Q4 2020 MKS Instruments Inc Earnings Call
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Ladies and gentlemen, thank you for standing borrowing walked through the MKS instruments fourth quarter and full year 2020 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you. The press star one on your telephone if you require any further assistance. Please press Star then zero.
I would now like to do sales rates conference call. Mr. David <unk> you may begin.
Good morning, everyone I am David <unk>, Vice President of Investor Relations and I'm joined this morning by John Lee, President and Chief Executive Officer, and Seth Bagshaw, Senior Vice President and Chief financial.
Yes.
Yesterday after market close we released our financial results for the fourth quarter and full year 2020, which are posted to our website MKS.
Yes.
S T dot com.
As a reminder, various remarks about future expectations plans and prospects for MKS comprise forward looking statements actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in the most recent annual report on form 10-K, and any sort of.
<unk> quarterly reports on form 10-Q for the company.
These statements represent the companys expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date subsequent to today and the company disclaims any obligation to update these statements.
During the call, we will be discussing non-GAAP financial measures.
Please refer to our press release for information regarding our non-GAAP financial results and a reconciliation of our GAAP and non-GAAP financial measures now I'll turn the call over to John.
Thanks, David Good morning, everyone and thank you for joining us today.
Before I discuss our quarterly results and current market trends I would like to take a moment to reflect on the past year 2020 was full of challenges for all of US both personally and professionally.
The for MKS I can best characterized 2020 with the following three words resilience opportunity and growth let.
Let me start with resilience of.
Our foremost priority when the COVID-19 pandemic started was the safety and wellbeing of our global workforce and it continues to be our top priority.
We responded quickly at the onset of the pandemic and implemented a number of safety precautions for our employees. While also shifting to a work from home environment for a significant portions of our work force.
We also remain steadfast in delivering on the needs of our customers during this challenging time.
Our team worked tirelessly to ensure continuity of operations by swiftly responding to disruptions at our factories and supply chain partners, while adhering to the stringent safety protocols.
Now, let me discuss what I mean by opportunity.
Disruptions, we faced did not interrupt our cadence of innovation and this allowed us to take advantage of new opportunities in the markets we serve.
In 2020, we were awarded 170, new patents. We also grew new product releases by 48% year over year.
And secured a number of important design wins for both our semiconductor and advanced markets.
And I am pleased to announce for the second year in a row that we are a finalist for an S. P. E. Prism Award this time for our off here beam splitter for high power lasers.
But we also view opportunity through another lens employee development diversity equity and inclusion in 2020, we develop new leadership programs and rollout of new diversity training program for over 120 of our top leaders.
We also embarked on several other initiatives to drive greater diversity in hiring and we are already seeing these results.
And finally, let me discuss what I need a growth.
In 2020, we grew revenue by 23%.
In particular, we grew our semiconductor revenue by 49% year over year.
Non-GAAP EPS and free cash flow of grew by 64% and 137% year over year, respectively.
Now, let's discuss our fourth quarter results in more detail.
We delivered revenue of $660 million and non-GAAP net earnings per diluted share of $2 30 for.
Both above the high end of our guidance range in both quarterly records.
Sales of our semiconductor market further strengthened in the fourth quarter growing 9% sequentially and 45% year over year.
As we discussed at our analyst day last month, our industry, leading portfolio of critical subsystems has allowed us to gain insights into the market inflections to drive new areas of innovation that accelerate our customers' roadmaps.
This is culminated into a sustainable competitive advantage, enabling us to outperform WMC organically by 200 basis points over the past decade.
During the past several quarters, we've discussed the strong demand for our power solutions products in the fourth quarter was no exception.
As revenue reached another record.
We continue to lead in dielectric etch applications and remain focused on leveraging our unique capabilities to capture share in conductor etch as well as new opportunities and deposition.
But our power solutions business was just one component of our strong fourth quarter results as we achieved robust sequential and year over year growth across the remainder of our semiconductor of portfolio.
In our pressure business, we benefited from strong demand across a wide range of applications and we continue to execute on design wins with multiple Oems.
The superior performance of our capacitance manometer and advanced applications, requiring heated pressure measurement has been a key advantage.
We are encouraged with the strength, we saw in our valves business in our plasma and reactive gas portfolio of delivered strong sequential growth in the fourth quarter.
We continue to see healthy design win activity for our dissolved ozone and dissolve the ammonia systems and wet cleaning applications with particular strength in leading edge foundry customers.
