2005 Annual Report The Process of Innovation SM ASM International
Contents 3 Financial Highlights and Selected Comparative Financial Data 4 ASM International 8 Letter to Shareholders 12 Report from the Supervisory Board 16 Corporate Governance 23 Corporate Information 24 ASM International Worldwide 27 Form 20-F ASM In the more than 35-year history of our Company, ASM International N.V. has witnessed the evolution of the semiconductor equipment industry, from two inch wafers of the late 1960 s, to the 300mm wafers of today. Symbolic of these products is the silicon crystal... the basis of the ASM International logo.
Trademarks ASM, the ASM International logo, A600 UHV, Advance, Aurora, Carbonspeed, Coppermine, Dragon, ECMP, Eagle, Epsilon, Levitor, LuminaCu, NuTool, Polygon, Pulsar, Rapidfire, and Silcore are our registered trademarks. A400, A412, A4ALD, ALCVD, Atomic Layer CVD, Better Logic, Eagle TRIDENT, ECMD, EmerALD, New Technology, PEALD, RL-CMP, SmartBatch, and Superfill CVD are our trademarks, and The Process of Innovation is our service mark. AB500B, DRYLUB, EQUIPMANAGER, IDEALine, IDEALsystem, IDEALab, IDEALNet, PGS, SMARTWALK, and SOFTEC are registered trademarks of ASM Pacific Technology Ltd. Eagle60, Harrier, Hummingbird, IDEALmold, Osprey, and TwinEagle are trademarks of ASM Pacific Technology Ltd. Safe Harbor Statement In addition to historical information, this Annual Report contains statements relating to our future business and / or results, including, among others, statements regarding future expenditures, sufficiency of cash generated from operations, maintenance of majority interest in ASM Pacific Technology, business strategy, product development, product acceptance, market penetration, market demand, return on investment in new products, facility completion dates and product shipment dates, and any other nonhistorical information in this Annual Report. These statements include certain projections and business trends, which are forward-looking within the meaning of the United States Private Securities Litigation Reform Act of 1995. You can identify these statements by the use of words like may, will, could, should, project, believe, anticipate, expect, plan, estimate, forecast, potential, intend, continue and variations of these words or comparable words. Forward-looking statements do not guarantee future performance and involve risks and uncertainties. You should be aware that our actual results may differ materially from those contained in the forward-looking statements as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, economic conditions and trends in the semiconductor industry and the duration of industry downturns, currency fluctuations, the timing of significant orders, market acceptance of new products, competitive factors, litigation involving intellectual property, shareholder and other issues, commercial and economic disruption due to natural disasters, terrorist activity, armed conflict or political instability, epidemics and other risks indicated in the Company s Form 20-F for the year ended December 31, 2005 and other filings from time to time with the SEC. The Company assumes no obligation nor intends to update or revise any forward-looking statements to reflect future developments or circumstances. Statutory Annual Report The Consolidated Financial Statements and other financial information included in this Annual Report are prepared in accordance with US GAAP. A copy of ASM International s Statutory Annual Report prepared in accordance with International Financial Reporting Standards, is available free of charge by writing to our corporate offices or e-mail to investor.relations@asm.com ASMI 2005 ANNUAL REPORT 2
Financial Highlights and Selected Comparative Financial Data In euros and U.S. dollars 1 Year ended December 31,) (millions, except per share data and full-time equivalents) 2001) 2002) 2003) 2004) 2005) 2005) EUR) EUR) EUR) EUR) EUR) US $) Operations: Net sales: 561.1) )518.8) 581.9) 754.2) 726.4) 860.2) Front-end 336.6) 266.9) 286.5) 355.5) 359.6) 425.9) Back-end 224.5) 251.9) 295.4) 398.7) 366.8) 434.3) Earnings (loss) from operations: 24.3) (6.0) 14.2) 88.4) 18.4) 21.8) Front-end (3.7) (42.7) (45.3) (16.2) (80.3) (95.1) Back-end 28.0) 36.7) 59.5) 104.6) 98.7) 116.9) Net earnings (loss) 6.1) (32.2) (32.1) 24.0) (40.2) (47.6) Balance sheet: Net working capital 2 214.6) 199.8) 154.4) 189.2) 234.6) 277.8) Total assets 757.1) 648.7) 662.2) 823.8) 812.3) 961.9) Net debt 3 53.3) 76.1) 52.8) 78.6) 122.4) 145.0) Backlog: 132.6) 142.9) 199.0) 186.8) 221.9) 262.8) Front-end 107.2) 109.9) 104.7) 140.9) 135.4) 160.4) Back-end 25.4) 33.0) 94.3) 45.9) 86.5) 102.4) Number of staff: Full-time equivalents: 5,955) 6,554) 7,433) 8,260) 9,451) 9,451) Front-end 1,125) 1,226) 1,179) 1,492) 1,691) 1,691) Back-end 4,830) 5,328) 6,254) 6,768) 7,760) 7,760) Per share data: Earnings (loss) per share from operations: Basic 0.50) (0.12) 0.29) 1.72) 0.35) 0.41) Diluted 0.49) (0.12) 0.29) 1.71) 0.35) 0.41) Net earnings (loss) per share: Basic 0.12) (0.66) (0.65) 0.47) (0.76) (0.90) Diluted 0.12) (0.66) (0.65) 0.46) (0.76) (0.90) Weighted average number of shares used in computing per share amounts (in thousands): Basic 48,944) 49,170) 49,642) 51,540) 52,638) 52,638) Diluted 49,958) 49,170) 49,642) 51,858) 52,638) 52,638) (1) For the convenience of the reader, Financial Highlights and Selected Comparative Financial Data for 2005 have been converted into U.S. dollars at the exchange rate of 1.1842 U.S. dollar per euro, which was the noon buying rate in New York City for cable transfers payable in euros at December 31, 2005. (2) Net working capital includes accounts receivable, inventories, other current assets, accounts payable, accrued expenses, advance payments from customers and deferred revenue. (3) Net debt includes long-term debt, convertible subordinated debt and notes payable to banks, less cash and cash equivalents. 3 2005 ANNUAL REPORT ASMI
ASM International ASM International N.V. ( ASMI ) is a leading supplier of semiconductor equipment, materials and process solutions addressing both the wafer processing, and assembly and packaging markets. Our customers include all of the top semiconductor device manufacturers in the world. Mission and Business Focus ASMI s mission is to provide our customers with the most advanced, cost-effective, and reliable products, service and global support network in the semiconductor industry and beyond. We advance the adoption of our technology platforms by developing new materials and process applications that progressively align ASMI with our customers long-term technology roadmaps. Our business objective is to realize profitable, sustainable growth by capitalizing on our technological innovations and manufacturing base. This includes: leveraging our strong technology portfolio in both front- and back-end to meet the future heterogeneous integration environment of more than Moore technology; duplicating our successful vertically-integrated back-end business model in front-end; and, broadening our alliances with the world s leading research institutes, strategic global partners and customers to enhance the scope and depth of our R&D and service activities. Intellectual Property ASMI is recognized throughout our industry for its achievements