NOTES TO THE READER

ESEF REPORTING PACKAGE/HTML VERSION

This document is ASM International N.V.’s 2020 Annual Report in European Single Electronic Reporting format (the ESEF reporting package). The ESEF reporting package is available on the company’s website.

PDF/PRINTED VERSION

A PDF/printed version of ASM International N.V.’s 2020 Annual Report is available on the company’s website. In the case of discrepancies between the PDF version and the ESEF reporting package, the latter prevails.

UNROUNDED FIGURES

Amounts in the Annual Report may not add up due to rounding differences. The total amounts may therefore deviate from the sum of the parts. Percentage changes are based on the unrounded figures.

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Our focus on the health and safety of our people has always been our key priority. The commitment and focus of our employees in challenging operating conditions created by COVID-19 enabled us to continue serving our customers in the best possible ways. Demand remained strong as our customers continued to invest in the most advanced technologies that will shape tomorrow’s advances in trends such as 5G, cloud computing, and autonomous driving. ASMI delivered its fourth consecutive year of double-digit revenue growth. We further strengthened our position as we significantly expanded our R&D engagements.

Looking ahead, we will continue to invest in the potential of our company.

IN A YEAR UNDERSCORED BY COVID-19, ASMI DELIVERED A STRONG FINANCIAL PERFORMANCE AND MADE IMPORTANT PROGRESS IN MANY STRATEGIC AREAS.

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TABLE OF CONTENTS

About

GOVERNANCE

FINANCIAL STATEMENTS

GENERAL INFORMATION

ASM International N.V. financial statements

Independent auditor’s report

Strategy

21

Long-term value creation

22

Customers and products

24

Employees

32

Shareholders

39

Society and planet

51

Suppliers

56

Interview with the CFO

62

65

Corporate governance

66

CSR governance

69

Risk management

74

Management Board

80

Supervisory Board

82

Supervisory Board report

87

Remuneration report

90

External auditor

97

Declarations

98

99

Consolidated financial statements

100

Consolidated statement of profit or loss

100

Consolidated statement of comprehensive income

101

Consolidated statement of financial position

102

Consolidated statement of changes in equity

103

Consolidated statement of cash flows

104

Notes to the consolidated financial statements

105

147

Company balance sheet

147

Company statement of profit or loss

148

Notes to the company financial statements

149

155

Non-financial summary

162

Environmental footprint results 2016 to 2020

163

Non-financial performance summary

164

166

Product description

167

Other information

169

ESG/CSR data glossary and information

171

Definitions and abbreviations

174

Locations worldwide

176

Safe harbor statement

178

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4

FINANCIAL STATEMENTS

Non-Financial SUMMARY

general INFORMATION

VALUE creation

ABOUT

governance

ABOUT

In a year underscored by the COVID-19 pandemic, in which we prioritized the health and safety of our employees, their families, and our stakeholders, we also continued to help our customers focus on building faster, cheaper, and increasingly powerful chips.

PROPELLING DEMAND

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.

STRONG RESULTS

In 2020, we continued to further enhance our leading platforms and to grow the pipeline of new ALD applications, which represented more than half of our equipment revenue. Our spares & services business also delivered an outstanding performance, with
a double-digit revenue increase compared to 2019. Together with our equipment business of our product lines, this contributed to a highly successful year, which included:

•Revenue of €1,328 million;

•Bookings of €1,314 million;

•Operating result of €327 million; and

•Free cash flow of €119 million.

Message from the CEO

5

ASMI at a glance

9

Strategy

15

Key performance

19

5

MESSAGE FROM the CEO

In a year underscored by COVID-19, our first priority was the safety of our employees, while we continued to serve our customers in the best possible ways. ASMI again delivered strong financial results and achieved progress in key strategic areas.

Benjamin Loh

President and Chief Executive Officer

Introduction

2020 was an unprecedented year as the COVID-19 pandemic severely affected our lives, our communities, and world economies. The health and safety of our employees, their families, and of the employees working for our customers and other business partners has always been our key priority. From the onset of the pandemic, we implemented all necessary measures, government guidelines and industry best practices to minimize the risks for our people and partners. Measures included working from home for our employees wherever possible, implementation of split-shift work in essential areas, enhanced cleaning protocols, and of course, restriction of non-essential travel. During the year, demand for our products remained strong as our customers continued to invest in advanced node capacity and in new technology development. I am impressed by the way ASMI’s employees, while putting the health of all of us first, showed their commitment and creativity to make sure we continue to serve our customers in the best possible ways, such as the use of smart technologies to work remotely on our customers’ tools. I want to thank all our employees for their great commitment and teamwork during this unprecedented year.

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For me personally, it has also been a challenging time, having assumed the role of CEO in mid-May, in the midst of the pandemic. Though it was difficult, I have been able to adapt to an entirely new way of working, meeting many ASMI colleagues remotely and also having most of my first customer interactions remotely. As vaccinations start to happen worldwide, I am cautiously optimistic that the pandemic will be under control sometime this year and I look forward to being able to meet our colleagues, shareholders, and partners in person.

MARKET DEVELOPMENT

As markets were upended by the impact of lockdown measures and border closures, the global economy showed a sharp drop in 2020. Certain parts of the semiconductor market, such as the automotive and industrial end markets, were negatively affected, but the overall semiconductor market showed a resilient performance. Key drivers were investments in for instance PCs, data centers and communications infrastructure to support demand related to work-from-home and remote learning. In the broader society, the pandemic accelerated the trend of digitalization. We are proud to be part of an industry that contributed to the key technologies that have helped people stay connected with family and friends during these periods of lockdown, schools continuing online lessons, and businesses maintaining operations.

The semiconductor market finished the year with a robust growth of 7%. The wafer fab equipment (WFE) market grew at mid-to-high teens percentage year-on-year. Our customers continued to invest in leading edge manufacturing capacity. Logic/foundry demand showed a solid increase, driven by spending on the most advanced nodes of 10nm and below. While the outlook for the memory market was initially impacted by weakness and inventory corrections in parts of the end markets, equipment spending showed a healthy increase for the full year.

Logic/foundry again the key driver in 2020

Our revenue increased by 18% in 2020, the fourth consecutive year of double-digit growth. The logic/foundry sector continued to be the key driver for us in 2020. Demand was geared towards the most advanced nodes. This benefited ASMI as the number of ALD layers in the most advanced logic/foundry nodes has increased substantially compared to the previous nodes, fueling strong share of wallet gains. By customer segment, revenue was again led by foundry, followed by logic. After already doubling in 2019, our revenue in the foundry segment grew again strongly by double digits in 2020. In memory – the third largest segment – our revenue showed a healthy double-digit increase, driven primarily by a strong increase in our DRAM revenue, where we benefited from the first meaningful adoption of new non-patterning ALD solutions.

In terms of product lines, revenue was led by very strong double-digit growth in our ALD business, which continued to represent more than half of our equipment revenue in 2020. After strong increases in previous years, momentum in our combined other products – epitaxy, PECVD and vertical furnaces – slowed down in 2020. This is explained by the relatively higher exposure of these product lines to the analog/power markets, which were in turn impacted by the weakness in the automotive and industrial markets earlier in 2020. Recently, demand in analog/power has shown the first signs of recovery.

In 2020, our spares & services business delivered an outstanding performance, increasing revenue by 29%. To a smaller extent, this growth was driven by customers increasing inventories in response to the COVID-19-related supply chain challenges, especially in the second quarter of the year. For the most part, we benefited from the solid increase in our installed base in recent years as well as the first contribution from our investments in new outcome-based services. Spares & services accounted for 21% of total revenue in 2020.

China

A strong area of growth this year has been the Chinese market, for the broader WFE market and for ASMI. Our sales in China grew strongly in 2020 and contributed for the first time a double-digit percentage of our total revenue. We benefited from the investments we made in recent years to strengthen our position in this market. In addition, the portion spent by domestic chip manufacturers on the more advanced nodes, albeit still the smaller part of total spending in China, showed a strong increase in 2020, playing to the strengths of our company. Despite the uncertainty related to new US export restrictions, our sales in China remained solid throughout the year. More importantly, we further broadened our customer base of domestic Chinese customers and booked new tool wins which we expect to contribute in 2021 and beyond.

NEW MANUFACTURING FACILITY IN SINGAPORE

An important highlight in 2020 was the completion of our new state-of-the-art manufacturing facility in Singapore. After a delay caused by COVID-19, the facility was completed in the fourth quarter. In December we shipped our first tool from this facility and in the first quarter of 2021 we continue to further transfer production to the new facility. Using the first phase of the new facility will increase our manufacturing capacity substantially. It will also provide us with increased flexibility to deliver on our customer commitments.

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in 2020 in this respect was the tool wins with leading memory customers for high-k metal gate applications in CMOS peripheral transistors in DRAM. This is a logic-like process in which we can leverage our significant experience built over the years in the logic/foundry sector. In addition, we successfully engaged many customers with new applications, enabling us to grow even more in the memory market in the coming years.

While growth in our epitaxy business slowed, we achieved solid progress in our R&D engagements with customers, working towards new tool-of-record selections for our Intrepid tool, which we expect will contribute to increased revenue and further market share gains in the coming years.

Financial performance

ASMI delivered strong financial results in 2020. Revenue (excluding the settlement proceeds in 2019) increased 18% and reached a new record of €1.3 billion in 2020. For the fourth consecutive year, we increased our revenue by a double-digit percentage. Gross margins improved from 43% to 47%, in part driven by efficiency improvements, and for another part due to positive mix effects, particularly in the second and third quarters of the year. With operating expenses under control, operating result increased by nearly 50% in 2020.

In 2020, we stepped up our capital expenditures (capex) to €95 million. Similar to 2019, a significant portion of spending was related to our new manufacturing facility in Singapore. In addition, we increased our spending as part of the initiatives we announced earlier in the year to expand and upgrade our lab capabilities. Free cash flow amounted to a healthy level of €119 million, even though it was down from the level in 2019 due to the higher capex and an increase in working capital requirements. Our financial position remained strong with €435 million in cash at the end of 2020.

Our policy to use excess cash for the benefit of our shareholder remained unchanged. In 2020, ASMI distributed €165 million in cash to shareholders. Over the last three years we returned almost €1 billion in cash to shareholders. During the AGM, we will propose a regular dividend of €2.00 per share to be paid over 2020, which is a 33% increase compared to the regular dividend of €1.50 per share paid over 2019.

Strategic direction unchanged

After I took over as CEO last May, it did not take me a lot of time to confirm, together with the rest of the management team, that the strategic direction of ASMI is the right one. However, we identified a number of areas where we need to further step up, to make sure we can capture the opportunities in front of us.

ALD continues to be a key growth market for ASMI. On the back of a significant double-digit revenue increase, we believe we maintained a strong leading position in 2020. We further expanded our R&D engagements with key logic/foundry customers. We expect the number of ALD layers and application in the upcoming nodes to grow again by double-digit percentages. In addition, we remain strongly focused on expanding our position in the memory ALD market. An important achievement

In vertical furnaces and PECVD, we continue our strategy to invest in targeted niche opportunities, which we expect to drive additional revenue growth for our company in the coming years.

In spares & services we intend to further expand our offering of new outcome-based services, which will help us to further strengthen our customer relationships and to drive solid growth in this part of the business.

To make sure that ASMI is well prepared to tap into all the new opportunities, we will continue to invest in the growth of our company. After an increase of 14% in 2020, we will continue further spending on R&D to develop the many new ALD applications that are on the industry’s roadmap. We expect capex to remain at a relatively higher level in 2021 on the back of continued R&D-related investments such as lab tools and advanced metrology equipment.

An important focus area is the reinforcement of our company culture. On the back of the recent substantial growth, approximately half of our workforce joined in the last three years. Nurturing our strengths such as our rich history, our technology focus and our global diversity, we will further build a unified culture, unique to ASMI and based on our core values: ‘We care, We innovate, We deliver’. We took the first actions last year, including a company-wide engagement survey, and we will take the next steps this year, including further strengthening our employee communications. Our people are our key asset. We will only succeed when we create a workplace of inclusion and diversity in which our employees have the opportunity to maximize their potential.