As we look ahead of the first quarter of 2021, we expect revenue in our semiconductor market to be consistent to slightly down when compared to our outstanding fourth quarter levels.
Demand trends remained strong and we expect to deliver robust year over year growth in the first quarter of 2021.
In our advanced markets, we delivered record fourth quarter revenue growing 16% sequentially from 17% year over year, marking a return to year over year organic growth for the first time since the third quarter of 2018.
Our strong results were underpinned by a sequential improvement in our research market and more notably an acceleration in demand from advanced electronics manufacturing.
As we highlighted at our analyst day, we expect the Vance electronics manufacturing to be of key growth driver for our advanced markets over the long term.
The secular trends of the miniaturization complexity and new materials of driving the need for precision laser processing and PCB solar display and electronic component manufacturing, while we are uniquely positioned with our surround the workpiece offerings of lasers optics photonics motion and systems.
Solutions.
We saw strong demand for our flex PCB via drilling systems in the fourth quarter, which is typically a seasonal trough.
As we've indicated on prior calls we benefit not just from capacity additions, but also from our customers transitions to new flex PCB designs, where our state of the art Capstone tool is a key enabler.
In addition, we have seen an improvement in demand for our multilayer ceramic capacitor test systems, where we are leading provider to the MLC manufacturing ecosystem.
We're also very encouraged with the market adoption of our high density interconnect via drilling tool and as we announced last month, we received our second multi unit order for high volume manufacturing. This one from an important HDI PCB manufacturer in Taiwan.
We remain focused on executing on our playbook of converting beta systems to design wins.
Needless to say I am very pleased with how our equipment of solutions Division exited 2020, which capped off of year marked by strong revenue growth and considerable progress in our strategy to capture share in the sizable HDI PCB market.
And we are entering 2021 with strong momentum.
In closing we are encouraged by the continued recovery in our advanced markets.
We expect revenue in the first quarter to be consistent to slightly up compared to the fourth quarter levels.
As improving demand trends in advance of electronics are expected to continue into the first quarter.
For this reason, we expect the delivered another quarter of strong year over year growth in advanced markets.
And now I'd like to turn the call over to Seth.
Thank you John I will cover our fourth quarter and full year 2020 results.
Of that provide additional detail on guidance for the first quarter of 2021.
Sales of fourth quarter were a record $660 million.
12% sequentially up 32% year over year and above the high end of our guidance range.
Our performance reflects strong demand in the semiconductor market continued rebound in our advanced markets.
In the fourth quarter semiconductor sales set another record at $393 million up 9% sequentially and up 45% year over year, reflecting a broad exposure across memory foundry and logic applications.
Our power solutions portfolio continues to outperform the underlying power market. We are pleased to report another quarter of record revenue.
As we highlighted at our analyst day last month or the.
Vance control algorithms modularity and faster development cycles are key differentiators of our power solutions.
We continue to create new opportunities to accelerate our customer roadmaps.
For the fourth quarter sales toward advanced markets were a record $267 million up 16% sequentially and up 17% year over year led by strong growth in advanced electronics applications.
You can see.
The recovery in our research market.
As John said, we saw strong early cycle demand for our flex PCB via drilling systems.
Driven in large part by both capacity needs in essential technology transitions for <unk> smartphones and other devices.
We estimate that the amount of flexible PCB content in the high end smartphone is on average 30% higher at the compared to our high end for G thought.
Moreover, continuous flexible PCB design changes of driving demand for our leading edge via drilling solutions.
We were also pleased to see of recovering demand for our MLC test systems.
As a reminder, we off of multiple ml Cc test system solutions in the market addressing two main categories.
The first is ultra small form factor of MLC, CS, which are mainly use the smartphones and other consumer electronics.
And the second our large chip MLC, CS, which are mainly used in the automotive and the infrastructure applications.
We saw strength in both of these categories in the fourth quarter.
We continue to execute on our HDI strategy and received our second multi unit order for of Geode ACI system in the fourth quarter.
We're very pleased with the increasing market acceptance of our HDI tool.
This is the validation of our cost of ownership advantage, which includes higher throughput.
Smaller footprint lighter weight and improve serviceability.
With regards to our first multi unit order announced last September we successfully completed the installation and received customer acceptance on all units.
These units are now fully deployed in high volume manufacturing.
As highlighted in Allstate last month, our vehicle electronics story extends beyond PCB solutions, but also encompasses solar display electronic component of applications and.