in innovative technologies -- contributions that have led the industry s migration to smaller, more complex, integrated circuits. Today, we support high volume production systems for leading-edge semiconductor devices at 90 and 65nm, with testing and development of new 45 and 32nm production solutions in our laboratories as well as in our customers pilot lines. Our intellectual property portfolio has expanded significantly over the years, containing multiple patents for key developments in ASMI equipment, software, materials and process designs. In 2005, we began licensing select technologies to peers for noncompetitive applications in the semiconductor industry, as well as new applications beyond our addressable markets. Wafer Processing ASMI participates in three distinct front-end manufacturing processes: wafer manufacturing, transistor formation, and interconnect. By building upon our core strengths in vertical furnaces, RTP, epitaxy, atomic layer deposition, LPCVD and PECVD technology platforms, today we address all the critical areas driving the semiconductor industry roadmap: silicon-oninsulator (SOI) and strained silicon, high-k gate stacks, shallow junctions and silicides, and interconnect, leading the industry transition to smaller line-widths and better transistors. Assembly and Packaging ASM Pacific Technology Ltd. ( ASMPT ), our 54-percent owned back-end subsidiary, is the world s largest assembly and packaging equipment supplier for the semiconductor industry. With headquarters in Hong Kong, and operations in the People s Republic of China, Singapore, and Malaysia, ASMPT offers the most comprehensive leading edge portfolio for all the major process steps in back-end, from die attach through encapsulation, and includes the only fully integrated assembly, packaging and testing line in the industry. Global Operations With corporate headquarters in Bilthoven, the Netherlands, ASMI operates manufacturing facilities in the Netherlands, the United States, Japan, Hong Kong, the People s Republic of China, Singapore, Malaysia, with design, research and development centers in Europe, North America, and Asia, and our sales and service operations spanning 18 countries across the globe. Our workforce totals 9,451 worldwide. ASMI trades on the NASDAQ stock market under the symbol ASMI, and on Euronext Amsterdam under the symbol ASM. ASMPT trades on the Hong Kong Exchanges under the code 0522. ASMI 2005 ANNUAL REPORT 4
ASMI PRODUCT PORTFOLIO: THE PROCESS OF INNOVATION Wafer Processing ASMI s front-end wafer processing portfolio is recognized throughout the industry for it s depth, superior technology, reliability, and competitive edge. Our principal front-end portfolio includes: Advance 400 Series of Vertical Batch processing systems The vertical furnace line includes 300mm tools for diffusion, oxidation, CVD, LPCVD or ALD processing, and features our award-winning A412 and A400 for 300mm and 200mm wafers, Smart Batch for variable loads of 1 to 50 wafers, and the A4ALD for DRAM capacitor applications. Levitor RTP systems Our revolutionary rapid thermal processing system, featuring a floating wafer concept for 200mm and 300mm wafers, uses one-tenth the power of conventional lamp-based systems and heats wafers more uniformly, independent of the structures on the wafer, thereby improving yield. Epsilon single wafer epitaxial systems Our installed base of Epsilon is used in multiple applications of silicon and silicon alloys, including the Epsilon 3000 series for 300mm, low temperature processes in SiGe and SiGeC, and strained silicon. Our newest model Epsilon 3220, featuring dual chambers, is scheduled for launch in 2006. Polygon single wafer ALD systems Our Polygon systems, enabling our ALCVD processes, are the world s leading high-k dielectric in production systems, and can be used with one or more Pulsar modules. ASMI s plasma-enhanced ALD (PEALD) technology is used in DRAM and BEOL capacitor applications. Eagle and Dragon PECVD systems These single-wafer plasma systems deposit films on wafers using a PECVD process. They include: our Eagle 12 for 300mm HVM in PECVD for interconnect applications and the Eagle 12 Rapidfire. The Dragon 2300, our dual reactor system, provides high wafer throughput at lower cost, and what we believe is the smallest footprint of any PECVD HVM tool. Assembly and Packaging ASMI s assembly and packaging portfolio continues to receive industry-wide recognition for superior performance and cost of ownership. Our principal back-end portfolio includes: Leadframes We produce both stamped and etch leadframes, and are a pioneer in QFN leadframes used in mobile devices. With our in-house etching and plating, leadframes can be customized to all customer specifications. Die Bonders Our die bonder platforms address both semiconductor and optoelectronic markets, and include the AD8912 epoxy die bonder 300mm, the AD8912SD for stacked die, and the AD900 high-speed flip chip die bonder series for advanced IC applications. Wire Bonders These thermosonic bonders feature our award-winning Eagle family of high output gold wire bonders, and newest generation aluminum wire bonder. Our advanced platforms include the ultra fine pitch Eagle60AP for 30 micron pad pitch advanced packages; the ultra-high speed TwinEagle60 for 180% capacity; the Harrier, for mixed wire bonding; and the innovative Hummingbird, our wafer level stud bumping system. Molding Systems The Osprey, our new revolutionary molding system, offers high flexibility, low cost-of-ownership, and the smallest footprint in the industry. The IDEALmold is our standalone in-line encapsulation system. High speed trim and form systems These systems are adaptable to specific package configurations for package, ball or market inspection, or all three, for processing QFN, Chip Array or CSPBGA packages. Test Handlers This line features carrier-based parallel testing for leading edge applications such as BGA, QFN, and QFP. The IDEALine The industry s only in line factory automation system, integrates all back-end processing steps, from die and wire bonding, to post mold curing. A flexible modular system, it offers significant cycle time reduction and reliability improvements for test, assembly and packaging. 5 2005 ANNUAL REPORT ASMI
