitments to suppliers99,88994,0275,79666
Capital expenditure and other commitments14,37211,1473,08911719
Total contractual obligations339,405303,07822,0876,1958,045

Total short-term lines of credit amounted to €150 million at December 31, 2018. The amount outstanding at December 31, 2018 was nil and the undrawn portion totaled €150 million. The standby revolving credit facility of €150 million with a consortium of banks will be available through December 16, 2022.

For the majority of purchase commitments, the Company has flexible delivery schedules depending on the market conditions, which allows the Company, to a certain extent, to delay delivery beyond originally planned delivery schedules.

Equity price risk

The shares of ASMPT, our 25.33% equity investment, are listed on the Hong Kong Stock Exchange. If the fair value of an investment is less than its carrying value at the balance sheet date, the Company determines whether the impairment is temporary or prolonged. The amount per share recognized as per December 31, 2018 under equity accounting amounts to HK$68.74, whereas the level 1 fair value per share (being the market price of a share on the Hong Kong Stock Exchange) was HK$75.45. Management concluded that, based on quantitative analysis no impairment of its share in ASMPT existed as per December 31, 2018.

 

TAKING THE NEXT LEAP FORWARD

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.

The

Of new materials

R

i

s

e

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.

INNOVATION

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.

SCALING

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.

EFFICIENCY

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.

The

That
matters

m

i

x

Multinational

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.

INTELLIGENCE

Achieving our ambitions takes intelligence, knowledge, skill,
determination, and dedication. And it is this combination of
qualities that we nurture in our people.

XTRAORDINARY

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.

Expanding the

c

o

r

e

COLLABORATION

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

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

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.

Extending

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.

Moore with

l

e

s

s

LONG-TERM VALUE

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.

ENVIRONMENT

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.

SUSTAINABILITY

We believe sustainability takes many forms.
From developing sustainable technology
roadmaps for our customers, to creating
a sustainable living environment for all.

SAFETY

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.