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ESG

Our focus is on long-term sustainable value creation for all our stakeholders. During 2020 we further stepped up our focus on environmental, social and governance (ESG). After many years of engagement and commitment, ASMI officially became a member of the Responsible Business Alliance (RBA) in 2020. We are a recognized leader in our industry in terms of our focus on health and safety. Over the last five years we significantly exceeded our targets for reduction in greenhouse gases and water consumption, and, while falling short of the target, we also achieved a substantial increase in our diversion of landfill waste. We have also adopted a philosophy where our latest products have been designed and developed with a reduction in consumption of gases and electrical power in mind as part of the overall industry trend towards making the manufacture of semiconductors more environmentally friendly. In addition to that we offer our customers refurbishment programs and upgrade kits to extend the lifetime of the existing tools.

Long-term outlook

We believe that prospects for ASMI remain strong on a longer-term basis. Semiconductor demand is expected to be driven by key secular growth trends such as 5G, artificial intelligence, cloud and edge computing, and autonomous driving. Advanced semiconductor devices play a crucial role in enabling these multi-year industry drivers. 5G, for example, is expected to drive renewed growth in the smartphone market and new apps, driving a higher semiconductor content as compared to the 4G smartphones. Another example is artificial intelligence. With explosive growth in data, machine learning algorithms are ever more eager for faster, more powerful and power-efficient processors.

Outlook 2021

Our industry has started the year in good shape. General expectations are that the global economy will show a recovery this year even though the pandemic continues to pose risks and may delay this recovery. In the semiconductor market, the strong momentum at the end of 2020 has continued into the first part of 2021. The strength of the increase in demand has led to shortages in parts of the market. Against this backdrop, WFE spending is again expected to show a mid-teens percentage increase in 2021. Solid spending is expected for the logic/foundry segment, supported by strong demand for the current most advanced nodes. In addition, our customers in this segment continue to show a healthy appetite for investing in the development of the next nodes. In the memory market, a further recovery in spending is expected. A recovery in key end markets such as smartphones, combined with the fact that capacity additions in recent years have generally been limited, are likely to result in improving supply-demand conditions in the memory segment.

ASMI has also started 2021 on a strong footing. With the publication of our fourth quarter results at the end of February, we are on track for record revenue and bookings in the first quarter. Our guidance for the first and second quarters combined implies year-on-year revenue growth of 14% to 20% in the first half year.

While ALD has already moved into the mainstream in recent years, we expect ALD to turn even more into a core technology that will help our industry to keep pace with Moore’s Law. Increasing device complexity, new materials, and ever thinner films with higher required conformality will drive substantially higher demand for ALD in the medium term.

Although I am still new in the company, I have been very impressed and excited by the opportunities that lie ahead and I am committed to continue to grow the company and build on the legacy that has been left for me by my predecessor, Chuck del Prado.

At the coming AGM, Jan Lobbezoo, after having served for three terms at the ASMI Supervisory Board will retire. I would like to thank him for his wisdom, guidance and continuous support in the past 12 years.

Finally, I want to thank Peter van Bommel for his excellent contributions to ASMI. After 11 years as CFO and Member of the Management Board, Peter will retire at the upcoming AGM. He provided our company with a robust financial framework and played an important role in driving the strategic direction of ASMI.

March 4, 2021

Benjamin Loh

President and Chief Executive Officer

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WHAT WE DO

ASMI supplies wafer processing equipment to the leading semiconductor manufacturers. The total market for wafer fab equipment (WFE) amounted to US$63 billion in 2020 (Gartner, December 2020). Within wafer processing equipment, the major segments include lithography, etch & clean, deposition, and process diagnostics. Our focus is on deposition equipment, which comprises about a quarter of WFE. We are a key player in the deposition equipment segments for atomic layer deposition (ALD) and epitaxy, and a focused niche player for PECVD and vertical furnaces.

At ASMI we design, manufacture, sell and service our deposition tools to supply our customers with advanced technologies for the production of semiconductor devices, or integrated circuits (ICs). Semiconductor ICs, or chips, are a key technology enabling the advanced electronic products used by consumers and businesses everywhere. Our tools are used by semiconductor manufacturers in their wafer fabrication plants, or fabs. Furthermore, we provide maintenance service, spare parts, and process support to our customers globally at their fabs, which typically operate on a 24-hour basis.

LOGIC, FOUNDRY AND MEMORY MARKETS

The semiconductor market can be split into three primary segments: logic, foundry and memory. ASMI supplies equipment to the leading semiconductor manufacturers in all of these segments:

•The logic market is made up of manufacturers that create chips, such as microprocessors, that are used to process data and are used in smartphones, laptops and computers;

•The foundry market consists of businesses that operate semiconductor fabrication plants to manufacture the designs of other so-called fabless semiconductor companies; and

•The memory market covers manufacturers that make chips that store information either temporarily, such as Dynamic Random Access Memory (DRAM), or permanently, such as NAND non-volatile memory.

There are other smaller, yet still important market segments for which ASMI supplies equipment, such as analog and power. Analog and power semiconductors are devices used in a wide range of electronic systems for mobile products, automobiles, telecommunications, and other applications. Wafer manufacturing is another relatively small segment that we participate in, for the processing of bare silicon wafers before they are delivered to semiconductor fabs.

Our customers’ goal is to build faster, cheaper, and increasingly more powerful semiconductors for each new technology node. We work closely with our customers to make this a reality, forging mutually beneficial partnerships to help develop their technology roadmap. Through our intensive R&D programs and customer co-development, we continuously improve and extend the capability of our products and processes to meet these advanced technology roadmaps, increase productivity and lower operating costs per wafer. The result is value creation for our customers. While doing so, we work on the edge of what is technologically possible. This creates a very attractive professional and learning environment for our employees and generates long-term value for all of our stakeholders. We serve society by helping our customers to produce the chips needed for advanced electronics that deliver a world of improvements and opportunities. The world around us shows an increasing need for the use of more applications and lower energy usage. For example, increasingly complex processor chips are used for artificial intelligence applications and advanced chips used in 5G mobile phones require lower power usage, for which our high-k ALD process is beneficial.

ASM International N.V. (ASMI) is a leading supplier of semiconductor wafer processing equipment and process solutions. Our customers include all of the top semiconductor device manufacturers in the world. Semiconductor chips sit at the heart of almost every electronic device we use today, and ASMI equipment is a key technology used to manufacture many of these chips.

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BASICS OF SEMICONDUCTOR MANUFACTURING

The process of making semiconductor chips at our customers' fabs is both highly complex and very costly. Semiconductor fabs house a large set of wafer-processing equipment which perform a series of process steps on round silicon wafers, which are typically 300mm in diameter. The equipment is operated in cleanrooms, which filter the air to avoid contamination from small particles that could negatively affect the circuitry on the chips.

Many individual steps are performed using various types of wafer processing equipment to create a semiconductor chip, including photolithographic patterning, depositing thin-film layers, etching

to remove material and thermal treatments. Our systems are designed for deposition processes when thin films, or layers, of various materials are grown or deposited onto the wafer. Many different thin-film layers are deposited to complete the full sequence of process steps necessary to manufacture a chip. After testing the individual circuits to ensure correct performance, the chips on the wafer are separated and then packaged in a protective housing before ultimately becoming part of a set of semiconductor chips on circuit boards within an electronic product.

ASMI is a key player in the ALD and epitaxy segments, and a niche player in vertical furnace and PECVD. The characteristics of those activities are described in the following pages.

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ALD

ASMI has a leading position in ALD, which is our largest product line and continued to account for more than half of our equipment revenue in 2020. ALD is the most advanced deposition method available in the market and makes it possible to create ultra-thin films of exceptional material quality, uniformity and conformality.

ALD is expected to be the fastest growing deposition market segment for at least the coming 3-5 years. As the industry moves to smaller geometries, more complex device structures, and new materials, the need for more precise and conformal film deposition will further increase, which is expected to drive the growth of the ALD market.

We are the leader in the logic/foundry segment of the ALD market and serve nearly the whole addressable market. In 2020, the transition to the most advanced 10nm node in logic and 5nm node in foundry has once more confirmed this position. At each new advanced technology node, a substantially higher number of process steps use ALD, both for new applications and replacing conventional deposition methods.

Because we entered the ALD memory market at a later stage, the part of the addressable market we are serving is smaller. Despite this, we have leading positions in selected parts of this market. In DRAM, ALD requirements have been expanding from multi-patterning to new non-patterning applications. For example, technology challenges require ALD high-k layers for the control transistors in the most advanced DRAMs. In 3D-NAND, the device complexity is increasing as the industry moves to higher stacks, such as the transition from 96 layer to 128 layers. This in turn will gradually increase the need for ALD. We are strongly focused on expanding our position by broadening our addressable market in ALD, including parts of the market that we previously did not address.

Atomic Layer Deposition

ASMI first started developing ALD in 1999 through the acquisitions of Microchemistry, and later Genitech (ASM Korea). Around 2007 we had our first breakthrough in mainstream semiconductor applications when a leading player in the logic segment introduced ALD into high-volume manufacturing for high-k metal gate technology. Since then, the use of ALD has steadily increased to a multitude of different applications across the logic, foundry and memory segments. Over time, we have substantially expanded our position and we now supply our ALD solutions to all of the top 10 capital spenders in the semiconductor industry.

In recent years we have introduced two new ALD products, the Synergis thermal ALD tool and the XP8 QCM tool for plasma enhanced ALD applications. Both products offer a wide range of processes with high productivity.

ALD is a leading edge technology capable of depositing ultra-thin films of exceptional flatness, material quality and uniformity. ALD allows us to deposit thin films atom-by-atom, meaning we can deliver atomic-scale thickness control, high-quality deposition film properties, and large area uniformity, even on complicated features on the wafer, such as fins and deep trenches. Such precision enables us to use materials that previously could not be considered, and develop 3D structures that are vital to the future of electronics. The ALD process is a saturated surface-controlled layer-by-layer process where layers are formed during reaction cycles by alternately pulsing precursors and reactants, and purging with inert gas in between each pulse. Deposition thickness is precisely controlled by varying the number of cycles.

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EPITAXY

We have a solid position in the market for epitaxy or Epi. Epitaxy is a process for depositing highly controlled silicon-based crystalline films. It is one of the fastest growing parts of the deposition market, with the number of Epi steps increasing as logic/foundry customers move to smaller nodes.

From a solid position in the niche market for power devices, we have successfully broadened our position in recent years in advanced-node CMOS applications, which represents the larger part of the Epi market. Our Intrepid ES 300mm epitaxy tool, for advanced-node CMOS logic and memory applications, offers an innovative closed-loop reactor temperature control system enabling precise process control, high productivity, and low cost per wafer.

Intrepid ES was selected by a leading foundry customer for an Epi layer at the 7nm node, and its use has expanded for multiple layers at the 5nm node. For improved epitaxy film performance, we introduced the Previum process module, which is integrated together with Intrepid Epi process modules for pre-epi wafer surface cleaning. The surface clean process creates a pristine silicon surface for defect-free Epi films, critical for achieving the most advanced node transistor performance requirements.

Epitaxy, alongside ALD, is an important growth engine in our portfolio.

PECVD AND VERTICAL FURNACES

We hold niche positions in the PECVD and vertical furnace market segments. The relatively large size of these markets makes this part of the market attractive to ASMI. Vertical furnaces utilize a batch configuration, meaning a large number of wafers are processed simultaneously for productivity and cost savings. Our furnace tools are designed with dual batch reactors for even more productivity.

In PECVD, our key position is on low-k for advanced logic interconnects. Our PECVD processes are offered on our high-productivity XP8 platform and include a broad range of dielectric films for various low temperature deposition applications such as interconnect layers, passivation layers, and etch stop layers.

We invest selectively in the PECVD and vertical furnace markets. Combined with healthy development in the market segments that we address, we have seen solid revenue increases in recent years.

THE WORLD AROUND US

The world around us is digitalizing quickly, with our way of living and working becoming more and more dependent on technology. As society becomes increasingly automated and connected, we rely on a broad range of electronic devices to control our homes, offices, vehicles, and communications. Advanced semiconductors play a key role in creating this more digitized world. As a result, new end market products and applications are developing, including:

•Mobile and cloud computing, and big data analysis;

•Artificial intelligence;

•Autonomous vehicles;

•Internet of Things for smart connected devices; and

•Ultrafast wideband communication networks (5G).

This connected and automated world is leading to a growing demand for massive amounts of data, requiring ever-greater computer processing power and storage, capable of analyzing and acting on the data quickly and effectively. Making this possible requires a constant increase in processing power of semiconductor chips. And it is our technology that is playing a vital part in making it all possible.