ASM International (continued) ASMI CORPORATE ACHIEVEMENTS In 2005, we remained focused on our long-term strategic goals, despite the uneven industry momentum, and as a result, succeeded with key competitive wins -- penetrating new customers and markets, new processes and products -- and made internal targets in operational restructurings. Here are the highlights. Corporate Milestones Front-End Manufacturing in Singapore (FEMS) We reached our production targets with the majority of 300mm Vertical Furnace subsystems produced in Singapore by the third quarter, and the first components and subsystems for 200mm Vertical Furnaces and 200mm epitaxial systems rolling out in the fourth quarter. Global Sales and Marketing We expanded our sales and marketing coverage worldwide, as we focused on realignments in Taiwan, which we initiated in 2004. As a result, in 2005 we won significant market share in Taiwan in Vertical Furnace and at the same time positioned ourselves for growth in our PECVD product line. In Korea, we also advanced our position with the key customers with our overall front-end portfolio. 300mm Market Penetration in Asia In the early part of the decade, our 300mm products penetrated many of the 300mm fabs in the US and Europe, while Asia was much less of a contributor. Now, in the past two years we see our share of the 300mm market growing throughout Asia as well. Corporate Financing We paid off the remaining H 78 million of our 5% Convertible notes that were due November 15, 2005. ASM Pacific Technology 30th Anniversary In 2005, ASMPT celebrated 30 years in operation, 30 years of profitability and three decades of contribution to the semiconductor production technology. ASM Pacific Technology Leadership Position ASMPT once again outperformed its competitors and gained equipment market share as the number one player in this segment. Front-end Wafer Processing - Competitive Gains Our front-end portfolio addresses those industry sectors with the greatest potential for our growth over the next five years. Vertical Batch Furnace Market Share Wins: We won new customers in Asia with our A412 300mm, and booked follow-on orders from two US customers and won new applications at existing customers in the US and Europe. Enabling Process: We introduced a new Vertical Furnace batch process for titanium nitride, used in DRAM capacitors. We also booked an order from a major DRAM maker for an ASM patented process that deposits an amorphous silicon film with extreme flatness. Plasma Processing 65nm HVM Ramp of low-k: We supplied the first HVM ramp at 65nm with our Aurora low-k film, winning the first 65nm supplier of the month award at our largest US account for support and services during this ramp. We are very well positioned for the 45nm HVM ramp, slated for 2007. Other PECVD applications: We introduced new applications for the memory market with NanoCarbon Polymer (NCP), a new hardmask film for 193nm lithography that expands the application range of our Eagle and Dragon platforms. ASMI 2005 ANNUAL REPORT 6
Financial Highlights and Selected Comparative Financial Data Epitaxy Strained Silicon: We won the industry s first 65nm HVM ramp in strained silicon, as leading strained silicon supplier. Wafer Market Win: We penetrated a key wafer supplier in Taiwan, following on our success in 2004. First in China: In the fourth quarter of 2005, we sold the industry s first 300mm epi reactor, our Epsilon 3200, in Mainland China. Dual Chamber Epi: We made progress in the development of our newest epi system, the Epsilon 3220, scheduled for introduction in 2006. Atomic Layer Deposition ALD Market Wins: We booked orders for ALD tools from a key US customer for our 300mm Polygon Cluster Tool for ALCVD high-k dielectric film deposition, and PEALD metal film deposition; and from a Japanese supplier of magnetic heads. In addition, our PEALD tools are now in demo with major customers in Taiwan and Korea. Rapid Thermal Processing We won qualification for our 300mm Levitor 4300 RTP system from CEA Leti, a French research institute for advanced programs including Ultra-Shallow Junction formation (spike anneals), nickel silicidation, and annealing of high-k films. Licensing Strategies ASMI s IP Portfolio is among its most valuable assets. In 2005 we launched a strategic program to license some of our technology portfolios in non-competitive areas, which we believe will greatly accelerate the acceptance of advanced technologies in world markets. The first agreements were signed for our ALD technology with Veeco Instruments Inc. for applications in data storage, and with Oxford Instruments PLC for tools and processes directed to the global research and development community. Cooperative Ventures Freescale: We extended our collaboration with Freescale Semiconductor Inc. using our Epsilon system for development of Advanced CMOS ICs and selective epitaxy for CMOS transistors, using bulk and SOI wafers. IMEC: We extended our ongoing partnership in transistor technology with advanced Interconnect Technology, for IMEC s sub-45nm copper/low-k development program. Assembly and Packaging Successes Winning Strategy: Out extensive product offering, is the broadest in the industry, and our leading position in integrated assembly systems continued to attract new customers. Gaining in China: We strengthened our position in Mainland China, which became our largest market in 2005. Broad Customer Base: We continued to reap the benefits of our diversified Market Strategy and a broad customer base in 2005, with our top five customers accounting for approximately 25% of total sales. Record Materials Revenue: We achieved record leadframe billings in 2005. Due to improved demand for QFN and other small outline packages, and the strategic realignment of our leadframe operations in Malaysia, we are poised for further gains in this expanding market. New Markets: We expanded our addressable market with offerings to LED, image sensor and RFID manufacturers, among others. Product Introductions: We launched the Osprey, our flexible low-cost molding system, and a new ultra high speed IC die bonder for smaller die sizes. Our new model aluminum wire bonder migrated to volume production, solidifying our two-decade leadership in the chip-on-board application market. For more information, please visit our company web sites at www.asm.com and www.asmpacific.com 7 2005 ANNUAL REPORT ASMI
Letter to Shareholders 2005 was a challenging year for both the semiconductor capital equipment industry and ASM International. The complex mix of escalating energy prices, the uncertainty of consumer-driven trends, and cutting edge technology transitions that altered the industry landscape, created an unsettling environment for capital spending. While coping with the industry volatility, ASMI also faced the challenges we set out to address this year -- returning front-end operations to sustained profitability. Although we fell short of our financial goals in the year, we achieved several strategic restructuring targets, solidified our technology leadership with key industry drivers, built our organizational and market presence in Asia, and capitalized on our innovative product portfolio achievements that together we believe have aligned us for progressive margin improvements in the years ahead. For 2005, net sales were about equally divided between our front-end and back-end segments. Wafer processing sales of H 359.6 million, or a one percent increase from the prior year, and assembly and packaging sales of H 366.8 million, eight percent lower than the level of 2004, once again outperformed their respective industry segments. In front-end operations, we are particularly proud of our improved position in Taiwan where we booked strategic wins in the year. Overall, we ended the year in a strong position to benefit from front-end capital investments in 2006 in 300mm tools, 90nm high volume manufacturing (HVM), early 65nm ramps to HVM, and development and test of enabling technologies for the 65nm, 45nm and 32nm nodes. As the year unfolded, back-end equipment sales were once again a leading indicator, and led the slow but steady industry recovery. ASM Pacific Technology Ltd., our 54%-owned subsidiary participated fully in the upturn, gaining market share with new products and product enhancements, addressing both