We encouraged with the demand trends, we are seeing in all of these applications.
For the quarter the revenue split between our semiconductor and advanced markets, the 60% and 40% respectively.
Fourth quarter non-GAAP gross margin was 45, 7% above the midpoint of guidance and up 240 basis points year over year.
Non-GAAP operating expenses for the fourth quarter of $138 million and reflects higher variable compensation due to our strong financial performance.
Fourth quarter non-GAAP operating margin was 24, 7%.
Sequential increase of 160 basis points.
630 basis points year over year, reflecting the strong financial leverage in our operating model.
Non-GAAP net interest expense for the fourth quarter was $6 million and of non-GAAP tax rate was approximately 18%.
Non-GAAP net earnings for the fourth quarter were a record $130 million.
The record $2.34 per diluted share.
Moving onto the full year results sales were a record two point of $3 billion up.
Up 23% year over year, the semiconductor sales up 49% to $1 4 billion.
2020 was not only of record year for our power solutions business, but excluding power the remainder of our combined semiconductor business also delivered record results.
This record performance underscores the increasing importance of our surround the chamber strategy.
And a critical enabler across a number of key technology inflections.
In 2020, we believe we outperformed our peers across multiple market segments.
In advanced markets in revenue declined slightly by 3% largely due to COVID-19 related headwinds in the first half of the year.
However recovered strongly the second half of 2020.
The growing 6% year over year.
Okay.
The sequential quarterly growth of third and fourth quarters, we are starting 2021 with improving demand trends and advanced electronics applications.
Which are a key driver of long term growth in our advanced markets.
The revenue split for the year between our semiconductor and advanced markets was 59% and 41% respectively.
Non-GAAP gross margin was 45, 2% up.
Up from 44, 1% in 2019.
And non-GAAP operating margin increased 450 basis points to 22, 6%.
In 2020 reported non-GAAP net earnings of $411 million.
For $7 of 43 cents per diluted share.
Which were both up more than 60% from 2019.
Exiting the fourth quarter, we maintain a strong balance sheet and liquidity position with cash and short term investments of $836 million.
And $100 million of incremental borrowing capacity under the asset based line of credit.
So for the certain borrowing base requirements.
Well the term loan principal balance of $833 million. We are pleased to announce that we have exited the fourth quarter in a net cash position.
Less than 24 months of the acquisition of ESI.
In terms of working capital days sales outstanding were 54 days at the end of the fourth quarter.
Compared to 56 days at the end of the third quarter.
Inventory turns were two nine times in the fourth quarter compared to two six times in the third quarter.
We remain focused on improving our cash conversion cycle in the fourth quarter operating cash flow and free cash flow for $147 million from one and $22 million respectively.
For the year operating cash flow and free cash flow or fiber to the $13 million and 14 $28 million respectively.
Both operating and free cash flow of record results and more than doubled from 2019.
Consistent with prior quarters with the dividend payment of $11 million of 20 per share.
I'll now turn to our first quarter outlook.
Based on current business levels, we estimate first quarter 2021 revenue of $650 million plus or minus $25 million.
Based on anticipated product mix and revenue levels, we estimate first quarter non-GAAP gross margin of 45% plus or minus one percentage point.
And non-GAAP operating expenses of $140 million.
Plus or minus $4 million.
For the first quarter non-GAAP net interest expense expected to be approximately $6 million.
And of non-GAAP tax rate is expected to be approximately 18%.
Given these assumptions, we expect first quarter non-GAAP net earnings of $2.16 per diluted share plus or minus 20.
But the now turn the call back of the operator for Q&A.
Ladies and gentlemen, if you have a question of our comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered. Please press the pound key and we also ask that you limit yourself to one question and one follow up.
Our first question comes from Jim Ricchiuti with Needham <unk> company.
Hi, good morning.
Couple of questions on the E&S business and yes.
I'm wondering if you if there's any way you can elaborate on the strength you saw in the business versus.
Q3.
As it relates to how much of the demand.
You would attribute to the better smartphone cycle.
You know the type of recovery that you're seeing in the MLC some.
Portion of the business and maybe to the extent to which the <unk> was a contributor in the quarter.
Yeah, Jim It's John I'll take that yes, I think <unk> was a contributor but not not a large contributor. So I think in general we're attributing both the MLC C and the flex upside in Q4, two of stronger smartphone cycle and a little earlier than us.