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In 2020, the semiconductor industry was driven by a US$2.1 trillion global electronics industry (VLSI Research, December 2020) that required approximately US$381 billion of semiconductors ICs, which was up about 7% compared to 2019. The increased need for semiconductors was driven by growing demand for data processing in the work-from-home economy, and by higher prices in memory devices, as the supply and demand of the memory market began to achieve a balance. In turn, the semiconductor industry supported the approximately US$90 billion semiconductor capital equipment industry, which supplies the required production systems and services. Wafer fab equipment spending was up about 18% in 2020, reaching US$62.7 billion (VLSI Research, December 2020), due to increased spending for advanced logic and foundry, as leading customers stepped up their spending on the most advanced nodes. China, in particular, showed solid spending growth in 2020.

The constant drive for smaller, more powerful and more energy-efficient devices puts further pressure on our industry at each new technology node. Moving to new nodes is increasingly difficult, with challenges in new materials, new device architectures, and complex process steps, which are driving more ALD and epitaxy process steps.

Consequently, we see that each new technology node requires increasing process equipment investments. Because the semiconductor production market is so capital intensive, only a limited number of companies are able to participate, meaning that our customer base has become smaller over time. It is only more recently that we have seen some new customers from China enter the semiconductor space, albeit not yet in the most advanced nodes. Our customers are increasingly dependent on the R&D investments and performance of their equipment suppliers. Accordingly, we maintain a close, mutually beneficial business relationship with our customers, which includes a cooperative development environment, linking technology roadmaps and equipment performance requirements.

While the market has evolved to a smaller number of large semiconductor manufacturers, it is still highly global with major fabs, which we support throughout the US, Asia and Europe. Notably, the China region has become a significant growth area for new fab investments, for both domestic Chinese companies and also foreign companies building fabs there for the local market. To better serve the growing China market, we continue to increase our investment in people and support infrastructure in China. In 2020, our equipment revenue in China increased significantly, more than doubling from 2019.

The world is more focused than ever on Environmental, Social and Corporate Governance (ESG) and the way companies conduct business. Expectations across our landscape of stakeholders are increasing. From our customers and shareholders, to our employees, our ESG conduct is increasingly important. These topics have our full attention and we are engaged with external stakeholders so that we have understood and incorporated them appropriately into what we do.

OUR PURPOSE

It is our purpose to lead innovation for the semiconductor industry:

•Our deposition technology helps our customers address their device and process development challenges and as such is a key enabler of innovations in semiconductor technology;

•By partnering with our customers to develop new materials, processes, and technologies that support their roadmaps, we enable innovations in semiconductor technology which in turn help create new improved semiconductor devices;

•By serving the leading chipmakers, we maintain an understanding of the important requirements of the next generation of device roadmaps, enabling us to develop value-added solutions to the industry’s critical issues, creating an attractive professional and learning environment for our employees;

•Our key contribution to society at large is that our technology helps keep the industry roadmap moving forward, driving innovation in the broader electronics markets; and

•We strive to achieve this in a responsible way, aligned with the priorities of our stakeholders.

This value creation benefits not only our customers and employees, but also businesses and consumers that benefit from the resulting new products and available technologies used throughout society. And our value-added innovations create attractive possibilities for our suppliers and attractive returns for our shareholders.

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THE WORLD IN WHICH WE OPERATE

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Our strengths

•We are a focused deposition equipment player in the semiconductor wafer fab equipment market. Our principal technologies are in ALD and Epi, in which we hold leading positions, and these play a critical role for our customers in enabling the transition to new device generations. Since 2010, we have increased our revenue by an annual average growth of 16%, ahead of the 7% compound annual growth rate shown by the broader wafer fab equipment (WFE) market in the same period. Our target is to continue outgrowing the WFE market over time, by leveraging our strong position in advanced nodes. By growing our revenue, we can further increase investments in R&D and create value for our stakeholders.

•We have helped shape the industry by driving innovation through our collaborative R&D models, successfully delivering advanced new materials, new products and new processes to our customers. With R&D centers in six countries throughout the world, we are close to our customers and we have access to world-class professionals working in the semiconductor sector today. This R&D capability has resulted in a strong patent position, with 2,094 patents in force.

•We have strong customer relationships with the leading semiconductor manufacturers. As we have expanded and deepened our R&D engagements with the chipmakers, we further improved our understanding of the key requirements of the next generation of device roadmaps, enabling us to develop value-added solutions to the industry’s critical technology issues.

We are an experienced innovation leader. This is the result of our focus on key issues and challenges within the semiconductor industry, enabling us to make a difference to our customers, employees, and other company stakeholders. While challenges and opportunities may change over time, we will continue to bring our breakthrough technologies into volume manufacturing, benefiting our customers, other stakeholders, and society overall. This enables us to act as a responsible citizen.

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Challenges

•One challenge is the rising cost of advanced chip technologies. The continuation of Moore’s Law, whereby the number of transistors on a chip doubles every two years, is becoming increasingly difficult. Today, investments in new factories for the most advanced nodes amount to more than US$10 billion. And the equipment costs for these advanced nodes are also increasing, which will place greater pressure on equipment manufacturers to create innovative solutions. Remaining at the forefront of technology developments is essential if we want to stay successful.

•Another challenge are geopolitical risks. In the past, the success of the semiconductor industry was strongly tied to the success of all parties along the value chain. Innovations by equipment suppliers supported original solutions developed by chip manufacturers, which led to new opportunities for customers to take full advantage of these advanced chips. Geopolitical developments put this model at risk. We carefully review any potential impact such developments will have for us, while we seek to make use of any new opportunities such situations might offer.

•We need to strengthen our position in the memory market. While we have a strong position in the logic/foundry market, our position in the memory market is weaker. We are working on solutions to enable us to serve a larger part of this market.

•As we focus on growth, and expand our position in the industry and our operations, our environmental footprint will grow. As a result, we are stepping up our efforts to increase the efficiency of our products in terms of energy and chemical consumption, thereby supporting our customers' aim to minimize their environment footprint.

•While the average incomes of many developing countries are increasing and leading to higher demands for end products that require semiconductors, we are aware that this will increase the demand for more scarce resources and our obligation to responsibly source such resources.

•Being able to attract and retain talented employees remains a key challenge as we focus on growing and strengthening our organization.

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We provide leading edge deposition equipment to the global semiconductor industry. As we further expand our served available markets and expand on our positions in ALD and Epi, we aim to meaningfully outperform the broader WFE market in the 2021-2024 period.

Growing our ALD business remains a key priority. ALD will continue to grow as a core technology as our customers transition to the next nodes. Smaller geometries, increasing complexity, and new materials will require additional ALD process steps. We expect the ALD market to be the fastest growing segment in the deposition market in the coming years. While maintaining our leading position in the logic/foundry segment, we are strongly focused on increasing our market share in the memory segment of the ALD market. Supported by a strong increase in our R&D engagements in DRAM and 3D-NAND applications for the next nodes, we aim to meaningfully increase the contribution of our memory business over time.

Epitaxy has become a second growth engine in our product portfolio. Our Intrepid product has enabled us to make successful inroads in the advanced CMOS part of the Epi market. We are working in R&D on new Epi applications with multiple customers for the next nodes, which should contribute to further growth of our market share in the near future. In PECVD and vertical furnaces, we want to further develop our current niche positions by addressing targeted growth opportunities. Vertical furnace applications for the analog market is an example of a niche position in which we have been selectively investing.

We also aim to accelerate growth in our spares & services business through continued expansion of our installed bases and expanding our offerings to include differentiated outcome-based services. This will be in addition to our existing offering of spare parts, maintenance and support services. In this way, we aim to offer additional value to our customers and further strengthen our customer relationships.

FIVE KEY ELEMENTS OF OUR STRATEGY:

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the FIVE KEY ELEMENTS of our strategy are:

The core element in our overall growth strategy is the continuous innovation which provides ASMI with a leading technological competitive advantage. With R&D centers in six countries, we have helped shape the industry by driving innovation through our collaborative R&D models, successfully delivering advanced new materials, new products, and new processes to our customers. Our R&D spending is targeted at the development of new materials and process solutions that enable additional applications, as well as continuous product improvements in performance, reliability and cost of ownership. We are also making capital investments in lab space and equipment to further expand our development capabilities in next-generation technologies. In addition to our internal R&D efforts, we are continuously expanding and deepening 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.

Our employees are our key asset. We strive to create a safe, inspiring and motivating workplace where all our employees have the opportunity to use their talents, excel and develop their potential as we work together to deliver the cutting edge technologies of tomorrow. Following the rapid expansion in our workforce, we have taken steps to further strengthen and unify our culture in which care, innovation and delivery are our core values. We are improving our organization and processes to ensure we attract, retain and develop the talent to further support ASMI’s growth.

While technology leadership remains crucial, operational excellence is essential to further strengthen our future position. We aim to provide our customers with dependable, leading edge products and services at a consistent performance level, while providing the best total cost of ownership. We continuously focus on further improving the effectiveness and efficiency of our organization. Following our strong growth in recent years, we need to strengthen our organization and business processes in specific areas. For example, we will continue to step up our capabilities in engineering, product lifecycle management (PLM) and order fulfillment. We aim to strengthen our new product introductions’ processes to provide our customers with additional on-site support as the pace of technological change continues to accelerate.

The next step in our company’s growth plans has been our investment in a new manufacturing facility in Singapore, which was completed at the end of 2020. This new facility doubles our production capacity, enables a more flexible manufacturing flow, and provides additional capacity for growth opportunities.

We strive to maintain a strong balance sheet that allows us to continue investing in R&D. To this end, our target is to keep a minimum of €300 million in cash on our balance sheet. At the end of 2020, we had €435 million. Our company generated a healthy free cash flow of €119 million. We intend to continue using excess cash flow for the benefit of our shareholders. By consistently following this policy, we have returned almost €1 billion to our shareholders over the last three years.

ESG is an integral part of our growth strategy. Key focus areas are workforce diversity and inclusion, further lowering the environmental footprint of our own operations, and promoting high ESG standards among our suppliers. We are stepping up our efforts to increase the efficiency of our products in terms of consumption of energy and chemicals, thereby supporting our customers in their focus to minimize their environment footprint.

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KEY PERFORMANCE
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Relative to 2019

* Excluding proceeds from patent litigation and arbitration settlement in 2019.

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KEY PERFORMANCE
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VALUE CREATION

We realized strong growth in 2020, with annual sales increasing by 18% to €1.3 billion. By industry segment, sales for the full year were led by the foundry segment, followed by logic and then memory.

ALD the key driver

Our ALD product lines enjoyed strong double-digit growth in 2020, with ALD continuing to represent more than half of our equipment revenue over the year. Our spares & services business increased by a solid 29%, while our other product lines, including epitaxy, were partially held back by lower demand in the analog/power market.

MARKET DEVELOPMENT

In 2020, markets were upended by the impact of lockdown measures and border closures, and the global economy showed a sharp drop. Certain areas of the semiconductor market, such as the Automotive and Industrial end markets, were negatively affected. However, the overall semiconductor market showed a resilient performance.

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Customers and products

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Interview with the CFO

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GREATER PERFORMANCE, REDUCED ENERGY CONSUMPTION

Our advanced deposition technologies support cost-effective products enabling the electronic devices of the future – electronic devices that deliver ever-greater performance while using less energy. Higher performance translates into more processing power, while a lower energy requirement means smaller, longer-lasting, more efficient products. This means that electronics manufacturers can further integrate smart technology into a wider range of products. For example, ASMI’s ALD and epitaxy tools are critical to creating high-performance transistors that can operate at lower power levels, a key enabler for products such as mobile phones, smart watches and fitness monitors, which have substantial functionality in a small form factor with good battery life.

This value creation benefits all of our stakeholders. Our employees enjoy the challenge of developing cutting-edge technology solutions, and the opportunity for career advancement. Our suppliers, in addition to a higher activity level, also benefit from improved quality and efficiencies resulting from our supplier process control program. Consumers benefit from the value added and the energy reduction possibilities provided by new electronic products that are enabled by advanced semiconductors. The widespread use of smartphones is a great example of this. Continuous advancements in microprocessors and memory chips empowers global consumers with extensive computing power that increasingly drive their daily activities, all from the palm of their hand.

