Q2 2021 MKS Instruments Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the MKS instruments second quarter earnings call at this time all participants.
Listen only mode. After the speaker's presentation and there'll be a question and answer session to ask a question during the session and you're depressed star 1 on your telephone if you require any further assistance. Please press Star then zero I would now like to turn the call over to your host David Richard.
And sorry, good morning, everyone I am David Richard and I'm joined this morning by John Lee, President and Chief Executive Officer, and Seth Bagshaw, Senior Vice President and Chief Financial Officer.
Yesterday after market close we released our financial results for the second quarter of 2021, which are posted to our website.
Site MKS I N S T dot com.
As a reminder, various remarks today about future expectations plans and prospects for MKS comprise forward looking statements and actual results may differ materially as a result of various important factors, including those discussed in yesterday's.
Release, and and the most recent annual report on form 10-K, and any subsequent quarterly reports on form 10-Q.
These statements represent the company's 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 2 day and.
And the company disclaims any obligation to update these statements.
During the call we will be discussing various financial measures unless otherwise noted all income statement related financial measures will be non-GAAP other than revenue. Please refer to our press release for information regarding our non-GAAP financial.
Press results and a reconciliation to our GAAP measures now I'll turn the call over to John.
Thanks, David Good morning, everyone and thank you for joining us today.
We delivered another record quarter with revenue of $750 million and net earnings per diluted share of $3 and <unk>.
Both above the midpoint of our guide.
Financials.
We achieved these results despite facing increasing supply chain constraints of certain components I.
I have previously highlighted the strength of our world class operations team and our commitment to our customers and the second quarter was yet. Another example of this.
We're also very pleased with our gross margin and operating margin.
Pension in the quarter, resulting in an 86% year over year increase and net earnings per share.
And in fact to give a sense of how MKS has transformed in the past 5 years, our net earnings and the second quarter was higher than what we delivered for the full year in 2016.
Sales to our semiconductor market grew 5%.
Sent sequentially to a new record and as we benefited from broad based demand across our vacuum and photonics portfolios.
Our RF power solutions delivered another record quarter.
As demand for our differentiated solutions have high aspect ratio etch applications continues to grow.
We.
We believe every single leading edge 3 D NAND application and the world today is enabled by our RF power solutions.
We continue to invest and are our power portfolio to help our customers and execute on their technology Road maps.
Excluding RF power the combined revenue from the remainder of.
Q and analysis Division also reached another record, including records and valves and analytical control solutions and strong year over year growth and our plasma and reactive gas business and.
In fact, we secured multiple large orders for our dissolved ozone and dissolved ammonia systems to support 7.5.
5 and 3 nanometer foundry expansion plans.
And this is yet another example of the differentiation of our surround the chamber portfolio, which will become increasingly important as the industry needs to solve for increasing complexity and smaller geometries.
The investments, we have made and our world class optics initiative our.
<unk> as we secured 10 design wins and the second quarter alone 8 of which were semiconductor applications.
Specifically, we are seeing increased interest and shorter wavelength applications and the number of <unk> design wins and the quarter.
We continue to leverage our optical expertise and state of the art manufacturing and assembly.
And capabilities to increase share of wallet with key Oems.
But our photonics opportunity and semi extends beyond just optics.
We secured a notable design wins for our new picosecond UV laser solution for backend semiconductor application and.
And received a large gradings order for lithography application.
This is yet another example of the breadth and depth of our critical subsystems portfolio and a wide array of advance sensors semiconductor applications we serve.
As we look into the third quarter demand and our semiconductor market remains strong.
However, due to growing supply constraints of certain components, we expect.
And what type of revenue to be consistent to slightly up from second quarter levels, including revenue from photon control, which we acquired earlier this month.
Barring these constraints, we would've as expected revenue from the semiconductor market to be up more significantly in the third quarter.
Revenue from our advanced markets.
<unk> accelerated and the second quarter growing 13% from the prior quarter and more than 40% year over year the.
The strong results were driven by demand from advanced electronics manufacturing applications as well as a pickup and demand from a variety of industrial applications.
We saw strong adoption of our leading edge <unk>.
Expect some flex PCB via drilling solutions as customers continue to meet capacity and technology transition demands associated with new <unk> smartphone designs.
We also secured our first multi unit capstone and order and Korea with an initial focus on standard PCB production, but with the possibility to address more advanced.
Applications.
We are pleased with the progress of our HDI solutions acceptance and the market and.
As you may have seen from and announcement last week, we received our first HDI order from TTM technologies, and major technology leader and the HDI PCB manufacturing market for their facility in Guangzhou China.