Typical so it's really a we believe driven mostly by the the smartphone market.
Got it and.
John.
I wanted to just ask you about I mean, obviously, it's been a high profile M&A development within the laser photonics market of late and I'm wondering.
And how you see this impacting MKS from the standpoint of whether this may signal further consolidation of the market or maybe as it relates to the multiples for potential M&A that you may be pursuing in the space.
Hey, Jim well certainly we've talked about you know one of our strategies for growth.
As in M&A, and we've talked about the fact that we have targets both in advanced markets.
As well as semi or they're just more targets and advanced markets. So you know I think of the industry does the photonics industry does have more room for consolidation I think that will Doug will occur.
And as you can imagine, we're certainly going to be of participant in that.
Thanks, I'll jump back in the queue.
Thanks, Jim.
Our next question comes from <unk> Misra with Baron Burke.
Hey, good morning, guys. Thanks for taking my question. So we've been hearing about the chip shortage of particularly at several of automotive.
Automotive producers. So just curious how are you in the house and cash position to help customers to increase volumes like are you seeing any incremental demand because of the because of that shortage.
Yeah pair of tests of China, I cant say, we can put our finger on anything specific with respect to the the publish shortages in automotive chips I think we certainly sell a lot of.
Service and spare parts to the older Fabs that are the ones building a lot of those of those kinds of automotive ships. So so I don't think we can really tell if there's a lot of that is going to two of the automotive manufacturers.
Got it and then just the follow up on your laser business. So some of the fiber laser producers are seeing increased demand primarily from manufacturing.
I'm just curious are you seeing some of that too I know you don't have that much exposure because of the fire.
For lasers for mostly pump side, but just curious what are you seeing on that from the demand side.
Yes broadly of Paratonia I think we do see.
Industrials as well as events electronics manufacturing, increasing you can see that in our numbers in Q4 and our guidance in Q1, so we see a little bit of that as well as you say, we don't make the fiber lasers, but we do make the rest of the surround the workpiece diagnostics that go around it so.
I would say were seeing something similar to what the what.
Some of those participants are saying, they're seeing in the fiber laser market.
Got it thanks guys.
Thanks.
Our next question comes from Patrick Ho with Stifel.
Thank you congratulations of Ablator happy new year.
John maybe first off on the semiconductor side of things you've talked about share gains on the power side of it on the power and.
For your semi business can you just discuss I guess, maybe some of the emerging opportunities on the op ex side, particularly.
As it relates to litho and process control do you expect to outperform.
You know the industry growth rate of aggregate what share in that segment.
Yes. Thanks for the question Patrick that's certainly one of our strategic objectives as we talked about at analyst day, and our investments in there with respect to engineering as well as the capex to allow us to address more of the optics market for lithography inspection as well as outside of semi.
And so we'll see but it's kind of the of the playbook of MKS, we see an opportunity.
You know and we invest in that inflection and it's the multiyear plan and we're pretty positive about the opportunity there because our share there is lower than our vacuum chamber type of businesses.
Great that's helpful and maybe as my follow up question for Seth.
Its actually delivered strong working capital of the numbers in an environment, where the logistics and supply chain is tight across the ecosystem.
One how are you looking at the supply chain today are you facing any shortages and two what are you able to do to maintain the.
These are pretty.
Strong working capital numbers.
Despite the high demand, particularly in the semi side of things.
Thank you Patrick Yes, so I would say on the supply side, we have normal.
The rate of environment, obviously looking at parts that we work out of supply chain. So I'd say, it's the typical ramp environment Youre always choosing a few parts, which is quite typical.
The operations team and you can see our numbers and then just a really fantastic job navigating that in this environment, especially go back from COVID-19 hit in Q1, and Q2, so I put that in kind of normal category, and we're managing that pretty well in.
In terms of working capital you know, we mentioned a couple of calls and the analyst day as well where are the folks on cash conversion, obviously, you've got a very strong operating model.
And then the cash conversion opportunities, we're seeing as working down our receivables we did that starting back again in early 2020.
The maintain with them going forward, we'll do the same thing on being more fishing on the inventory levels and the velocity of turns and so for us that'd be a bit of a journey for us because we of along.
The list of parts and one of our strength again is they really respond quickly to our customer base. So well always have a little bit probably higher than the average inventory levels, but we are definitely looking at the as an opportunity going forward. So it's a holistic approach obviously the operating model is in good shape, we will continue to drive that.