traditional and emerging back-end markets. For the full year, ASMPT extended its lead as the industry s number one supplier of back-end equipment. And once again, the difference in market timing between front-end and back-end segments helped to cushion the impact of the industry cycle on ASMI s overall performance. As supplier to all of the world s top IC makers, our processing systems and new film materials make devices that consume less power, run faster, show less variability, and are able to store more charge. In 2005, we solidified our leadership in newer device generations with enabling technologies that meet device performance road maps, and make state-of-the-art devices possible. These include: strained silicon, atomic layer deposition (ALD), low-k dielectrics, rapid thermal anneal (RTA) and integrated assembly. Front-end Profitability: Our Top Financial Priority ASMI s history as a provider of leading edge technologies is a reflection of our mission: to provide our customers with the most cost-effective technologies and cutting-edge solutions. That commitment comes with a price: Due to the fact that in our industry, long lead times are required for the development of critical technologies, it can take years to realize significant returns on investment. Up till date, ASMI has not paid any dividends. As stated, it is our priority to bring the front-end segment to profitability. As that has been realised, we will investigate whether paying dividends would be feasible. We will take into account realized and expected profitability, solvability and cash flows and distributable retained earnings of ASMI. As of December 31, 2005, ASMI had no distributable net earnings. While our core product lines -- Vertical Furnace, Epitaxy and PECVD -- all have positive earnings from operations on an annual basis, our newest front-end technologies, atomic layer deposition and rapid thermal anneal are still on their way to becoming mature product lines, and therefore, represent a substantial drain on cash resources. In order to achieve our goal of sustainable front-end profitability, we took several strategic initiatives this year in the restructuring of our global wafer processing operations, at the same time maintaining the momentum of technology leadership that has placed ASMI at the forefront of innovation today. First, although we strongly believe in the quality of the NuTool copper plating, planarization and ECMD process technologies, we concluded that further commitment to the commercialization of these technologies was not warranted at this time, due to the large cash outlays and time required to bring them to market. Consequently, we are reducing ASM NuTool to a small operation, focusing on process and intellectual property development with the intention of licensing these technologies. In connection with this restructuring, ASMI has ASMI 2005 ANNUAL REPORT 8
Financial Highlights and Selected Comparative Financial Data recorded impairment charges in the amount of H 37 million, primarily non-cash, in the fourth quarter of 2005. In the first quarter of 2006 we expect to recognize additional charges in the amount of H 6 million, primarily non-cash. In the fourth quarter of 2005, we also recorded a H 7 million, primarily non-cash, charge related to the consolidation of platforms used in our Capacitor Product Group, which includes ASMI s atomic layer deposition processes ALD and its companion PEALD. Focus on Asia: Strengthening the ASMI Advantage With Asia fast becoming the epicenter of the semiconductor industry, the inroads ASMI made this year to strengthen our global market presence take on greater significance. In Singapore, thanks to our strong regional management team, under the direction of ASMPT, we met our manufacturing targets for front-end manufacturing in Singapore (FEMS), furthering our long-term plan to replicate the highly successful model of ASMPT in our front-end segment. Specific to our Vertical Furnaces, we are also pleased to see that with our stronger market presence in Asia, our improving margins, and with our latest enabling process technologies, our Vertical Furnace product group is well on its way to contributing at higher levels to ASMI s operating base. We strengthened our wafer processing management team in Asia, and won new accounts in 2005 with multiple product orders, and penetrated existing customers with additional product applications. Of key importance was a reorganization of our sales and marketing group in Taiwan, which had a direct effect on our market share gains in the region. We also secured our foothold in the Korean market, as we completed the integration of Genitech and its plasma enhanced ALD technology, which we acquired in 2004. In addition, we reached a front-end milestone in China in the fourth quarter: We shipped the first 300mm Epsilon epitaxial reactor to one of China s largest research institutes for semiconductor related applications. In back-end, we expanded our leadframe production facilities in China and Malaysia, which further increased the efficiency of ASMPT s low cost manufacturing base and its service capabilities and also contributed to record leadframe bookings in 2005. And for the first time, China became the leading geographic market for our back-end operations, representing 22% of backend sales. Leveraging Our Innovative Technology Portfolio In 2005 ASMI continued to attract strategic global partners -- major consortia, world-class research centers, and top tier device makers -- reflecting our longstanding reputation for innovation. These partnerships not only accelerate the integration of the most competitive technologies into our product platforms more efficiently, they also help reduce time to market for innovative solutions. One outstanding development this year grew out of our collaboration with a leading DRAM manufacturer, where we developed a new hardmask film for 193nm lithography, NanoCarbon Polymer, or NCP. This antireflective film with high etching selectivity expands the application range for our Eagle and Dragon PECVD platforms, and offers new process capabilities for the memory market. During 2005, we also extended our partnership with IMEC, Europe s leading independent nanotechnology research center, adding interconnect technologies to our joint development programs. CEA Leti, France s micro-nanotechnology research organization, selected our Levitor 300mm RTP system for its Nanotech 300 program for 45nm devices and beyond. We also continued our relationship with France s SOITEC for strained silicon and SOI technology. In assembly and packaging, ASMPT entered into a strategic alliance with Microbonds Inc. for the Canadian company s X-Wire package-level interconnect technology that will be integrated into ASMPT s wire bonders and other system solutions. ASMI s intellectual property (IP) portfolio is one of its most important assets. This year we launched our IP licensing program, signing agreements with Veeco Instruments and Oxford Instruments for our atomic layer deposition patent portfolio. The licensing of our IP will leverage our advanced technologies beyond our addressable markets -- and even beyond the semiconductor industry. Our goal is to continuously expand our patent portfolio while licensing our extensive intellectual property, which in many cases can accelerate the acceptance of enabling technology in the broader markets. 9 2005 ANNUAL REPORT ASMI