Stone, we are excited to support TTM and their manufacturing needs and are focused on driving continued adoption with our differentiated geode HDI drilling solution.
We are gaining traction with our picosecond UV laser platform and and the second quarter, we commenced volume shipments for a meaningful advance electronics design win that we previously.
China has announced.
And we also secured 3 new design wins in the quarter.
Moving to the third quarter, we expect revenue from our advanced markets to decline sequentially, primarily due to normal seasonality and our flex PCB via drilling business.
Even with this sequential decline we expect revenue.
From advanced markets to grow considerably on a year over year basis.
Before I turn the call over to Seth I want to share a few thoughts on the closing of the photon control acquisition.
And the announcement that we entered into an agreement to acquire at a tech limited.
We are very excited to welcome the photon control team to MKS total.
Obviously and brings to MKS and rich history of innovation and the semiconductor industry.
This flagship fiber optic temperature sensing solutions fit right into our surround the chamber portfolio and enable key trends such as the growing complexity and edge processing.
And we believe we can leverage our broad customer relationships to drive cross selling opportunities.
And controls for photon controls portfolio.
From a financial perspective, the benefits are clear the gross margin profile is attractive and the acquisition was immediately accretive to earnings per share.
We have been and will continue to be a key enabler semiconductor fabrication, which has been the key driver and miniaturization and complexity.
Opportunity for the past 60 years.
We believe the next 1 tier to address these trends is optimizing the PCB interconnect, which connects chips sensors and devices.
The interconnect is critical to enabling advanced electronics designs and that is exactly what we are addressing with our agreement to acquire at a tech.
And the tech will bring leading process chemistry and equipment expertise to MKS, which will build on our leading via drilling expertise. So we can optimize the VF formation workflow to solve challenges for next generation architectures.
We also see attractive cross selling opportunities given our complementary strengths as AMETEK.
Next city and benefit from MKS, his expertise and leadership and flex PCB manufacturing and MKS could benefit from Ametek's leadership and HDI PCB manufacturing.
This combination should give a strong competitive differentiation.
And to grow with an estimated $4 billion PCB laser drilling.
Aerotech and chemical processing Sam.
<unk> also brings a robust gross margin profile and an attractive recurring revenue stream to MKS, where we anticipate about 40% of the combined pro forma company revenue would be recurring in nature and.
In addition, we expect earnings per share accretion and the first year.
<unk> and strong pro forma cash generation, which gives us the flexibility we like when looking at deleveraging post deal.
In summary, these acquisition position MKS to become a driving force for miniaturization and complexity and semiconductor and advanced electronics manufacturing and we're excited.
Drilling opportunities that lie ahead.
With that I'd like to turn the call over to Seth.
Thank you John I'll cover our second quarter results and provide additional detail on guidance for the third quarter, which will include a partial quarter results for our recently closed acquisition and photon and control.
Sales for the second quarter.
About the occurred $750 million up 8.
<unk> sequentially and up 38% year over year.
Our record performance reflects another quarter of robust semiconductor demand as.
As well as a strong acceleration and our advanced markets.
Sales to semiconductor market set.
Set yet another record at $431 million up 5% sequentially and up 34% year over year, reflecting wide ranging demand across memory foundry and logic applications.
Our broad based product portfolio is leveraged to all of these applications.
While growing supply.
Constraints of certain components impacted our second quarter results, we were very pleased.
With how well our global operations team has responded to the unprecedented effect of the global pandemic.
Do you have a perspective, how our team has executed since the start of COVID-19 disruptions, we've grown our vacuum analysis.
<unk> revenue by 75 per cent compared to pre COVID-19 levels in the fourth quarter of 2019.
Yeah.
Not only does this reflect a world class operational execution, but also our flexible and asset light manufacturing model.
Complementing our strong vacuum analysis results we also.
Applied record revenue and our light motion divisions sales to semiconductor market as we are gaining traction with our photonics solutions for lithography metrology and inspection applications.
As John highlighted earlier and target investments, we're making and a world class Opex initiatives are yielding results and will continue to lab.
To address scale and technical expertise to drive additional design wins with key customers.
Sales for advanced markets accelerated and the second quarter setting a record at $319 million up 13% sequentially and up 43% year over year.
And by strong demand and advanced electronics.
<unk> applications in particular for flex PCB via drilling systems.
We're very pleased with performance of our equipment solutions division with revenue of almost $100 million and second quarter.
And is inclusive of the revenue headwind from our discontinuation of.