The improvement of the long term and now cash conversion of the focus for us as well and we're seeing impact obviously this year in the record free cash flow operating cash results. So we think we can do a little better going forward Thats our goal.
Thank you.
Yes.
Our next question comes from Krish Shankar with Cowen.
Hi, This is steven for calling on behalf of Krish.
Uh huh.
John My first question now from you right in terms of the semi business.
Could you provide some more color on the on the March quarter guidance for for the semi business.
Any color on the components that have been driving that would be helpful.
Some of it also look a little further out I'm just wondering with the customers last night talked about in fact have moving.
The year.
The trends are somewhat consistent with the others.
There are factors that might Uh huh.
The differentiation there.
Yeah, Hi, Stephen Yeah. So yeah, no we were seeing a strong Q1 for sure.
And you know the guide the midpoint of the guide of 650 <unk>.
The slightly lower than our <unk> 60 that we actually achieved in Q4, but it's really you know Q4 was really quite a quite a record quarter. So we see a very strong semi quarter. In Q1, you know, we don't guide out more than Q1, but I would say visibility.
Is is okay in the first half and I think that in the second half of it I don't think really anyone really knows there's a lot of things that could go drive it better or worse. So I think we're strongly.
The positive.
About the semi in Q1 and the and then the first half is looking okay, but we wouldn't want of God beyond the first quarter.
Okay. Thanks for that John and maybe one quick one for Scott.
Okay.
Gross margin guidance can you talk of what the puts and takes are.
For the of high and low end of the gross margin guidance.
Yeah. Thank you Stephen so yeah, we are.
Obviously, you are published models of the 50% variable gross margin in 2020.
We achieved that for sure and again pretty close to the fourth quarter the Q1.
There's a little bit of of mix dynamic in the USA. The O&M the division had a little bit.
We sold products in Q4, we think in Q1, but a little bit below the corporate average so it's probably a tick below that 50% flow through if you take the mid point, but it's really not that far off of the model and again, we range. The margin. Obviously, so that's kind of the high level of takeaway for the for the the.
Quarterly guidance for margin the other piece when they are doing very well as we do have some headwinds in the Covid world, obviously freight costs, a little higher we'll be very careful on within the factories, social distancing and making sure that everybody is maintaining the right.
The protocol, so that's kind of affecting a little bit the efficiencies, but it's kind of in the run rates as well, but the team's managing it very well on that so really that's the big takeaway is just a little bit of mix I think in the OEM group.
In Q1 again, we range the guidance. So you know I would.
Kind of be looking at that range is a good youll thoughtful estimate for us.
Okay, Thanks, Pat and Matt Congratulations on the results.
Yep Thanks, Steve.
The next question comes from Sidney Ho with Deutsche Bank.
Hi, This is Jeff Rand on for Sydney after growing your business your semi business almost 50% in 2020 do you believe this business can still outgrow the overall of the Wi Fi market in 2021 or do you expect some destocking.
Take place.
Yeah, Hi, Geoff it's John Yeah, typically for suppliers in this part of the food chain of critical subsystems, we tend to over perform during the ramps and we tend to underperform when the ramps turn and so that's really a question of when do you think the ramp of the single turn and I know, there's a lot of talk about people trying.
The call the peak right now, which we're not going to.
I would say, though that we're still very confident in our long term model as we talked about at analyst day, which as you know our historic 200 basis points above the <unk> over the long term and so that model is still very much intact.
Great and just as my follow up gross margins were close to the midpoint of guidance on it but on the strong revenue beat can you discuss how you think about the opportunity for margin expansion as you grow revenue overtime.
Yes, Jeff the SaaS, yeah, so clearly.
Clearly volume is the bigger driver and again, if the scent flow through as a model and well intact. So that's the bigger driver going forward, obviously I think when the COVID-19 pandemic eases up we'll have a little bit of a tailwind there in margins just because of the protocols will be relaxed a little bit is our belief and then.
Two of some trade friction within the run rates of that was the move differently going forward that would be slightly helpful. As well and then on the long term, we do look at product development activities and.
Our roadmap is to deliver products in the long term that have higher value for our customers and that should have an impact obviously on our gross margin at the <unk>.
Cadence, we have across all three divisions on a regular basis and that's sort of the ongoing.
Again process, which will I think help margins going forward and.