Letter to Shareholders (continued) Back-End: a 30-Year Celebration With its diverse products, applications, and extensive customer base, ASM Pacific Technology enjoyed another year of solid performance and celebrated its 30th year of consecutive profitability. Since its founding in 1975, ASMPT has had an outstanding track record for delivering new generations of technology-leading products every two to three years. Today, ASMPT is recognized throughout the industry for its innovative solutions that differentiate ASMPT among back-end players. A key factor behind ASMPT s remarkable performance record over the years is its vertical integration. This unique business model -- the winning combination of a low-cost manufacturing base and product excellence -- gives ASMPT a major advantage over its competitors. Back-End: Extending Its Leading Position During the year, ASMPT received industry recognition for several new products, including the Osprey, a highly flexible encapsulation system, ideal for pilot line or small-lot production; and the TwinEagle, the dual-head wire bonder with unparalleled low cost-of-ownership, which entered high volume manufacturing. The company also succeeded in transferring all etched leadframe activities, including QFN etched frames used in mobile devices, to its new facility in Johor Bahru, Malaysia. The move increases etched frame production capacity, and more importantly, enhances ASMPT s edge in costcompetitiveness. Leveraging its broad technology base and financial resources for R&D programs, even through downturns, ASMPT continues to develop new assembly equipment, in areas such as flip-chip and wafer level packages (WLP), serving advanced device packaging requirements. Our back-end segment is also addressing up-and-coming niche markets, providing both new equipment, as well as standard tools with features for specific applications. In 2005, ASMPT supplied a wide range of products including flip-chip bonders to the LED market, was the number one supplier for CMOS Image Sensors, and delivered its first automated line to the rapidly growing RFID segment, radio frequency identification tags. Overall, these and other subsets of the semiconductor market represent a significant opportunity to offset IC market recessions and down cycles in the future. Front-end and Back-end for Advancing the Competitive Edge Two parallel trends are driving the semiconductor roadmap today: device scaling from 65 to 32nm and beyond, which is primarily related to front-end processes, and heterogeneous package integration that is emerging principally at the die level in the back-end segment. Thanks to our technology leadership in both of our industry segments, ASMI is at the cutting edge in tracking both developments. Over the past four decades, the semiconductor industry has evolved through the scaling of chip geometries according to Moore s Law, named after Intel s Gordon Moore, who stated that computing power could double every two years. But today, consumers are demanding more portable computing capability combined with interactive communications, or ambient intelligence. The semiconductor industry is responding with more Moore, the continued scaling of transistor sizes that perform calculation and storage functions, and more than Moore, which refers to the advanced integration of different micro-systems, composed of components that do not scale easily in one device, such as inductors, RF capacitors, sensors, micromechanical, photonic, or micro-fluidic devices. To address chip scaling, ASMI provides enabling front-end technologies that meet device performance roadmaps for 90nm down to 32nm and beyond, that make state-of-the-art devices possible. These include: strained silicon, atomic layer deposition, low-k dielectrics, and rapid thermal anneal. Achieving package-level integration requires stacked die solutions that can house multiple dies in a common package to produce a single device. ASMPT is developing advanced wire bonding techniques that control the shape of the wire loop, and through our partnership with Microbonds, Inc. is working with insulated wires, which allow more crossed connections in a device. Dies from different supply chains with different feature sizes can now packaged by stacked die bonding, or mixing flip chip and wire bonding, techniques. With these assembly technologies in house, ASMPT is participating in the emergence of package-level integration that augments silicon-scaling advances taking place at ASMI, and throughout our industry. ASMI 2005 ANNUAL REPORT 10
Financial Highlights and Selected Comparative Financial Data Corporate Governance At ASMI, we are committed to upholding sound corporate governance and ethics practices. Management is diligent in complying with the corporate governance requirements and best practices set out by NASDAQ, the U.S. Securities and Exchange Commission ( SEC ), the Netherlands Authority for the Financial Markets ( AFM ) and the Dutch Corporate Governance Code. Throughout the Company, we are committed to adhering to our oversight responsibilities. Our two-tier board of directors segregates the responsibilities for supervision and execution of our business strategy, while members of the Supervisory Board have clearly established roles and committee responsibilities. All of our employees are required to comply with the Code of Ethics, as well as other Company policies that are based on the highest level of business ethics. A detailed description of our policies and practices is available in the Corporate Governance section of this report. Employee Innovators One of the most important components of our Company vision is the extraordinary skill, dedication, and commitment of its 9,451 employees worldwide. These are our innovators and the creators of intellectual capital that have helped put ASMI in the forefront of technology. Our employees are also the key in our highly responsive customer support programs that have received broad industry recognition over the past year. We applaud their individual contributions and teamwork that augment our Company s achievements. Outlook We enter 2006 with optimism. With the industry poised for rational growth in both front- and back-end segments, we expect ASMI to benefit from the improved industry climate, while building on our impressive competitive wins of 2005. It s clear from our strategic progress and partnerships, and industry recognition this year, that ASMI continues to advance its standing in our highly competitive global industry. We intend to further capitalize on our achievements in the year ahead, in our drive toward sustained profitable growth. We look forward to the opportunities to come. Arthur H. del Prado President and Chief Executive Officer Bilthoven, February 21, 2006 11 2005 ANNUAL REPORT ASMI