OUR BUSINESS MODEL

We strive to create value for our company and all of our stakeholders. Our technology enables precision deposition of thin films in various steps in the fabrication of semiconductor chips, helping our customers build the most advanced chips used in the electronics systems throughout society. To achieve this, we are working with our customers to develop innovative solutions, while constantly looking at what is best for our investors, our employees, society, and other stakeholders. Our products and process solutions benefit society by helping to enable a wide range of advanced integrated circuit logic and memory chips used in most of the world’s electronic systems. Fundamental to our model is R&D investment, including basic chemical, materials, and feasibility research, followed by process and product developments. We aim to continuously recruit world-class technologists in the semiconductor process and equipment technology fields. We cooperate with research institutes and our customers to understand the technology roadmap challenges and to develop the appropriate process and equipment solutions required. Our manufacturing facilities allow us to deliver high-quality systems on schedule so that our customers can ramp their fabrication plants. We support our customers globally with process and equipment services, and spare parts.

We create value through our technologies by enabling leading semiconductor and technology industry partners to deliver the world of tomorrow through our innovative processing solutions and equipment. We partner with our customers and stakeholders to develop new materials, processes, and technologies that support their technology roadmaps. The process solutions delivered on our equipment enable a range of technologies, such as more powerful microprocessors and higher density memory devices, all operating at lower power. Advancements that benefit society are increasingly dependent on capabilities derived from new semiconductor technologies.

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SMALLER DEVICES

The industry’s relentless push to follow Moore’s Law leads to the continuous demand for smaller, faster, and cheaper semiconductor components. The technologies required to achieve these advancements are heavily dependent on equipment such as ASMI’s process tools.

Today, our most advanced foundry customers manufacture semiconductor devices equivalent to the 5 nanometer node (one nanometer, or nm, is one billionth of a meter), typically in FinFET architecture connected with down to 15nm metal lines. Our customers are already qualifying and testing new critical processes to generate devices for the next nodes: 3nm and 2nm. While a new node is generally introduced every 2 years, it can be introduced even faster.

At the same time, even more advanced devices are being developed in our customers’ laboratories and several collaborative research environments. These next-generation technology nodes are increasing the demand for new materials and more complex process integration methods, driving more ALD and epitaxy process steps at each new node.

Our memory customers manufacture devices such as DRAM and 3D-NAND. Today DRAM chips with a memory capacity of 1Gb/chip are being manufactured, with line widths as small as 15nm. Several of these chips are combined in one package to produce 4Gb or 8Gb DRAM modules. These DRAM chips contain very advanced vertical access transistors, and very tall capacitors with new

materials. Additionally, 3D-NAND non-volatile flash memory chips are today being manufactured with 128 transistors stacked in one vertical string. Such chips can store up to 512Gb/chip, and similar to DRAM, chips are combined in one package to memory modules that can store up to 2TB. Our customers are already working on taller 3D-NAND structures.

In developing faster and smaller devices, our customers’ major technology requirements are:

•Introduction of new thin-film materials and device designs needed for continued scaling;

•Reliable manufacturing of taller and narrower 3D structures in devices;

•Lithography of ever-smaller feature sizes, now much smaller than the wavelength of visible light; and

•New manufacturing processes that reduce device variability and increase yield.

DEVELOPING NEW MATERIALS

In order to meet our customers’ technology needs, we are developing many new materials, along with the deposition equipment capable of achieving performance specifications in high-volume manufacturing. For example, ALD technology is used to create ultra-thin films of exceptional material quality, uniformity and conformality.

ALD of high-k dielectrics can improve the performance and reduce the power consumption of a device, thereby enhancing battery life. This same class of materials can also lead to larger charge storage in a smaller capacitor, critical for memories.

ASMI’s ALD, epitaxy, PECVD and vertical furnace systems are all used in the manufacturing process for the world’s most advanced semiconductor chips. These chips are used in a broad range of applications, including the latest smartphones, for servers in cloud computing, and to enable artificial intelligence algorithms. The semiconductor industry finds it increasingly difficult to achieve each subsequent technology node, resulting in the need for more advanced process steps and new materials. Our equipment is a key component in enabling the industry to advance its technology roadmap.

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In addition to the development of the high-k dielectric, there is a strong focus on new technologies and materials for the metal gate and capacitor electrodes, the gate sidewall passivation, and many other applications.

Plasma enhanced ALD (PEALD) is an important technology that enables precise deposition at very low temperatures. One application of PEALD is spacer defined multi-patterning, whereby the deposition of a highly conformal oxide spacer enables the extension of existing optical lithography technology beyond its basic resolution limits. These spacers will continue to be used in combination with EUV lithography, also to extend beyond its resolution limits.

OUR PRODUCTS

Our products include wafer processing deposition systems for CVD, ALD, epitaxy, and diffusion/oxidation. We make two types of process tools: single-wafer and batch. The majority of our business comes from single-wafer tools, which are designed to process an individual wafer in each processing chamber on the tool.

In contrast, a batch tool is designed such that a large number of wafers are processed simultaneously in a larger processing chamber. Batch tools typically achieve a higher throughput compared to single-wafer tools. Our batch tools include the A412 vertical furnace for 300mm logic, foundry and memory applications, and the A400 DUO vertical furnace for 200mm and smaller wafers, targeting power, analog, RF, and MEMS applications.

Single-wafer tools typically achieve a higher level of process performance and control, especially for complex, critical applications, and a shorter cycle time. We work closely with our customers to meet their demands, and in recent years we have developed single-wafer tools with multiple chambers configured together in a compact way on a single platform. This approach offers the best of both worlds, combining high productivity and short cycle times, and a high level of performance.

To address the technology needs of our customers, the industry’s relentless drive to reduce costs corresponds to significant spending on development programs that further increase throughput, equipment reliability, and yield in our customers’ manufacturing line, and further lower the cost per wafer of the wafer processing systems. Without continuous productivity improvements, the price of chips would continue to rise, driven by increasing capital intensity of each new technology node.

An excellent example of high productivity is our XP8 platform, on which we offer ALD, PEALD and PECVD processes. The XP8 incorporates eight process chambers in a compact configuration around

one central handling platform. Two wafers are moved simultaneously into dual chamber modules (DCM), which approximately doubles the throughput compared to single-wafer movements. Eagle XP8 PEALD tools and Dragon XP8 PECVD tools are currently in high-volume manufacturing at logic and memory fabs worldwide, and demonstrate reliable advanced performance with high productivity.

The Synergis ALD tool also uses the proven XP8 platform, and leverages the core technologies from our Pulsar and EmerALD ALD products for high productivity thermal ALD applications. Furthermore, our XP8 QCM tool enables even higher throughput by incorporating four chambers in the quad chamber module (QCM). With four QCMs attached to the XP8 platform, a total of 16 process reactors are configured on the same system. Our wide range of ALD and PEALD tools allow us to address more ALD applications, increasing the market we serve. These high productivity systems add substantial value to semiconductor fabs by reducing the cost per wafer for each processing step used in the tools.

Our XP platform is a high-productivity, common 300mm single-wafer platform that can be configured with up to four process modules. The XP platform enables high-volume multi-chamber parallel processing or integration of sequential process steps on one platform. The XP common platform benefits our customers through reduced operating costs, as many of our products use the same parts and consumables, and a common control architecture improves ease of use.

On our XP platform, we offer Pulsar and EmerALD single chamber ALD process modules for high-k dielectric and metal gate processes respectively. Also available on the XP platform is the Intrepid epitaxy tool and the Previum process module for integrated pre-deposition surface cleaning. Previum surface cleaning enables optimal quality epitaxial depositions for advanced node channel and source/drain engineering applications.

Our XP8 platform follows the basic architectural standards of the XP, but provides even higher productivity with up to 16 chambers integrated on a single-wafer platform with a relatively small footprint. The XP8 platform can be configured with four dual chamber modules (DCM) enabling up to eight integrated chambers, or with four quad chamber modules (QCM) for up to 16 chambers on the same platform.

With the XP8 common platform architecture, we offer a wide range of systems for ALD, PEALD, and PECVD applications. The Dragon XP8 for PECVD, Eagle XP8 for PEALD and Synergis for thermal ALD all use DCM module configurations. Our XP8 QCM tool offers PEALD processing on quad chamber modules for very high productivity.

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CUSTOMER FEEDBACK

Our focus is on providing customers with the best products and services, which are critical for market success. During the year, we received awards from a number of key customers.

In March 2020, ASMI was recognized by Intel as a recipient of a 2019 Preferred Quality Supplier (PQS) award. The PQS award recognizes companies like ASMI that Intel believes have relentlessly pursued excellence and conducted business with resolute professionalism. To qualify for the PQS status, suppliers must exceed high expectations and achieve uncompromising performance goals. During the presentation, Intel highlighted our safe working environments and partnership, flexibility and accountability in our support models.

In November 2020, ASMI received the Contribution Award from Samsung for recognition of 30 years of dedicated support. ASMI also received various appreciation plaques from Samsung during 2020, including:

•Best cooperation in foundry manufacturing technology in February;

•Outstanding support to improve productivity in memory in May; and

•Dedicated support for defect improvement in foundry in July.

ASMI has also received an award for the #1 Safety Supplier in 2020 from a leading memory customer in Taiwan.

CUSTOMER SAFETY – COVID-19 RESPONSE

We recognize that safety at our customer sites is a shared experience. We engage with our key customers through an innovative engagement called ‘Safety Leadership Collaborations’ to share and review data, including safety observations and incident reports. Through these engagements, we emphasize a shared approach to safety and foster an atmosphere of continuous improvement. For example, we used data to identify opportunities for ergonomic improvement, and a joint ‘ergonomic task force’ has realized the improvement of multiple situations. This has reduced the risk of injury for staff using our equipment.

From the onset of the COVID-19 pandemic, we took a number of steps to protect our employees and customers, while enabling the performance of our systems at our customer sites. We developed and continually refined our own employee exposure control policies and procedures, and implemented approval processes for customer site visits, taking into account regional and customer fab-specific policies.

We do not allow our people to travel to areas where local policies fail to meet our own requirements, while in areas where constraints may be more stringent, we ensure our compliance. By year-end, we were not aware of having had a direct work-related spread of the virus. We also participated in SEMI’s  COVID-19 workgroup with customers and peers in benchmarking and contributing efforts to drive improvements across the industry.

BREAKTHROUGH TECHNOLOGIES

Innovation is the growth engine that drives us forward. Our innovative culture has enabled us to become and remain a leading supplier of ALD equipment and process solutions for the semiconductor industry. Today, our ALD process technology delivers the highest performance available to support the next generation of semiconductor devices. Our epitaxy products have also demonstrated solutions for our customers to achieve transistor channel performance at the most advanced technology nodes. We are investing across our full product line spectrum to develop the breakthrough technologies that drive growth for our company.

INCREDIBLE PRECISION

ALD allows us to deposit thin films atom-by-atom on silicon wafers, meaning we can deliver atomic-scale thickness control, high-quality deposition film properties, and large area uniformity.

Such precision means we can use materials that previously could not be considered, and develop 3D structures that are vital to the future of electronics. 3D technology provides a number of real benefits, including saving space while delivering chips with higher performance that consume less power.

ALD – A DRIVER OF FUTURE GROWTH

Our ALD technology is used to build integrated circuits for a wide range of leading edge products, including high-performance computers and smartphones. The results of ALD are visible everywhere in the world around us.

ALD is also our basic platform for the development of a wide range of new materials. Our research centers across the globe are working on ALD, and we conduct joint research projects with the largest independent research institute, imec. Taken together, this helps make ALD one of the principal drivers for future growth in microelectronics.

Through ALD, we can deposit new materials several atoms thick on semiconductor wafers, producing ultra-thin films of exceptional quality and uniformity.

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In PEALD, plasma is used to provide the reaction energy for the process, enabling us to use lower temperatures for low-thermal budget applications. This technology was introduced in DRAM and planar NAND flash manufacturing for spacer-defined double patterning (SDDP), a technique that can reduce device dimensions, thereby postponing the need for new lithography technologies.

Using ALD technology, we can scale devices to smaller dimensions while reducing the power consumption of transistors, all of which helps the industry follow Moore’s Law and create smaller, more powerful semiconductors. For advanced 3D memory applications, where devices are stacked vertically in high densities, ALD is critical for uniformly depositing films in deep trenches and over complicated features. Many new applications are emerging where ALD is the technology of choice, and in a number of cases the only solution that meets the challenging technology requirements.

We expect ALD to be one of the principal drivers of growth in microelectronics over the coming decade. We are seeing more ALD applications required by customers for each new technology node. For example, compared to the 10nm node, there are more ALD layers used for 7nm processor devices, and even more for 5nm.

EPITAXY

Epitaxy is a critical process technology for creating advanced transistors and memories. The epitaxy process is used for depositing precisely controlled crystalline silicon-based layers that are important for semiconductor device electrical properties. In some cases, the epitaxy films incorporate dopant atoms to achieve specific material properties.