And then we do have a team of widespread team in place to look at profitability improvements. So that's always something we do on a regular basis as well. So there's really multiple levers Jeff that we've always been pulling the working pretty hard all of those right now but in the short term I tell investors of the margin impact is really the fitness and flow through on revenue.
That's kind of how I look at the margin growth going forward the bigger.
The biggest lever.
Great. Thank you.
Yes.
Our next question comes from Mark Miller with the benchmark company.
Congratulations on another very strong quarter.
I'm just wondering.
In terms of design wins kind of notable design wins from ones. Besides in the power area.
Yeah, Mark it's John Yeah. So we have several of them in our portfolio of semiconductor of the products so pressure.
The flow valves.
As well as the remote plasma source of reactive gases. So there are multiple design wins there.
As we talked about in 2020, we released 48% more products than we did in 2019 even during.
The remote work.
Protocol for many of the engineering teams.
Not just power, but the whole portfolio of there. We also had design wins in our world class optics efforts as well as in lasers, and so well.
We're pretty happy with our design win activities across the portfolio, obviously, we talked about ESI.
You know in terms of HDI and certainly we've certainly also maintain share in our leading flex drilling tool as well.
Of the laser design wins, where these nanosecond lasers.
Both both nanosecond and picosecond.
Okay.
Final question.
We're up significantly sequentially and year over year, Besides higher sales what was driving it was it a mix of improvement.
No Mark I think volume is definitely again of the bigger driver I would say then kind of if you look at our cost structure, we do a pretty good job of maintaining a pretty disciplined cost structure in that ramp environment higher variable comp in 'twenty, obviously because of the record results but.
Fundamentally that's kind of what we did in 2020 more of the volume piece, maintaining good cost controls and strong execution.
Thank you.
Yeah, Thanks, Mark Thanks, Mark.
Our next question comes from Joe for Trophy with Wells Fargo.
Yeah. Thanks for taking the question on the semi side some of your customers have been.
Continuing to increase inventory to support the stronger demand.
But they've also been talking about building some buffer inventory just given the supply chain disruptions I was curious do you have any kind of visibility into that across your customer base.
Yeah, just shy of that I don't think we have a broad view of it we certainly have certain product lines, where and at certain customers, where they've asked us to do that and we have done that because that's their plan now so that's a customer specific and probably product specific kind of inventory safety inventory if you will.
So it's really not a broad based thing, but the customer specific or product specific.
Okay. That's helpful and then on the strong results this quarter.
Is that reflective of any of the 80 unit Capstone order that you got early in December or is that still kind of more ahead of us in the guide.
Yeah, I would say that debt 80 unit order.
The majority of it was not shipped in Q4.
Helpful. Thank you.
Our next question comes from Tom definitely with D. A Davidson.
Yeah. Good morning, Thanks for taking the question Hey, John I was hoping to get a little bit more on the microelectronics part of the business and you know of.
No its come back a bit recently, but what is your outlook for the for the year and do you think your growth in that industry or that sector comes from share gains or is it going to be recovery in the space, that's going to be the biggest driver.
Yes, Tom it's a that's a good question I think Oh, the majority of his recovery in the space for sure, but as you know our HDI momentum is good now I think we're starting from the small base. So that's why my answer is that the recovery is probably from the larger flex in the MLC see markets, where we are.
We have established leadership, but.
But we hope that H D. I will continue to accelerate and at some point it will be both.
Okay, and does H D. A run of similar cycle or is it a little bit off cycle versus the rest of the business.
You know I think in general it does run in the similar cycle, but HDI boards as you know of broader in terms of applications. So not just tied to smartphones flex is still very tied to the.
The flip the the iPhone and the Samsung phones form factors.
And it's also broadening as well for the use of flats, but HDI is broader so it has a broader base of different kinds of applications.
Okay. Thanks, that's helpful and then Seth when you look at the tax rate it looks like it's edging up a little bit here.
The reason for that.
No Thomas should be net was at 18% in this guidance is probably our view.
2021, I think of the fourth quarter precisely it was like 17 of half which versus 17% of guidance. So really around that the ZIP code for sure. It's really based on the mix of income by geography. So that's the only driver frankly on tax rate, but I think for modeling internally, we're using the 18% for <unk>.
2021.
Okay. Thank you.
Thanks, Tom.
Our next question comes from Amanda <unk> with Citi.
Hi, Good morning. The first question I have is on the market side of it.
Yes.