Report from the Supervisory Board Financial Statements We herewith present to you the 2005 Annual Report and Annual Accounts on Form 20-F in accordance with US GAAP as prepared by the Management Board and reviewed by the Supervisory Board. Deloitte Accountants, our independent auditors, have audited these Annual Accounts and issued an unqualified opinion. Their report appears on page F-2 of the Form 20-F. Supervision The supervision over the policy decisions and actions of the Management Board is entrusted to the Supervisory Board, which, in the two tier structure prescribed by Dutch law, is a separate body and completely independent from the Management Board. Meetings of the Supervisory Board In the six meetings that the Supervisory Board had with the Management Board during the year 2005 the main topic of discussion was the best way to make the Company s front-end operations profitable as this is the foremost challenge the Company has to meet. In this respect we noted that good progress has been made with the transfer of production of generic components to the Company s production facility in Singapore. The output of this facility is steadily improving and the quality and reliability of these products is excellent. We endorsed management s proposal to considerably reduce ASM NuTool s operations with a view to bring more focus in the Company s product range and concentrate on those products that are already in high volume production or reach that stage soon. We requested our colleague Mr. J.M.R. Danneels, who has an intimate knowledge of our industry and its developments, to make an assessment of the Company s front-end product portfolio. To this end he has visited the Company s facilities in North America, Japan, Singapore and Europe and reported to us that in his view the front-end product portfolio is very promising as a basis for expansion of profitable sales in the years to come. We further discussed and reviewed the Company s overall strategy, the ongoing operations, business risks, market and product developments, organization, management and financial performance. In detail, the Supervisory Board discussed the developments of the Company, also per product line; additional steps to improve front-end profitability, including the restructuring of ASM NuTool and in the TCP product line; the financing of the Company; the developments in Corporate Governance; as well as other strategic and operational issues. The Supervisory Board was very satisfied with the strong result of the Company s back-end operations, reinforcing the Company s leadership position in assembly and packaging. We pay tribute to the management that is responsible for delivering very good results over a long period of years. In this respect we also discussed the merits of the Company s business model, i.e. the combination of front-end and back-end operations, which is debated by some of the Company s shareholders. We decided to put this item for discussion on the agenda of the forthcoming Annual General Meeting of Shareholders where we hope to have an open and constructive exchange of views with the Company s shareholders. The Supervisory Board met once, without the Management Board present, to discuss the functioning of the Supervisory Board and its individual members; the relationship with the Management Board; the performance and composition of the Management Board as well as performance of its individual members. Corporate Governance The Supervisory Board is amongst others responsible for monitoring compliance with corporate governance standards and best practices in the United States and the Netherlands. The Supervisory Board believes that the Company complies with the currently prevailing requirements of the Sarbanes-Oxley Act and the recommendations of the Dutch Corporate Governance Code, apart from those discussed with the 2005 Annual General Meeting of Shareholders. A detailed description of Corporate Governance by the Company follows this report. Supervisory Board Composition At the Annual General Meeting of Shareholders on May 19, 2005 Mr. P.C. van den Hoek has been reappointed to the Supervisory Board and Mr. L.P.E.M. van den Boom has been appointed to the Supervisory Board. At the forthcoming General Meeting of Shareholders Mr. E.A. van Amerongen will retire by rotation from the Supervisory Board. We are ASMI 2005 ANNUAL REPORT 12
Financial Highlights and Selected Comparative Financial Data pleased to announce that he is available for reappointment and it is our intention to nominate him for reappointment. We have decided to expand the Supervisory Board to six members and propose to shareholders to appoint Mr. B.C. Brix in that vacancy. Proposals to effectuate these (re)appointments will be made to this year s Annual General Meeting of Shareholders. Mr. van den Hoek as partner of Stibbe, our Dutch outside legal counsel, is not considered to be independent under the Dutch Corporate Governance Code, but, he is considered to be independent under the NASDAQ regulations. All other members are considered to be independent under the NASDAQ regulations and the Dutch Corporate Governance Code. Management Board Composition Mr. H.D.J. Pietersma retired from his position as member of the Management Board as per May 10, 2005 to pursue other interests. Mr. R.L. de Bakker retired from his position as Chief Financial Officer of the Company as per May 31, 2005. The Supervisory Board thanks Mr. Pietersma and Mr. de Bakker for their valuable contribution over the past years. Mr. A.J.M. van der Ven was appointed the Company s new Chief Financial Officer as per June 1, 2005. We propose to the shareholders to appoint Messrs. C.D. del Prado and J.F.M. Westendorp as members of the Management Board as of the forthcoming Annual General Meeting of Shareholders. Supervisory Board Committees Audit Committee The role of the Audit Committee is described in its Charter, which is available on the Company s website. The Audit Committee consists of Mr. J. den Hoed (Chairman), Mr. van Amerongen and Mr. van den Boom. It is our intention to appoint Mr. Brix as a new member to the Audit Committee, upon his appointment to the Supervisory Board by the Annual General Meeting of Shareholders. In that capacity, he would replace Mr. van Amerongen as a member of the Audit Committee. The Audit Committee of the Supervisory Board held five meetings with the Management Board and Deloitte Accountants, the Company s independent auditors. The Company s internal risk management systems, the progress on implementing the Sarbanes Oxley 404 requirements, the IFRS conversion including the R&D policy, the Company s financing, the application of the accounting principles, the appointment of the Deloitte Accountants, the audit performed and its findings, the Annual Report and Annual Accounts, and the quarterly progress reports as prepared by the Management Board, were discussed. The Chairman of the Audit Committee met once with Deloitte Accountants, without members of the Management Board present, to discuss the audit scope and approach, independence of Deloitte Accountants and the performance of Deloitte Accountants. Nomination, Selection and Remuneration Committee The role of the Nomination, Selection and Remuneration Committee is described in its Charter, which is available on the Company s website. This committee advises the Supervisory Board on matters relating to the selection and nomination of new Management Board members as well as the remuneration policy of the members of the Management Board. This committee consists of Mr. van Amerongen (Chairman), Mr. Danneels and Mr. van den Hoek. The Nomination, Selection and Remuneration Committee held three meetings. During these meeting, members of the Management Board were present, except for the discussion of their own remuneration. On an annual basis, the Nomination, Selection and Remuneration Committee reports to the Supervisory Board on the application of the Remuneration Policy in the past year and the Remuneration Policy for the following years. The remuneration of the members of the Management Board is disclosed in Item 6.B "Directors, Senior Management and Employees Compensation" of the Annual Report on Form 20-F. The remuneration of the members of the Management Board during 2005 is not fully in accordance with the Remuneration Policy yet. Deviations are mainly due to the fact that elements of remuneration were agreed upon with individual members of the Management Board prior to finalization and acceptance of the current Remuneration Policy. The Company will attempt to achieve full compliance with the Remuneration Policy within a period of 2 years. 13 2005 ANNUAL REPORT ASMI