Epitaxy process temperature control is extremely important. We have developed new methods of temperature control in our Intrepid ES epitaxy tool that enable improved film performance and repeatability in volume production. Furthermore, Intrepid’s closed-loop reactor temperature control enables enhanced stability in production.

For enhanced epitaxy film performance, we introduced a pre-deposition wafer surface clean technology which is performed in our new Previum process module, integrated together with Intrepid epitaxy process modules. The surface clean process is used prior to the epitaxy deposition to create a pristine silicon surface for defect-free epitaxy film deposition, critical for achieving the most advanced node transistor performance requirements.

Overall, we expect growth in our deposition technologies, including epitaxy for advanced transistors and PECVD for creating improved interconnects. Looking ahead, we will continue to develop the huge potential of our deposition technologies in support of the semiconductor industry, enabling the industry to support the future demands of consumers and businesses.

PRODUCT STEWARDSHIP

Developing tools and processes more efficiently helps reduce electricity usage and we are working to achieve this in a variety of ways, including:

•Designing our equipment to use less power when operating in our customers' fabs;

•Developing process technologies that enable advanced semiconductor chips with lower power consumption; and

•Reducing power usage in our own manufacturing and lab facilities.

ASMI has focused on reducing energy usage in its equipment by incorporating innovative design changes in its newest products that dramatically reduce energy consumption for our customers, measured on a per wafer basis.

We have reduced energy consumption in our plasma-based equipment by improving plasma generation efficiency and decreasing plasma power leakage. We have also made improvements to the insulation of gas lines, reactor walls and transfer chambers, resulting in lower thermal energy losses. We have reduced energy usage during system idle mode by reducing the power of vacuum pumps. These efforts are ongoing, and together would result in a 16% reduction in power usage per wafer. So far, we have realized a power reduction of about 7% and the remainder will be achieved progressively as customer testing and validation takes place.

Furthermore, we have designed new reactor technology that has led to a 27% energy reduction per wafer in PECVD products. Our epitaxy reactor innovations have resulted in significant productivity enhancements in the process, generating a 30% reduction in energy usage per wafer.

Given the prevalence of semiconductor devices in today’s products, lower energy usage is a key achievement. Cloud data centers need to reduce their substantial power usage, while consumers want to reduce the charging time of their mobile devices and see battery size continue to shrink. ASMI’s technologies support these energy reduction goals. For example, our ALD high-k metal gate and epitaxy process technologies contribute towards reducing the operating voltage of advanced transistors, saving power on a wide scale as advanced devices proliferate globally.

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PRODUCT GOVERNANCE AND LIFECYCLE MANAGEMENT

Focusing on product stewardship and product life cycle (PLC) management involves taking responsibility to reduce the product’s environmental impact along its entire life cycle, from cradle-to-grave. Ultimately, this approach enables us to make products more efficient and productive for our customers, while extending the products' useful life.

Our product life cycle process follows the well-established construct of phase-gate product development guided by several key inputs:

•Our collective industry knowledge/experience and subject matter experts;

•Industry/customer requirements and frameworks (such as customer purchase specifications and business requirements); and

•Industry regulations, standards, and guidelines.

Product-specific requirements realized from these inputs are documented in market requirement specifications (MRS), which are held as the objectives we need to meet through the product development process. The MRS are updated continuously to capture changes to market conditions, regulations and standards, and related specifications.

Governance is provided through key technical meetings (architecture reviews, design reviews and validation reviews) and phase exit meetings through the various life cycle stages of the product.

We maintain a global Quality Management certification, ISO9001-2015 relating to the scope: Design, Sell, Make, Install, and Customer Support of Front-end Semiconductor Processing Equipment. This was re-certified on August 1, 2019.

EXTENDING THE PRODUCT LIFE OF OUR SYSTEMS

The market for our new systems continues to grow rapidly, driven primarily by customers' needs for the latest technologies. While our primary focus is to serve and enable this market, many of our older systems remain in full or partial use today.

For systems no longer in use, an aftermarket exists in which these systems are re-used amongst our customers. It is a market that we have been participating in selectively. Since the health of our customers, in part, relies on the re-use of these assets, this is an area that we intend to increase our focus on. As we know our systems’ configuration details, applicability and ability to upgrade, we intend to take a more active position, with the aim of increasing our customers' success in the system aftermarket.

For those systems not operating optimally, we have a group that works on refurbishment and upgrade solutions for our installed base. We are actively working with customers to understand and implement improvement opportunities. In 2020, we saw a significant amount of system level refurbishment business and expect this to continue to grow in the future.

A key component of our customer service is ensuring older systems continue to operate. The most challenging aspect of this is supplying all the necessary parts to keep the systems running. While we generally have a healthy supply of frequently used parts, there is typically not enough volume of less commonly used parts to sustain a supply chain. Additionally, parts tend to evolve to meet the more stringent needs of today's processes.

To help prevent this, we track parts that are becoming obsolete within our supply chain, actively seek to enable and qualify replacement parts that are available, and purchase and make available original parts to prevent disruption to our customers.

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SUSTAINABLE PARTS LIFE CYCLE

Customers want parts that are long-lasting, increasing the output and lifetime of the system and reduce the cost of ownership. We have integrated technologies, such as soft remote plasma cleaning in place of in situ plasma cleaning, which help to extend the life of these parts. We have also created a team in our services organization that is focused on improving the intrinsic lifetime of parts. This group focuses on expanding our supply footprint, both in terms of enabling replacement parts, with customizable, low-volume suppliers of components that go obsolete, and in terms of repairing and refurbishing to extend the usable lifetime of the original components. These efforts help ensure the longevity of our systems, reduce the cost of ownership, and increase our competitiveness in the market, enabling us to achieve sustainable production and consumption.

PRODUCT SAFETY AND GOVERNANCE

Product safety is a core element of ASMI’s innovation process, and it is realized through the design, manufacturing, and ongoing support of our products. The requirements are defined and championed by the Product Safety Council, which includes engineers representing all of our design centers. These requirements are established in the PLC during the requirements phase, and include legislation and standards defined by the semiconductor industry and its customers. We verify that safety requirements are met during the concept and design phases as part of safety risk assessments, and through independent third-party validations during the product validation phase. In addition, we integrate the identification of opportunities for safety design improvements into our global safety reporting system. This system enables our engineers and technicians who work with our equipment on a daily basis to report incidents, areas of concern, or opportunities for improvement. Corrective actions and lessons learned are captured, providing an invaluable link between the end user and the design process. Our stakeholders working with our equipment rely on this process of continual assessment, integration and improvement, to make sure they can safely work with our products.

The following are some of the key accomplishments in 2020 that have helped ensure the continued advancement in our programs:

•Expanded product safety education: We launched new, customized ASMI product safety engineering introduction training classes to provide awareness of the latest compliance regulation changes. We made a significant expansion to reach other cross-functional groups, resulting in 305 employees trained in 2020. Additionally, we expanded ASMI’s custom SEMI S2 training courses with over 70 real-life ASMI equipment examples on how to ensure proper design compliance with the written regulations;

•Successful third party virtual safety audits during COVID-19 restrictions: We performed multiple first-of-a-kind ‘virtual’ third party audits in all regions globally, which required significant additional preparation and coordination as travel was restricted. Furthermore, the number of audits globally increased markedly due to rapid new product developments across all KPUs; and

•Semiconductor industry product safety engineering leader: We developed and presented innovative new safety interlock design methodologies to the international semiconductor industry forum (SESHA). We provided clear guidance on how to allow proper component selection if no component exists, meeting all design requirements. The virtual presentation was viewed by over 300 professionals from semiconductor end users (ASMI customers), third party evaluators, sub-system and component suppliers, government agencies, universities, and even by ASMI’s competitors.

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GLOBAL RESEARCH

As a global company, we carry out research and development (R&D) across different continents, giving us access to the smartest professionals working in the semiconductor sector today, and bringing our R&D closer to our customers. In our research centers in Belgium, Finland, Japan, the Netherlands, South Korea, and the United States, we are active at all stages of our innovations’ life cycle, from developing the basic chemistry and materials to implementing improvements on our equipment at our customers’ production sites. We also work with specialists across a wide array of disciplines to develop our future products, including scientists from research institutes, universities and suppliers.

REGIONAL EXPERTISE WITH GLOBAL REACH

Since our R&D activities are chiefly conducted in the principal semiconductor markets of the world, we are able to draw on innovative and technical capabilities internationally. Each geographical center provides expertise for specific products or technologies, and interacts with customers on a global scale. This approach, combined with structured and managed interactions between the individual centers, enables the efficient allocation of resources during product development and new product introductions.

Guided by our global product development policies, our local activities are directed towards expanding and improving existing product lines to incorporate technology improvements and reduce product costs and total cost of ownership, as well as developing new products for existing and new markets. These activities require the application of physics, chemistry, materials science, electrical engineering, precision mechanical engineering, software engineering, and systems engineering.

GLOBAL PLATFORM ENGINEERING GROUP AND CORPORATE R&D

A global platform engineering group addresses the needs for common platforms and software for the various products in our product portfolio and across different key product units. This helps us drive standardization of hardware and software through the organization. Standardization is helpful in reducing costs and lead time as well as reducing waste. A broader use of common components reduces the risk of inventory obsolescence.

A corporate R&D group consisting mainly of resources in Leuven, Belgium and Helsinki, Finland addresses common needs for advanced process and materials development, and process integration work for the advanced nodes that are 4-8 years out from initial production. Driving part of our new chemistry developments and initial selection in a lab on coupons in R&D systems rather than on full wafers in 300mm manufacturing systems, as well as extensive use of statistical methods and data sciences, minimizes the number of experimental trials that are needed to conclude a development. This reduces energy and chemicals consumption, as well as silicon wafer usage. In addition we improved the rigor in our R&D process with an improved tollgate (or stage gate) process, and various pipeline controls. This improves the effectiveness and efficiency of our R&D process, decreasing waste in chemicals, materials, and test wafers.

INITIATIVES WITH CUSTOMERS, INSTITUTES AND UNIVERSITIES

We work with our customers to co-create and jointly develop technology roadmaps, to timely develop the new processes and materials our customers need for their next-generation products. The diversity in collaborations, ranging from early research to pilot production, helps us reduce risk as early as possible in the innovation life cycle. 

As part of our R&D activities, we are engaged on a global scale in various formal and informal arrangements with customers, suppliers, research institutes and universities.

We have specific bilateral research activities with several key academic groups at universities in Asia, Europe, and North America, typically centered around our core R&D focus on new equipment, materials, and process developments.

We contribute to several process and equipment development projects at the major Dutch technical universities through the Dutch NWO* funding organization in the domain TTW** (covering Applied and Engineering Sciences). And in Belgium, we participate in the industrial users group for several projects supported by the Flemish funding organization VLAIO*** (Agency for Innovation and Entrepreneurship).

We participate in select publicly-funded programs to research and develop ‘More than Moore’ technologies, a strongly growing market of various types of analog chips which are not driven by the same Moore’s Law technology scaling inflections of mainstream logic and memory chips. We are also a member of AENEAS (Association for European NanoElectronics Activities), and participate in roadmap activities.

* NWO: Nederlandse Organisatie voor Wetenschappelijk Onderzoek

**  TTW: Toegepaste en Technische Wetenschappen

*** VLAIO: Vlaams Agentschap Innoveren & Ondernemen

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And finally, we occasionally cooperate with other semiconductor capital equipment suppliers in complementary fields in order to gain knowledge on the performance of our own deposition processes, in cooperation with other processes, either in bilateral or consortia projects.

We were engaged in several formal joint-development programs (JDPs) with customers for 300mm applications of our products and were active in evaluations of our most advanced technologies with selected customers. The scope of these JDPs span many nodes, from the 5nm node currently in production, to well beyond the 2nm node for foundry, and the equivalent DRAM and 3D-NAND technology nodes.

In 2017, we renewed our strategic R&D partnership with the Interuniversity Micro-Electronics Center (imec) in Leuven, Belgium, extending into 2022. Essentially all of our 300mm products are involved in this partnership. From 2013 through 2020, we significantly expanded our partnership with additional ALD, PEALD, epitaxy, and LPCVD capability. This gives us the opportunity to investigate, both jointly and independently, the integration of individual process steps in process modules and electrically active devices. We have partnered with imec since 1990, with significant on-site representation since 1994.

In December 2003, we commenced a five-year partnership with the University of Helsinki that aims to further develop ALD processes and chemistries. This partnership was extended in 2018 for a fourth five-year period extending into 2023.