Low margin and semiconductor market products that occurred.
Late last year.
In fact, the disciplined returns based approach to our portfolio combined with strong revenue and favorable mix has led to record equipment solutions gross margin of over 53%.
For the second quarter, the revenue split between our semiconductor and advanced markets was <unk> 57.
7% and 43% respectively.
Second quarter gross margin was 47, 4%.
Up 100 basis points sequentially, and up 210 basis points year over year.
This strong performance was due to higher volumes product mix and effective cost control.
Second quarter operating expenses were $147 million up $4 million sequentially primarily.
Primarily due to higher R&D project costs and variable compensation due to our strong financial results.
Second quarter operating margin was 27, 7%.
Up wondered and 90.
Basis points sequentially.
And up 610 basis points year over year, which reflects the strong operating leverage and our financial model.
Adjusted EBITDA and the quarter was a record $229 million.
Resulting adjusted EBITDA margin of over 30%.
Net interest expense and the second quarter was $6 million and our tax rate was approximately 17%.
Net earnings and the second quarter were a record $168 million and a record $3 and <unk> <unk> per diluted share.
On a year over year basis, our EPS.
EPS increased 86%.
More than twice our revenue growth rate exceeding our long term target operating model that we announced at our analyst day.
Exiting the second quarter maintain a strong balance sheet liquidity position with.
With cash and short term investments over $1 billion.
And $100 million increments.
And capacity on an asset based line of credit.
Subject to certain borrowing base requirements.
Our term loan principal balance was $829 million in the second quarter.
We exited the quarter with $210 million net cash balance.
Oh, but 1 and $30 million sequentially.
Borrowings under the working capital days sales outstanding was 52 days at the end of the second quarter.
Compared to 55 days and of the first quarter and.
And inventory turns were 3 times and the second quarter compared to 2.9 times in the first quarter.
We remain focused on improving our cash conversion cycle and second quarter operate.
Cash flow was a record $165 million up 19% year over year increase.
Free cash flow and the second quarter was also a record $149 million, a 26% year over year increase.
We increased our dividend and the second quarter by 10%.
And we had a dividend payment of $12 million or 22 per share.
I'll now turn to our third quarter outlook.
Based upon current business levels, we estimate third quarter revenue of $720 million, plus or minus $30 million.
It's worth noting a few items that are in <unk>.
Passing our third quarter outlook.
First due to typical seasonality when the flex PCB market.
Our advanced markets revenue is expected to decline sequentially.
However, we expect revenue from our advanced markets to grow considerably on a year over year basis.
Second increasing supply constrain.
And certain components and expect to be a headwind in the third quarter.
And the impact of these component constraints and given current business levels we.
As expected our overall revenue to grow sequentially.
Based on anticipated product mix and revenue levels, we estimate third quarter gross margin.
A 47% plus or -1 percentage point and.
And operating expenses of $149 million, plus or minus $4 million.
For the third quarter net <unk> expense expected to be approximately $6 million.
And our tax rate expected to be approximately 17%.
<unk> given these assumptions, we expect third quarter net earnings of $2.74 per diluted share plus or -26.
But now I'll turn the call back to the operator for Q&A.
Hello, Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the 1 key on your Touchtone telephone.
If your question has been answered or you were seeing with yourself and the queue. Please press the pound key.
Our first question comes from Sidney Ho with Deutsche Bank.
Great. Thanks for taking my questions.
A few questions on the supply constraint side can you quantify maybe the revenue impact and second quarter.
And how does that compare to your assumption in your second quarter guidance and for the third quarter guidance. The revenue impact hit both semi fund advanced market or it just sounds like it's just Senate and is there any margin impact and we should be thinking about that.
Part of this and supply constraints and lastly, do you have a guess as to when.
When the supply constraints.
And going away.
Yes, and it's John welcome back to coverage of Us there.
4 questions there so I'll try to remember every 1 of them.
I think the easiest 1 to answer first is Q3 constraints, whether that was mostly in our semi market versus advanced.
Markets, we see mostly and SME market. So it's pretty clear just because of the high volumes of our products go into the semi market. So that's a fairly easy 1.
Impact to Q2, there were some impacts.
And in terms of the overall revenue, but we believe and working very closely with our customers that we were able to.
And it allowed them to ship what they needed to their customers I think the the impact in Q3 is a little worse.
Planning on that we're being prudent and our guidance.
But as you know these things can change quickly and materials comes in.
And you could have a fair amount of upside to the number.
He guided but wanted to be prudent.