Report from the Supervisory Board (continued) The remuneration policy for the Management Board has been submitted to and adopted by the 2005 Annual General Meeting of Shareholders. Word of thanks The reinforcement of the leadership position in assembly and packaging activities and the strengthening of the wafer processing activities are the results of the continued efforts of our employees. Our employees develop, design, manufacture and service equipment and production and process solutions for our customers around the word. We are grateful to all of our worldwide employees for their contribution and their commitment to the Company. Supervisory Board, P.C. van den Hoek, Chairman E.A. van Amerongen L.P.E.M. van den Boom J.M.R. Danneels J. den Hoed Bilthoven, the Netherlands February 21, 2006 ASMI 2005 ANNUAL REPORT 14
Financial Highlights and Selected Comparative Financial Data 15 2005 ANNUAL REPORT ASMI
Corporate Governance General As we are listed on the NASDAQ Stock Market as well as on Euronext Amsterdam, we are required to comply with the Sarbanes-Oxley Act and several corporate governance requirements and best practices set out by NASDAQ, the U.S. Securities and Exchange Commission (SEC), the Netherlands Authority for the Financial Markets (AFM) and the Dutch Corporate Governance Code. The Dutch Corporate Governance Code contains principles and best practices for Dutch companies with listed shares. Our corporate governance policies with respect to the implementation of the Dutch Corporate Governance Code were discussed with our shareholders at the 2005 Annual General Meeting of Shareholders, including those best practice provisions that we did not comply with. The best practice provisions that we did not comply with and the reasons therefore are set out in our Annual Report 2004 and repeated hereafter where appropriate. At ASMI, we are committed to upholding the highest standards in corporate governance and ethics practices. We believe our numerous internal policies and procedures provide structure for the operation of ASMI that is consistent with the best interests of our shareholders and customers as well as the requirements of the law. We endeavor to ensure that our policies and procedures comply with both U.S. and Dutch corporate governance requirements, to the extent possible and desirable. In this report, we discuss our corporate governance structure. We will discuss any material changes in our corporate governance structure in the Annual General Meeting of Shareholders. Corporate Governance related documents are available on our website, including the Supervisory Board Profile, Supervisory Board Rules, Management Board Rules, the Audit Committee Charter, the Nomination, Selection and Remuneration Committee Charter, the Code of Ethics, the Whistleblower Policy, the Rules concerning Insider Trading and the Remuneration Policy. Management Board Responsibilities In addition to the duties of the Management Board stipulated by law and our Articles of Association, the Management Board has the following responsibilities: achieving the aims, strategy and policy and results of the Company; managing the risks associated with the activities of the Company; ensuring proper financing of the Company; and establishing and maintaining disclosure controls and procedures which ensure that all major financial information is known to the Management Board, so that the timeliness, completeness and accuracy of the external financial reporting are assured. The Management Board shall be guided by the interests of the Company, taking into consideration the interests of all stakeholders. The members of the Management Board are collectively responsible for managing the Company. They are collectively and individually accountable to the Supervisory Board and the General Meeting of Shareholders for the execution of the Management Board s responsibilities. The Management Board has the general authority to enter into binding agreements with third parties. The Management Board shall ensure that the Company has an adequate functioning Internal Risk Management and Control Framework. The Management Board shall periodically discuss with the Supervisory Board and the Audit Committee the internal risk management and control systems, including any significant changes that have been made and any major improvements that are planned. The Management Board shall timely provide to the Supervisory Board all information that they reasonably require for the fulfillment of their obligations and the exercise of their powers. The Management Board shall timely provide to the General Meeting of Shareholders all information that they reasonably require for the fulfillment of their obligations and the exercise of their powers, unless this would be contrary to an overriding interest of the Company. If the Management Board invokes an overriding interest, it must give reasons. ASMI 2005 ANNUAL REPORT 16
Financial Highlights and Selected Comparative Financial Data The Management Board is responsible for the quality and completeness of financial and other reports, which are publicly disclosed by or on behalf of the Company, including all reports and documents the Company is required to file with regulatory agencies. Conflicts of interest Each Management Board member shall immediately report any potential conflict of interest to the Chairman of the Supervisory Board and to the other Management Board members. A Management Board member shall in such case provide the Chairman of the Supervisory Board and the other Management Board members with all information relevant to the conflict. Appointment, suspension and dismissal The Supervisory Board may nominate two candidates for each vacant seat on the Management Board, one of which the Supervisory Board will recommend to the shareholders for appointment. The nomination of the recommended candidate is binding, and therefore the recommended candidate will be elected by the shareholders unless rejected by a qualified majority vote of at least two-thirds of the votes cast, representing more than one half of the issued share capital. If the recommended candidate is rejected, the second nominee will be appointed unless similarly rejected. The appointment of Mr. van der Ven to the Management Board in 2005 followed the 4 year