PATENTS & TRADEMARKS

We expect new deposition technologies and chemistries to be a major driver for new intellectual property (IP) in the future. Patents give us a right to protect our products or aspects thereof, and enable us to speak more openly about our inventions and share ideas in the marketplace that benefit our customers.

We understand that a failure to adequately protect our IP and/or leakage of our IP could result in the loss of our competitive advantage and adversely impact our financial performance.

We have therefore implemented a program that protects IP for us, our customers, our suppliers and our partners. We train all employees not only on the importance of IP protection, but also on how to recognize and report possible IP infringements. This training is provided to all new hires, and employees are given regular refresher trainings. In addition, and on an ongoing basis, we are

strengthening our IP generation process to be more efficient and improving interaction with the R&D effort to capture opportunities earlier.

Our patents are usually registered in the principal countries where semiconductor devices or equipment are manufactured and/or sold. Our vision is to increase our value to our customers and shareholders by using our IP in a way that differentiates our products, influences the market, and provides additional monetization opportunities.

Intellectual property managers work at all of our major global R&D sites, where they capture patentable material resulting from our R&D activities. We now have 2,094 patents in force worldwide protecting our various products.

We have registered a number of trademarks covering our product portfolio in the principal countries where we do business:

•ASM, the ASM International logo, Advance, Aurora, Axis, Dragon, Eagle, EmerALD, Epsilon, Intrepid, Previum, Pulsar, Silcore, XP, XP8 and Synergis are our registered trademarks.

•The ASM Qualified Licensed Supplier logo, A400, A412, Loadstar, and NCP are our trademarks.

•Drive Innovation. Deliver Excellence is our service mark.

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At ASMI, our team focuses on advancing technologies and unlocking possibilities to make the world a better place. Our people are our power, and we want to create a culture and workplace where everyone is inspired, is always developing, and is empowered to perform at their best. We want to be an employer of choice in our industry. To achieve this, we are continually focused on strengthening a number of areas. First, we are redefining our culture and reinforcing our leadership. Second, we are optimizing our organizational design and workforce planning. And finally, we ensure our people are kept informed through consistent and robust employee communications.

Our main focus areas are: culture and leadership, organizational development and workforce planning, talent recruitment, retention and total rewards, and employee communications.

CULTURE

We aspire to be the employer of choice within the semiconductor industry. To achieve this, we are creating a distinct culture at ASMI, differentiating ourselves from our competitors. We are a global company with a diverse workforce, reflecting the locations where we are based, as well as our diversity in experience, positions, and backgrounds.

ASMI is working to create a unified view of who we are and the way we work. To create a unique culture, we have taken many steps towards defining our employer brand: 'the Power of an Open Mind'. This unified culture will drive our behavior and differentiate ASMI by building on our unique strengths.

ASMI is focused on attracting, engaging, retaining, and developing talented people with targeted capabilities to achieve our longer-term strategic direction. Our people are part of an inclusive and diverse workforce, supported by a culture that is caring, innovative and driven to deliver.

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GROWTH

Opportunities for personal development are key to the success of the company and each individual employee. ASMI invests in its people and their ambitions. Sustainable long-term career prospects and development is reflected in the 10% jump in internal promotions in the last two years.

In 2020, over 75% of our managers took part in virtual courses to help them advance their leadership skills and strengthen areas of professional interest. Collaboration, diversity, leadership, customers, and teams are just some of the areas covered in these learning programs.

The COVID-19 pandemic meant that all learning had to move online and we introduced a new employee toolkit that complements the existing manager toolkit. Both toolkits are designed to help employees achieve success.

ASMI provides a clear view on career advancement in key technical job families. In 2020, we introduced global services & spares to our existing portfolio of defined job families. We have clear progression tracks for global products, research and development, and manufacturing. We aim to provide clear paths for career progression for all roles for both managerial and technical positions, which will create a transparent, attractive proposition for present and potential talent.

ENGAGEMENT SURVEY

In 2020, we conducted a global employee survey to learn more about the engagement of all our employees.

The response rate was high, illustrating how motivated our employees are to actively participate in shaping the future of ASMI.

A key outcome of the survey was that our employees recognize the strengths of ASMI: a strong customer focus and a results-driven culture. The survey also highlighted the need to further build internal communications, something that will be developed considerably in 2021 and which is further explained below.

The survey highlighted strengths and improvement areas of our current culture. We use the outcomes to improve and strengthen our culture in 2021.

EMPLOYEE COMMUNICATIONS

We aim to provide a transparent, open, and engaging approach to our employee communications.

In 2020, we increased employee communications further. In November, our internal CEO video messages were relaunched in a new interactive digital format, allowing for a more interactive experience between management and employees. The questions raised during these events help us to identify key themes and focus areas for future proactive communications.

EMPLOYEE BRANDING

In 2020, we introduced 'the Power of an Open Mind', our employee value proposition (EVP). The EVP is designed to encompass ASMI’s ambitions, what we believe, who we are, and what we stand for. It helps us to attract the best talent by building an employer brand that people aspire to work for. And it also helps us to engage with our current employees.

The concept was co-created with 120 employees, covering multiple geographies and business areas reflecting the diverse global structure of ASMI.

It was launched via an internal campaign, followed by training for all managers to cascade the concept deeper into the organization.

INCLUSION AND DIVERSITY

In 2020, we conducted an internal inclusion and diversity health check. This study highlighted our current strengths, as well as areas for improvement. We are using these outcomes to further prioritize initiatives, looking into creating a more inclusive company culture, and improving our talent processes and people policies that will positively influence the attraction and retention of female technical employees.

SUSTAINABILITY: DIVERSITY PROGRAMS

In accordance with the best practice provision 2.1.5 of the Dutch Corporate Governance Code, ASMI has formulated a Diversity Policy, which is published on our website. Diversity is considered in any event to consist of gender, specific knowledge, work background, nationality, age and ethnic diversity, (technical) experience and skills. In 2020, more than 75% of ASMI’s people managers were trained as part of ASMI’s ‘the Power of an Open Mind’ EVP program. A key element of this training is ASMI’s focus on diversity.

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ASMI has a proven track record when it comes to equal pay – a common issue within the industry but a key component to any successful, fair, inclusive and diverse workforce. To be transparent about the impact of our compensation programs, we assess the difference in gender compensation between our female and male employees. We look at the compensation ratio at management and non-management levels. The analysis is done by comparing the median compensation as a function of gender per job grade and per country, excluding the impact of job scope and country-specific compensation levels.

In line with our previous findings in 2018 and 2019, our 2020 results did not show any significant disparity between female and male compensation based on relative salary position (RSP) at the different levels in our organization. ASMI pays its people in line with market expectations, a true living wage.

ORGANIZATIONAL DESIGN AND WORKFORCE PLANNING

Our process of succession and talent reviews is used to identify internal talent and current organization capabilities. Workforce planning reflects current and future growth expectations, enabling us to plan towards a future-proof workforce for ASMI.

HEADCOUNT DEVELOPMENT

We recruited 545 people during the year, ranging from technicians building our products, service engineers delivering high-quality support to our clients, and people in R&D driving our innovations. Our total workforce, including temporary external workers, grew from 2,444 to 2,689, a total increase of 10%.

Across 2020, our voluntary attrition rate was 8.3%. Our voluntary attrition rate has declined for the past 3 years.

TALENT RECRUITMENT, RETENTION AND TOTAL REWARD  

In 2020, we stepped up our activities to identify internal and external talent pipelines for our immediate workforce needs, whilst also looking to our future strategic workforce requirements. During succession and talent reviews, we identify the most talented leaders and experts who are potential successors for critical positions and to staff new organizational capabilities. Externally, ASMI focuses on managing and maintaining relationships with promising candidates; when key positions are identified or become available, we are in a prime position as the employer of choice. This future-forward focus on candidates allows us to build a steady talent pipeline.

Next to our succession and talent review process, ASMI has a structured performance appraisal and development process. This process supports management and employees in having ongoing key objectives and competencies discussions on a regular basis, resulting in concrete career development-related decisions.

In 2020, we updated our set of ASMI leadership capabilities and profiles. This framework provides a common language when identifying leaders that potentially fill future requirements as defined by our business strategy. For employees, it provides aspirational roles, ensures career development, and creates future opportunities.

In 2020, our workforce continued to showcase our global nature, with 40 nationalities working at ASMI. This diversity is reflected at site levels, meaning that it is normal to work with people from different nationalities on a daily basis. This international dimension is one of the reasons why people appreciate working for ASMI. As part of gender diversity, 15% of our workforce was female at year-end.

LIVING WAGE 

Our employees are paid above the local minimum wage. ASMI is actively engaged with outside organizations to benchmark living wage best practices in line with the Anker methodology, which is a relevant survey practice for corporate organizations. The scope of the living wage survey includes most countries where we have ASMI employees or contractors. In 2020, we covered 13 countries, and we did not identify any cases across these countries where employee wages were below the agreed living wages.

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As a member of the Responsible Business Alliance (RBA), the world’s largest industry coalition dedicated to corporate social responsibility in global supply chains. In 2020, we co-sponsored an amendment to include living wage in the RBA Code of Conduct. Working with other RBA member companies, we proposed the formation of a living wage working group to study living wage best practices for use in complex, global supply chains. The working group proposal will go forward to the Board for review in 2021.

WORKING HOURS AND DAYS

The standard working week varies by region and country and is often dictated by local regulations and norms. One standard that is consistent across ASMI is aligned with the fundamental principle in the RBA Code of Conduct which limits working hours to 60 hours per week, or the local limit, whichever is lower, and working days to one day off in every seven, for hourly employees involved in the production of goods and services. There is allowance for emergency situations, such as when COVID-19 impacted the globe and disrupted schedules with lockdowns and quarantines. ASMI was able to perform within the RBA limits for both working hours and days despite the challenges presented by the crisis. We were able to achieve this because of our existing management framework around the control of working hours. The performance to this criteria is a part of a corporate-level dashboard and is monitored and reported closely to ensure compliance.

GLOBAL EMPLOYMENT STANDARDS

ASMI is dedicated to creating a safe and inclusive workspace for every individual. Our Global Employment Standards (GES) summarize our approach to respecting human rights throughout our global operations. They are written with everyone in our value chain in mind. The GES reflect the principles laid out by the United Nations in the Guiding Principles on Business and Human Rights, and support the RBA Code of Conduct framework, including the following:

•Prohibit the use of forced or involuntary labor, including fees of any type to secure employment;

•Prohibit the employment of child labor; ASMI policy specifically does not allow anyone under the age of 18 to be employed at ASMI;

•Prohibit corporal punishment, threats of violence, or other forms of physical or verbal coercion or harassment. We believe that everyone deserves to work in an environment free of any threats to their human rights; and

•In 2020, we had no reports or evidence of any human rights violations or abuses within our global hiring or employment practices.

BUSINESS ETHICS

As a follow-up to the Ethics Committee summits started in 2019, the Code of Business Ethics was refreshed into the Code of Business Conduct (COBC) in 2020. ASMI’s COBC management system includes 18 underlying policies including fair competition, gifts entertainment and hospitality, corruption and improper advantages and anti-fraud, and corruption.

The refreshed COBC is more comprehensive and comes with trainings for all employees in multiple languages. The trainings are set to effectively influence desired conduct rather than merely reinforce rules.

At the same time, it further defines the consequences of such violations through our newly introduced disciplinary policy. All training is supported by a wealth of resources including a dedicated webpage on ASMI’s intranet, reference material and tools for specific areas such as gifts and entertainment, the Whistleblower program and SpeakUp!.

The COBC continues to apply to our Supervisory Board and Management Board, as well as all our employees, consultants, contractors, temporary employees, and critical suppliers.

Our Global Employment Standards (GES) summarize our approach to respecting human rights throughout our global operations and supply chain. They are written with everyone in our value chain in mind. The GES reflect the principles laid out by the United Nations in the Guiding Principles on Business and Human Rights, and support the RBA Code of Conduct framework, including prohibiting the use of forced or involuntary labor, prohibiting the employment of child labor, and prohibiting discrimination or harassment.

SPEAKING UP

The SpeakUp! program enables employees, suppliers, customers, and any other stakeholder to report ethics issues, concerns or complaints anonymously and in their own language. Potential violations of our COBC can be reported through the SpeakUp! process, or directly to management, HR, or the Compliance Officer. When we receive complaints, these are investigated by the Ethics Committee. Independent of the way of reporting, our COBC includes a non-retaliation policy that applies to any person making use of this process.