And Theres electronic components was also the outbreak of Covid again, and certain regions that are quite important to semiconductor supply chain as you can imagine and southeast Asia. So we're trying to be prudent with our guidance there.
And then I think your last point was do we have a view of when this might recover.
<unk>.
And we really don't Sydney, I think everybody and our supply chain is working very hard to try to recover there's a lot of demand.
<unk> heard it from our customers and other people and the supply chain. This is really a robust environment for semi.
So everybody is motivated to fix these things and so.
We look forward to working with our customers to continue to.
Make sure that they can meet their customers' demands as well.
Yes, and your question on the gross margin.
Yeah, a question going forward. So as you know we've got a pretty robust we call a profit and cash recovery program. We had in place for a number of years. So.
Our DNA is always a kind of work on our cost structure.
Sure and be more effective going forward, we are definitely seeing some.
Surcharges on some components and.
And the semi side of our house, the vacuum and analysis Division.
But we're working hard to kind of offset that elsewhere and I think you'll see our Q3 guidance as voice Empress and plus or minus a point is pretty much in line with our.
Our operating model those volumes, so what kind of work and pretty hard to kind of offset any additional headwinds, we see and on the cost side I would just again, what we've done for a number of years, but there is some definitely headwinds there were sort of managing through.
Yes.
Okay, that's great.
And maybe a follow up question is in terms of visibility how.
How would you characterize your visibility beyond Q3, especially on the semi side I would assume your backlog and its kind of building and getting your it.
Supply constraints and.
Or the lead times are stretching but curious how some of these revenue that you missed in Q3, and maybe Q2 as well do they just go away under the aegis.
Go into backlog and.
Benefits I believe beyond the current quarter.
Yes.
We don't guide beyond the next this quarter, but I would say we are in agreement with the rest of the industry that the outlook over the next.
Several quarters is very robust so if anything.
She is out to the right I think it just gets made up and the following quarter the book.
Bookings, we usually don't guide that but there's certainly.
Very very strong so we're working hard to try to meet that demand.
Okay, great. Thanks.
Thanks Sidney.
Our next question comes from Joe <unk> with.
Wells Fargo.
Yeah. Thanks for taking my question just another 1 on the semi side I'm just curious how do we think about you know if you're unable to ship a specific product and 1 of your customers their ability to insert you know maybe 1 of your competitors' products into that place to get there.
Anything per door is that.
Comment or should we think about those as being a little bit more sticky and that if.
And you can't ship, then that kind of can't ship either.
Yeah. That's a good question Joe I think.
Of the kind of critical subsystems that we'd been designed in with our customers.
And they're very important to how their tools work.
And so I think it's very very difficult for folks to just try to change that on the fly.
So it is a very sticky business. This is the legacy of copy exact and the semi industry.
And making a ship is 3000 and steps nothing can change.
2 out of 3000 and steps up the yield.
So I think it's a very sticky business. So we're really not concerned about that Joe.
Perfect and then just as a follow up.
Another quarter of impressive optics wins, you announced can you just remind us how big is that business and and how do we think about the growth.
And because all of that looking for especially I think you started to talk a little bit more maybe about some wins and <unk>.
Yeah in general.
Semi part of that business, which is where a lot of other world class optics are focused on and that's well over $100 million to some of the key customers there and we are.
Haven't really.
Profile detail exactly how much it is but it is growing and we're really happy with these design wins as you know these design wins and these kinds of tools are very very sticky, even stickier than I think and the <unk>.
Area.
These are very very specific optics and optical sub assemblies that are into intimately designed.
Given that the tool.
Thanks.
Thanks, Joe.
Yeah.
Our next question comes from Patrick Ho with Stifel.
Thank you very much and and congrats on the nice quarter, John maybe just following up on some of the supply chain questions and I know it.
Moving on.
And there are a lot of moving parts in that dynamic, but can you qualitatively how much of it is.
Hum.
Coming from the inability to get the required volumes given the demand continues to be very strong actually is increasing versus just the inability.
And to get certain components, and and what I mean by that and it's like you're just not able to get certain parts at this time.
How much of it is 1 or the other or are there a lot of different factors involved.
Yeah. That's a great question are we can add a little more color for sure.
And I think and almost all cash.
Cases, it's about quantity so.
And they're all entire supply chain for electronic components is constrained and so there's a lot of allocation going on and as Seth mentioned price increases that were working through but.
But it's really about quantity Patrick not that you can't get any of it.
Great that's helpful.