It looks like it's sort of accelerating off of the trough here is that the way to look at it or is it more of just sort of one of our order.
And what you saw in the December quarter to drive that strong sequential growth.
Hi, Matt its Jon.
It's the latter.
Sorry, it's the broader of.
The order patterns from multiple.
Sub segments, most notably events electronics. So it wasn't I don't believe it's a one off.
Quarter kind of events as we guided in Q1 and as we said in the script, we expect the.
We expect to have even stronger Q1 and events the markets.
Alright.
And then on the HCI order that you saw in the quarter remember last quarter, you talked about having some new inquiries that were sort of unexpected was this order driven off of that or is there something in addition to sort of the increase that you were seeing earlier in the year.
You know I referenced to inquiries coming in a little earlier than we thought it was really more about flex Amanda.
You saw the <unk>.
Q4, being a lot higher than normal seasonality. So it was really driven by flex those inquiries.
Thank you.
Thank you Amanda.
Again, ladies and gentlemen, a few of a question of our comment at this time. Please press. The Star then the one key on your Touchtone telephone.
Our next question is a follow up question from Jim Ricchiuti with Needham <unk> company.
Yeah I just wanted to go back to the the all of them business, particularly the the non semi portion of the bids and saying I'm wondering.
Where would you say, we are with with respect to pre pandemic levels of demand in some of the major verticals.
Yeah, Jim It's a good question I think we're still.
We still have the trade friction.
Headwinds.
So that was that was before the pandemic and then the pandemic added even more.
Headwinds as you can say, so I think of I.
I think the pandemic headwinds are kind of gone out of the trade headwinds are still there.
Things hopefully will normalize over time, but that's kind of how we're viewing this file of return to growth organic growth.
Got it and.
On the on the E&S side of the business.
Yeah, clearly a little changed here in the seasonal patterns of demand and I'm wondering how we should think about.
Flex the man the flex.
Flex drilling demand as it relates to the normal seasonality you see in the business and then.
Whats the outlook for this recovery in the M. L. C. C business. What are you hearing from some of the customers. There is that near term outlook is still pretty strong.
Yeah, I mean, the MLC see near turned out all of it will take that one it does still seem to be strong it.
It seems to be strong for has been strong and we believe it will continue to be strong for at least ended the quarter as far as we can see.
You know and I think.
The seasonal pull in if you will I think your question is the flex of pull in or is it just additive.
And from what we can tell now because of the bookings and activities. We see in Q1 and Q2, that's the normal activity, we still see that and so Q4 seems to be an additive.
The quarter to what is normally Q1 Q2.
High quarters for the E&S flex business.
Got it that's that's helpful. Thank you and congrats on the quarter guys.
Yeah, Thanks Jimmi Sue.
Our next question of the follow up question from Tom the sleep with D. A Davidson.
Yeah. So again just a quick clarification did you say you had over 200 patents issued in the in the year.
170 for Tom.
Okay, and then what's the segments of those concentrated.
For a pretty broad.
Say you know we have so many products we.
Have a fair number of pressure.
Products of valve products of Rps products.
In power products, and then you have the entire of.
Array of products and light and motion so optics lasers photonics. So it was really pretty broad based and we have a pretty rigid.
And a good patent processing in terms of evaluating one of the things of whats happening or not.
And that goes across all of the divisions.
<unk> had some patents too, but those are really a little fewer in terms of the number.
Because of those are mostly system integration type of ideas.
Okay, and maybe just on that when you look at your R&D spending for the upcoming year.
Are there particular focus is that you have are you going to be pretty broad based across all your markets spending in R&D as well.
Yeah, no our what we've talked about in the past to Tom we are very.
The targeted in terms of where we will put on the R&D dollars. We always look at areas for growth opportunities for growth and so for US you know.
We will invest in all of the products appropriately, but the areas, where we are investing for future growth.
Our power.
The World class optics to address that and the lasers and the HDI.
I hate to time, if you look at our we're not guiding for the full year, obviously, but.
Internally, we're leaning pretty heavily the R&D spending in 2021 so.
The.
Majority of our spending increases in Opex will be heavily geared towards R&D efforts and we see a lot of opportunity there for sure.
Okay. Thank you for your time.
Thanks, Tom.
And I'm not showing any further questions at this time I would like to turn the call back over to our host for any closing remarks.
Thank you Kevin and thank you all for joining us today and for your interest in MKS Operator, you may close the call.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Yeah.