In 2020, five concerns were reported through our SpeakUp! system, while four cases were reported via other channels to the Ethics Committee. All incidents were fully investigated and, in those cases involving violations to the COBC, appropriate actions were taken.

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PRIVACY

We have adopted and rolled out policies and privacy codes, and entered into agreements (including with third party processors) in our effort to protect the integrity and confidentiality of the data of our employees. The same applies with respect to the privacy of our customers and suppliers.

HEALTH & SAFETY

ZERO HARM! is our safety objective and we review our incidents thoroughly to identify new risks and introduce mitigation plans to prevent future exposure. We have a robust Occupational Health & Safety management system in reference to leading international and regional standards. Our management system is comprehensive in all aspects of policy, hazard identification, controls, objectives and targets, training, communications, monitoring and measurement, reporting, corrective & preventive actions, strategic planning, and management reviews. The safety management system and programs for our Singapore manufacturing facility are certified to the Singapore bizSAFE Level 3 accreditation. Our structured safety management system is approved by senior management, who not only set out our commitment to safety, but are actively engaged in and continuously informed on the progress and the priorities we must focus on toward ZERO HARM!

Across our operations, we have implemented proactive measures to reduce the risk of injury or incident, with our employees, our customers, and contract manufacturers and other suppliers. We instill this into our safety philosophies and culture, starting with our 6Es of Safety Leadership framework, which empowers everyone to lead by example and through prevention.

The framework emphasizes empowering everyone for safety, proactive measures like education, and eliminating hazards, and evaluates performance through key performance indicators and employee surveys. Employees who demonstrate notable and scaled contributions for their role, positive attributes, and leadership in safety can be nominated by peers for a global quarterly Safety Leadership Award.

Quarterly safety award winners

Be Safe Safety Leadership framework

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In 2020, our total injury rate showed an increase from 0.42 cases per 100 employees to 0.58 cases per 100 employees. This is the first substantial increase in 10 years. Our goal is ZERO HARM! and while many of the cases we saw in 2020 were minor injuries, such as a splinter or bumped knuckle, we treat every one with the same resolve to eliminate. Our recordable injury rate, the measure of more serious injuries, increased by two cases, resulting in a rate of 0.23 cases per 100 employees compared with a rate of 0.17 in 2019. We are strongly committed to reduce this in the years to come, and are setting appropriate objectives and taking active steps to enhance our overall Safety Management System toward that goal.

As of year-end, there have been no work-related employee or contractor fatalities in 2020 at ASMI sites or relative to ASMI operations.

We engage with customers and across the industry to strengthen safety partnerships. We are members of SESHA, an industry consortium focused on safety, health, and the environment, and are working with key stakeholders toward improving industry shared learnings and safety improvements. In addition, we have continued our innovative Safety Leadership Collaborations with key customers. This has led to the implementation of an ergonomic task force with one of our customers. After our safety observation data started showing opportunities for improvement, we worked with the customer to form the joint task force and by year-end, we had implemented 14 ergonomic projects, designs, and improvements.

Contractors are critical to ASMI’s success, and their safety on our site is vital. Our Contractor Safety Programs include contractor company screening, individual contractor training and orientation to our sites and requirements, and administrative controls such as safety plans and work permits. We work with contractors while on our sites to ensure close coordination through Pre-Task Planning and Site Incident Prevention programs to minimize the risk of our operations impacting their tasks, and subsequently their safety, and vice-versa.

Our safety key performance measures are aligned with industry and peers and allow us to benchmark our performance year-on-year. The key measures include an overall injury rate indicator and a recordable injury rate indicator, which is an indicator of serious injuries requiring medical attention or days away from work. We have chosen to place emphasis on a total injury rate consistent with our goal of ZERO HARM! Placing emphasis on lost time or days-away rate, restricted time rates, or other measures of serious injury only is not consistent with our ambition to eliminate all injuries. We have found that transparently sharing even the mildest first aid injuries is the right approach for our ambition.

Our safety policy includes our commitment to engage in safety across our value chain.

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EMPLOYEE COVID-19 RESPONSE

The COVID-19 pandemic strongly impacted our way of working in 2020. ASMI banned travel to those regions initially affected by the end of January. Hygiene and screening measures were introduced across all sites globally in February, and a global travel restriction was issued in March.

As we learned more about the spread of the virus, we maximized work from home globally, improved hygiene and control measures, and mandated social distancing at our sites for designated employees in March. To help with the work-from-home efforts, our IT organization held a series of training sessions on remote applications and tools in April and May. Our employees have responded with a demonstrated care for others throughout the entire pandemic period, following protocols at every step and reporting potential symptoms and close contacts, and staying at home until cleared to return.

Throughout the progression of this pandemic, taking care of our employees has been at the front of our efforts. By April, we had developed and rolled out global human resources guidelines to managers and employees to help navigate these unprecedented times. ASMI focused on doing what was right for our employees. Policies allowed for employees to take time off when there was a need to care for a family member. When border crossing and travel were restricted, we established temporary housing for employees near our factories.

Recruiting was not interrupted and we focused on virtual recruitment and onboarding. In Singapore, we implemented measures for our workers who have their homes in Malaysia but who, despite border closures due to country lockdowns, chose to continue to work in Singapore. Support measures included financial support for daily expenses, providing local accommodation, and assistance for foreign workers in finding local housing. ASMI worked to obtain all local ministry, trade, and industry approvals. Initially, employees were given hotel accommodation in safe spaces. As the pandemic progressed, we sourced more permanent housing. Smaller services, such as providing our employees with local SIM cards, were also swiftly rolled out, making communication with friends, family and colleagues easier.

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Global economic growth turned negative in 2020, impacted by COVID-19 lockdown measures. However, wafer fab equipment spending increased as our customers continued to invest in leading edge semiconductor manufacturing capacity. 2020 was a strong growth year for ASMI.

Total revenue increased by 18%, excluding the settlement proceeds in 2019, driven by solid increases in our ALD business and our spares & services revenue. This marks the fourth consecutive year of double-digit top-line growth.

ASMI has strongly outperformed the wafer fab equipment industry in recent years. In 2020, our gross margin improved to 47%, and with operating costs remaining under control, operating profit increased by 49% last year. We stepped up our investments as we completed our new manufacturing facility in Singapore and invested in the strengthening and expansion of R&D operations. Despite increased investments and higher working capital requirements, we generated a healthy free cash flow of €119 million in 2020.

Our company’s healthy financial performance has contributed to a strong share price performance in recent years. We continued to execute our policy of using excess cash for the benefit of shareholders. During the 2010-2020 period, we returned close to €2 billion through dividends, share buybacks, return of capital, and buyback of convertible bonds. Alongside the excess cash generated by our operations in 2017/2018, we also used approximately €0.7 billion proceeds of our reduced shareholding in ASMPT from 39% to 25% in 2017 for share buybacks and a tax-efficient return of capital to shareholders. For 2020, we have increased the proposed regular dividend by 33% to €2.00 per share.

Our strategy aims to create sustainable value for all our stakeholders. As part of this strategy, we are committed to creating long-term shareholder value. This chapter provides information that is particularly relevant for shareholders and investors, including information related to the share listing and share price performance, dividends and share buybacks. Also discussed is the financial performance in 2020.

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FINANCIAL RESULTS

The following table shows the operating performance for 2020, versus 2019:

The following table shows certain consolidated statement of profit or loss data as a percentage of net revenue for our operations for 2019 and 2020:

Revenue

The revenue cycle from quotation to shipment for our Front-end equipment generally takes several months, depending on capacity utilization and the urgency of the order. On average, acceptance is obtained four months after shipment. The revenue cycle is longer for equipment that is installed at the customer’s site for evaluation prior to sale. The typical trial period ranges from six months to two years after installation.

Our revenues are concentrated in Asia, the United States and Europe. The following table shows the geographic distribution of our revenue for 2019 and 2020:

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A substantial portion of our revenue is earned by equipping new or upgraded fabrication plants where device manufacturers are installing new fabrication lines. As a result, our revenue in this segment tends to be uneven across customers and financial periods. Revenue from our ten largest customers accounted for 82.2% and 85.1% of revenue in 2019 and 2020, respectively. The composition of our ten largest customers changes from year to year. The largest customer accounted for more than 10% of revenue in 2019 and 2020.

Following recent strong growth, the performance of our other product lines, including epitaxy, was partially held back by lower demand in the analog/power market. While representing a smaller part of ASMI’s total revenue, the analog/power market is more exposed to industrial and automotive segments, which were negatively impacted by COVID-19 in 2020.

Spares & services revenue increased by 29%. This was driven by growth in the installed base of equipment in recent years as well as initial results from our increased focus on new value-added services. To a smaller extent, this growth was driven by customers increasing inventories in response to the COVID-19-related supply chain challenges, especially in the second quarter of the year. Spares & services represented 21% of total revenue in 2020.

Currency changes led to a 1% decrease in revenue compared to 2019, mainly due to the depreciation of the US dollar.

In terms of customer segments, revenue for the full year was led by the foundry segment, followed by logic and then memory. Revenue in the combined logic/foundry segment showed a healthy increase, driven by solid investments throughout the year in leading edge manufacturing capacity. We continued to benefit from the significant increases in the number of ALD layers in the most advanced nodes compared to the previous nodes, supporting strong share of wallet gains for ASMI with the leading logic and foundry customers. Sales in the memory segment also showed a solid increase in 2020, led by DRAM customers. Aside from some recovery in overall spending, ASMI benefited from a first meaningful contribution from high-k ALD penetrations for the most advanced DRAM devices with multiple customers.

By geography, our revenues were led by the Asia region, with a growth of approximately 30% in 2020, excluding the settlement proceeds in 2019. This was partially due to a solid increase in revenue from China which, for the first time, accounted for more than 10% of total revenue.

Revenue growth driven by continued strong demand for leading edge technologies

At slightly over €1.3 billion, our net revenue increased 18% compared to €1.1 billion in 2019, excluding the €159 million proceeds from patent litigation & arbitration settlements in that year. While global economic growth turned negative in 2020, impacted by COVID-19 lockdown measures, the total wafer fab equipment market amounted to US$63 billion (Gartner, December 2020) compared to US$54 billion in 2019 (Gartner, December 2019). This increase was particularly driven by continued investments in leading edge semiconductor manufacturing capacity. As demand for advanced technologies remained strong throughout the year, the pandemic only had a limited impact on ASMI’s revenue. In the second quarter, we faced bottlenecks in our manufacturing and logistical operations, especially in Malaysia and Singapore, due to lockdown measures, which impacted several of our suppliers and led to shortages and delays for certain parts. In the third quarter, supply chain conditions returned largely to normal. Revenue in the second half was only modestly lower compared to the level in the first half. Excluding the impact from currencies, revenue in the second half increased. Fourth quarter revenue reached a new record, at €347 million.

Equipment revenue grew by 16% in 2020. This was driven by strong double-digit increases in our ALD product line, reflecting investments by our customers in the leading edge technology nodes. ALD continued to account for more than half of our total equipment revenue in 2020.

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The following table shows new orders levels and the backlog for 2019 and 2020:

The backlog includes orders for which purchase orders or letters of intent have been accepted, typically for up to one year. Historically, orders have been subject to cancellation or rescheduling by customers. In addition, orders have been subject to price negotiations and changes in specifications as a result of changes in customers’ requirements. Due to possible customer changes in delivery schedules and requirements, and to cancellations of orders, our backlog at any particular date is not necessarily indicative of actual revenue for any subsequent period.

For the year in total, our new bookings increased by 12% in 2020 to €1,314 million, excluding the proceeds from the settlements in 2019. The book-to-bill, as measured by orders divided by revenue, was 1.0 in 2020. Equipment bookings were led by the foundry segment, followed by memory and logic. Bookings increased by 8% from the first half to the second half, reaching a new record quarterly high (excluding settlement gains) in the fourth quarter of 2020 at €379 million. We finished the year with an order backlog of €324 million compared to €351 million at the end of 2019.

Gross profit margin

Total gross profit developed as follows:

The gross margin increased in 2020 from 42.6% (excluding patent litigation & arbitration settlement) to 47.0%. The gross margin was in part driven by an exceptionally strong revenue mix in second quarter and third quarter, which boosted the margin in those quarters to 48.3% and 49.9%, respectively. In addition, the gross margin increased due to the effects of cost reduction programs and efficiency improvements. For instance, while we continued to incur costs related to new growth initiatives and product introductions, the related gross margin impact lessened compared to previous years on the back of the increased revenue level.