term, as recommended by the Dutch Corporate Governance Code. Appointments already existing before 2005, which run for an indefinite period of time, will not be amended. Our Articles of Association do not limit the term of office for our Management Board members. A Management Board member can be suspended at any time by the Supervisory Board. The shareholders may at any time suspend and dismiss Management Board members by a qualified majority vote of two-thirds of the votes cast, representing more than one half of the issued share capital. Remuneration The remuneration of individual members of the Management Board is decided upon by the Supervisory Board on the recommendations by the Nomination, Selection and Remuneration Committee of the Supervisory Board, based on the Company s Remuneration Policy. The remuneration structure includes five elements: base salary, annual incentive (bonus), long term incentive (stock options), pension and other arrangements. The remuneration structure mirrors short-term and long-term elements of the responsibilities of members of the Management Board. ASMI has adopted various stock option plans, which have been submitted to and adopted by the General Meeting of Shareholders, most recently at the 2001 Annual General Meeting of Shareholders. These plans, however, do not specify or require pre-specified performance criteria as now required for members of the Management Board by the Dutch Corporate Governance Code. We are currently developing performance criteria that will be used in the future when granting stock options to members of the Management Board as a long term incentive. We will present the new long term incentive plan to shareholders during the Annual General Meeting of Shareholders in 2006 for approval. For further information regarding the remuneration of the Management Board, reference is made to the Remuneration Policy (available on our website), the Remuneration Report 2005 (available on our website), the Report of the Supervisory Board 2005, which is included in our Annual Report 2005, and Item 6.B Directors, Senior Management and Employees- Compensation and in Note 25 Board Remuneration of the Annual Report on Form 20-F. In general, we agree with the Dutch Corporate Governance Code that in most circumstances a maximum severance payment of one year for Management Board members is appropriate. However, we want to reserve the right to agree to different amounts in case we deem this to be required by the circumstances. Any deviations will be disclosed to the Annual General Meeting of Shareholders. Internal Risk Management and Control Framework The Management Board is responsible for designing, implementing and operating an adequate functioning Internal Risk Management and Control Framework in the Company. The purpose of this Framework is to identify and manage the strategic, operational, financial, financial reporting, and compliance risks to which the Company is exposed, to promote effectiveness and efficiency of the Company s operations, to promote reliable financial reporting and to promote compliance with laws and regulations. For a detailed discussion of our risk factors, see Item 3.D. "Risk Factors" of our Annual Report 2005 on Form 20-F. 17 2005 ANNUAL REPORT ASMI
Corporate Governance (continued) Our Internal Risk Management and Control Framework is based on the COSO framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (1992). The COSO framework aims to provide reasonable assurance regarding effectiveness and efficiency of an entity s operations, reliability of financial reporting, prevention of fraud and compliance with laws and regulations. Our Internal Risk Management and Control Framework has the following key components: Planning and control cycle The planning and control cycle consists of an annual business plan approved by the Management Board and the Supervisory Board, quarterly forecasts, quarterly operational reviews and monthly financial reporting, including monthly reviews with the management of the operating units. Code of Ethics and Whistleblower Policy Our Code of Ethics is applicable to all of our employees, including our CEO, CFO and controllers. It is designed to promote honest and ethical conduct and timely and accurate disclosure in our periodic financial reports. Our Whistleblower Policy provides for the reporting of alleged violations of the Code of Ethics and alleged irregularities of a financial nature by Company employees or other stakeholders to the Management Board and/or the Supervisory Board without any fear of reprisal against the individual that reports the violation or irregularity. Disclosure Controls and Procedures The Disclosure Committee assists the Management Board in overseeing the Company s disclosure activities and to ensure compliance with applicable disclosure requirements arising under U.S. and Netherlands law and regulatory requirements. The Disclosure Committee obtains information for its recommendations from the operational and financial reviews, letters of representation which include a risk and internal control self assessment, input from the documentation and assessment of our internal controls over financial reporting and input from risk management activities during the year. The Disclosure Committee comprises various members of senior management. Risk Management and Internal Controls We have implemented financial policies and procedures, including accounting policies, and non-financial policies and procedures to ensure control by the Management Board over the Company s operations. Managing directors and finance directors of our main subsidiaries annually sign a detailed letter of representation with regard to financial reporting, internal controls and ethical principles. We are currently expanding our risk management policies, internal control documentation and assessment of such internal controls to provide further assurance regarding the reliability of our financial reporting. We are assessing our internal controls over financial reporting to comply with Section 404 of the Sarbanes-Oxley Act, beginning with our Annual Report on Form 20-F for the year ending December 31, 2006. Accordingly, we are documenting, evaluating, and expanding as necessary our internal control systems over financial reporting to enable us to comply by December 31, 2006. The internal assessment of our internal controls over financial reporting to comply with Section 404 of the Sarbanes-Oxley Act must be attested by our independent registered public accounting firm. We have further enhanced our identification and assessment of our strategic, operational, financial, financial reporting, and compliance risks and are in the process of rolling these processes out to our operating entities and embedding them in our standard business processes. The results of these assessments have been discussed with our Audit Committee in 2005. In 2006, further results will be discussed with our Audit Committee. Based on an evaluation and recommendation by the Disclosure Committee, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective as of December 31, 2005 and that subsequently there have been no changes in our internal controls over financial reporting or in other factors that could significantly affect those controls. ASMI 2005 ANNUAL REPORT 18