Currency changes led to a decrease of 1% in gross profit compared to 2019.

Selling, general and administrative expenses

Total selling, general and administrative expenses developed as follows:

Selling, general and administrative (SG&A) expenses increased by 6% in 2020 year-on-year. The increase was explained by targeted investments to strengthen the organization and higher variable compensation, and was partly offset by the absence of legal costs related to the patent litigation and arbitration case, which were still included in 2019.

As a percentage of revenue, SG&A expenses in 2020 were 12%, down from 13% in 2019 (excluding the patent litigation & arbitration settlement).

The impact of currency changes on SG&A expenses resulted in a decrease of 2% year-over-year.

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Research and development expenses

Total research and development (R&D) expenses, including impairment, capitalization and amortization of development expenses, increased by 25% in 2020 compared to the previous year due to increased activities. As a percentage of revenue, R&D expenses were approximately stable at 10%. Currency changes resulted in a 1% decrease in R&D expenses year-over-year.

Total research and development expenses developed as follows:

Impairment of capitalized development expenses related primarily to the development of new technology that is no longer in demand from customers.

We continue to invest strongly in R&D. As part of our R&D activities, we are engaged in various development programs with customers and research institutes. These allow us to develop products that meet customer requirements and obtain access to new technology and expertise. The costs relating to prototypes and experimental models, which we may subsequently sell to customers, are charged to the cost of sales.

Our R&D operations in the Netherlands, Belgium, and the United States receive research and development grants and credits from various sources.

Operating result

The operating result developed as follows:

Operating profit increased by 49% to €327.1 million, from €219.5 million in 2019 (excluding patent litigation & arbitration settlement), resulting in an operating profit margin of 24.6% (2019: 19.5%, excluding patent litigation & arbitration settlement).

Impairment charges in 2020 and 2019 are related to capitalized development expenditures and assets.

Financing costs

Financing costs are mainly related to translation results. The translation results are mainly related to movements in the US dollar in the respective periods. A substantial part of our cash position is denominated in US dollars.

Results from investments

Results from investments, which primarily reflect our shareholding in ASMPT, increased to €44.9 million from €18.0 million in 2019. These results exclude the amortization of intangible assets related to ASMPT. During the year, our stake in ASMPT decreased slightly from 25.19% to 25.07%.

Total sales as reported by ASMPT increased by 6.3% to US$2.2 billion in 2020. Sales of the Semiconductor Solutions increased 13.8% in 2020. Sales of SMT Solutions decreased by 4.2% for the full year, and Materials increased 18%. ASMPT decreased gross margins from 34.8% to 32.5% in 2020. On a 100% basis, ASMPT increased net profits by 162%. For further information on ASMPT, please visit the website www.asmpacific.com.

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Income tax

The income tax expense of €48.7 million (2019: €53.7 million) reflects an effective tax rate of 14.6% (2019: 14.0%). For further information on tax, see Note 22 to the consolidated financial statements.

Net earnings

Net earnings developed as follows:

Statement of financial position

Working capital as at December 31, 2020 was €242.8 million (2019: €160.2 million). Working capital consists of: inventories, accounts receivable, other current assets, accounts payable, provision for warranty and accrued expenses and other payables. The number of outstanding days of working capital, measured against quarterly revenue, increased from 36 days as at December 31, 2019 to 63 days as at December 31, 2020. While our inventories decreased year-on-year from €173 million at the end of 2019 to €162 million at the end of 2020, our accounts receivable position increased from €200 million to €280 million. The percentage of overdue in accounts receivables decreased year-on-year, reflecting the healthiness of this position.

LIQUIDITY

Our liquidity is affected by many factors, some of which are related to our ongoing operations while others are related to the semiconductor and semiconductor equipment industries, and to the economies of the countries in which we operate. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated by operations, together with the liquidity provided by our existing cash resources and our financing arrangements, will be sufficient to fund working capital, capital expenditures and other ongoing business requirements for at least the next twelve months.

On December 31, 2020, our principal sources of liquidity consisted of €435 million in cash and cash equivalents and €150 million in undrawn bank lines.

For the most part, our cash and cash equivalents are not guaranteed by any governmental agency. We place our cash and cash equivalents with high-quality financial institutions to limit our credit risk exposure.

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CASH FLOW

The following table shows the cash flow statement:

We generated cash from operating activities of €264.4 million in 2020 (2019: €488.9 million). We used €144.3 million cash in investing activities (2019: €79.2 million) and used €170.4 million in financing activities (2019: €205.7 million).

DEBT

We were debt-free as at December 31, 2020.

The original maturity date of the credit commitment was December 16, 2021 and in 2018 and in 2019 we exercised the options to extend the date by one year. This means that the maturity date of the credit commitment of €150 million is now December 16, 2023. As per December 31, 2020, this facility was undrawn.

The credit facility of €150 million includes two financial covenants:

•Minimum consolidated tangible net worth; and

•Consolidated total net debt/total equity ratio.

These financial covenants are measured twice annually, on June 30 and December 31. We were in compliance with these financial covenants as per December 31, 2020.

See Notes 11, 16, and 17 to the consolidated financial statements for more information on our funding, treasury policies and our long-term debt.

ASMPT

The assembly and packaging segment of our business is organized in ASM Pacific Technology Ltd (ASMPT). Net cash of our 25.07%-owned associate was €467.8 million on December 31, 2020. The cash resources and borrowing capacity of ASMPT are not available to our Front-end segment.

Although two directors of ASMI are directors of ASMPT, ASMPT is under no obligation to declare dividends to shareholders or enter into transactions that are beneficial to us. As a substantial shareholder, we can participate in the shareholders' approval of the payment of dividends, but cannot compel their payment or size. Cash dividends received from ASMPT during 2020 and 2019 were €16.1 million and €32.0 million, respectively.

The market value of our 25.07% investment in ASMPT was approximately €1,108 million as per December 31, 2020.

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FINANCIAL RISK FACTORS

We are exposed to market risks (including foreign exchange rate risk), credit risk, liquidity risk, and equity price risk. We may use forward exchange contracts to hedge foreign exchange risk. We do not enter into financial instrument transactions for trading or speculative purposes. See Note 17 to the consolidated financial statements for financial risk factors.

OUTLOOK

We have developed forecasts and projections of cash flows and liquidity needs for the upcoming year. These take into account the current market conditions, reasonable possible changes in trading performance based on such conditions, and our ability to modify our cost structure as a result of changing economic conditions and revenue levels. In the forecasts, we have also taken into account: the total cash balances amounting to €435 million on December 31, 2020; the ability to renew debt arrangements and to access additional indebtedness; and whether or not we will comply with our financial covenants. Based on this, we believe that our cash on hand at the end of 2020 is adequate to fund our operations and our investments in capital expenditures, and to fulfill our existing contractual obligations for the next twelve months.

SHARE INFORMATION

On December 31, 2020, the total number of issued common shares of ASMI amounted to 49,797,394 compared to 51,297,394 at year-end 2019. The decrease was the result of the cancellation of 1.5 million treasury shares that was approved by the Annual General Meeting of Shareholders (AGM) on May 18, 2020, and became effective on July 21, 2020.

On December 31, 2020, we had 48,714,682 outstanding common shares excluding 1,082,712 treasury shares. This compared to 48,866,220 outstanding common shares and 2,431,174 treasury shares at year-end 2019. Besides the cancellation of 1.5 million treasury shares in July 2020, the change in the number of treasury shares in 2020 was the result of 508,685 repurchased shares and 357,147 treasury shares that were used as part of share-based payments.

On December 31, 2020, 48,438,605 of the outstanding common shares were registered with our transfer agent in the Netherlands, ABN AMRO Bank N.V. and 276,077 were registered with our transfer agent in the United States, Citibank, NA, New York.

SHARE LISTING

ASMI's shares are listed on Euronext Amsterdam under the symbol ASM. As of March 23, 2020, ASMI has been included in the AEX Index. The AEX consists of the 25 largest companies listed on Euronext Amsterdam as measured by free float-adjusted market cap. Previously, ASMI was included in the AMX midcap index.

Our NY Registry Shares have also been eligible since 2015 for trading on the over-the-counter (OTC) market in the United States under the symbol ASMIY (further information can be found on

www.otcmarkets.com).

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MARKET CAPITALIZATION

The market capitalization of ASMI at year-end 2020 was €8,766 million, based on the closing share price of €179.95 at Euronext Amsterdam on December 31, 2020, and 48.7 million total outstanding shares per year-end. The market capitalization at year-end 2019 was €4,894 million.

SHARE PERFORMANCE

On December 31, 2020, the closing price of ASMI’s shares on Euronext Amsterdam was €179.95. At the end of 2019, the closing price was €100.15. The highest closing share price during the year was €179.95, on December 30, 2020, and the lowest was €59.18, on March 18, 2020. The average daily trading volume of ASMI shares on Euronext Amsterdam in 2020 was 316,286. This compares to an average daily volume of 224,790 in 2019. Euronext accounted for approximately 59% of total trading in ASMI shares in 2020.

The graph below shows the performance of ASMI’s shares on Euronext. The total share return in this graph is the performance of the share including dividends paid and capital returned over the period.

DIVIDENDS

ASMI aims to pay a sustainable annual dividend. Annually, the Supervisory Board, upon proposal of the Management Board, assesses the amount of dividend that will be proposed to the Annual General Meeting of Shareholders (AGM). The decision that a dividend be proposed to the AGM will be subject to the availability of distributable profits as well as retained earnings, and may be affected by our potential future funding requirements. Accordingly, dividend payments may fluctuate and could decline or be omitted in any year.

The proposed dividend over 2020 will mark the eleventh consecutive year that ASMI has paid a dividend. Our dividend has steadily increased over time. For 2010, the dividend was €0.40 per common share. Over 2011, 2012 and 2013, we paid a dividend of €0.50 per common share. The dividend increased to €0.60 over 2014, €0.70 over 2015 and 2016, €0.80 over 2017 and €1.00 per common share over 2018. Over 2019, we paid total dividends of €3.00 per common share, consisting of a regular dividend of €1.50 per share, and an extra-ordinary dividend also of €1.50 per share.

ASMI announced on February 25, 2021, that it would propose to the forthcoming Annual General Meeting of Shareholders (AGM) 2021, to declare a regular dividend of €2.00 per common share over 2020. The regular dividend increased 33% compared to the dividend paid over 2019.

SHAREHOLDER RETURNS

Over time, ASMI has returned significant amounts of cash in different forms to our shareholders, reflecting our policy to use excess cash for the benefit of our shareholders. In 2020, we returned €165 million to our shareholders. This follows an amount of approximately €200 million returned to our shareholders in the form of dividends and share buybacks in 2019. During 2018, we returned €607 million to shareholders in the form of dividends, share buybacks, and a capital return. During the last three years, we have returned more than €0.9 billion in cash to shareholders.

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DIVIDEND TIMETABLE

•Ex-dividend date: May 19, 2021

•Record date: May 20, 2021

•Payment date: May 27, 2021

SHARE BUYBACK

On February 25, 2020, ASMI announced that its Management Board authorized a new repurchase program of up to €100 million of the company's common shares within the 2020/2021 time frame. This buyback program is being executed by intermediaries and will end as soon as the aggregate purchase price of the common shares acquired by ASMI has reached €100 million. This repurchase program is part of ASMI's commitment to use excess cash for the benefit of its shareholders. As at January 29, 2021, the 2020/2021 program was 80% completed, with 559,197 shares repurchased at an average share price of €143.06.

The 2020/2021 program is our seventh consecutive share buyback program. In addition to the 2019/2020 program the earlier programs included:

•On June 5, 2018, ASMI announced the start of a share buyback program of ASMI’s common shares up to €250 million. This program followed on ASMI’s announcement on February 28, 2018, that it intended to use €250 million of the proceeds of the partial sale of a stake of approximately 9% in ASMPT for a new share buyback program. The 2018 program started on June 6, 2018, and ended on October 11, 2018. In total, 5,443,888 shares were repurchased at an average price of €45.92, including expenses, under the 2018 program; and

•On April 24, 2017, ASMI announced that the proceeds of approximately €248 million of the partial secondary placement of shares of ASMPT were intended to be used for a new share buyback program. The 2017/2018 €250 million program started on September 22, 2017, and ended on March 29, 2018. In total, we repurchased 4,353,292 shares at an average price of €57.43, including expenses, under this program.

Information about earlier share buyback programs is available on our website.