My follow up question in terms of the advanced markets again, a lot of nice wins, you've talked about on the PCB side of things and the ESI business and finally.
Starting to show the value.
When you acquired and can you talk a little bit about the light and motion side of that business and.
And then what type of recovery Youre seeing there are we starting to get the economic recovery that drive some of those businesses or is that something that we should be looking at more for 2020.2.
Yeah, No we're seeing it right now and we saw I think we started seeing the recovery and the light and motion businesses.
As in Q4.
We talked about the <unk>.
Recovery in Q1, and it continues in Q2.
We see it continuing to be the steady recovery and all of their markets.
And certainly this quarter, we expect that as well so we're really happy that those markets and light and motion and is leveraged.
<unk> 2 <unk>.
Have become have come back and are growing nicely now.
Great. Thank you very much.
Thanks, Patrick.
Our next question comes from Christopher and car with Cowen and company.
Yeah, Hi, Thanks for taking my question and I actually have 3 of them first 1 genre set.
Can.
Can you quantify what your September quarter revenue guidance would have been if you had no supply constraints.
Yeah sure I think you're going to ask all 3 and ones that I have to remember it but.
I think we.
We maintain the guidance range to be a little higher than normal, but it's the same as.
2 just because of the uncertainty so and we're guiding 720, and we're trying to be prudent about it and we expanded the range to plus or -30.
So that kind of gives you a sense I think of the potential upside if material constraints get relief throughout the quarter.
Got it got it John and then just to follow.
And as Q1 that you.
You know all day.
This constraint that you are C D and more just like a transient issue that should normalize soon and the reason I'm asking is it is to look at 1 of your large customers, who you know who guided last evening.
And good guidance and not as bad as yours.
Paulo and.
And just wondering if the pulling and from inventory or is this just a temporary thing that it should normalize and a couple of quarters on the constraints and then I had 1 final follow up.
Yeah.
Yeah, No I think <unk>.
If you Peel back our guidance in this coming quarter.
And so I remember E&S has their normal cyclicality and annual cyclicality. So as you saw E&S was $100 million and revenue and 53% gross margin in Q2.
In Q3, because of the seasonality that could be on the order of $50 million less and so if you take that.
And you do the math I think we're fairly consistent with other some of our customers and the semi space.
Got it got it and then just a final follow up.
How much and your September revenue guidance is photon control.
And we're not guiding by by subgroups, but.
Prior to that photo and control was kind of and a run rate of between 13 to 15 million net revenue quarter.
And these are record quarters for photon control and so as you know they are levered to semi and so those are the kind of ranges of numbers for photon control.
Got it thank you very.
Yeah.
Thanks, Chris.
Our next question comes from Scott Graham with Rosenblatt Securities.
Yes, Hey, good morning, John Seth tape and how are you nice print.
Thanks Scott.
Thanks.
I wanted to understand a little bit more on the supply chain.
Good day.
<unk> share, but can the fourth quarter.
This quarter GAAP could be larger than the third quarter.
Well the bookings and the demand could lead to that Scott I would just say that I think and it really depends on how the supply.
And my dreams get relieved how fast the industry catches up.
But the demand is there for that kind of a scenario and obviously, we're not guiding out that far but the demand is there for that kind of scenario Scott I'd just leave it at that.
Mhm. Thank you and then you know.
Much like Christmas question, just now.
And now at least I think so you know the demand part of the equation remains quite good yet here you are with essentially be.
And the Ibms and people sort of at the top of the rock.
Giving our next quarter guidance that just seems to be a little bit better.
And those of us here.
And the and chain so to speak and I guess, what I'm wondering is you know obviously, you're always putting your best foot forward everyone's always putting their best foot forward for their customers and we will take on some extra expenses to that and and and all that but at what point do you think.
That you know.
The demand side of the equation.
And maybe starts to run off a little bit and what I mean is.
Normally when you have demand that is outstripping supply that could easily elongated cycle and I'm just wondering if there's a situation where your customers are.
Maybe talking about a little bit concerned about.
Falloff in demand.
Which would actually not elongate the cycle and the demand might be lost.
Are you hearing anything like that.
Yes.
As far as we can see right now Scott, we don't see any of that.
Our customers and their customers I think are continuing to Paul because they see demand.
And we always pivots and our long term growth of SME and I think you would agree it's a great Mark and the day in and there is a long term growth for the semiconductor industry Capex intensity.
Ticking up.
Within historic norms, I think but it's kind of on the high end of it. So I think long term, we're really pleased to be.
And a key supplier and the <unk> supply chain.
And so it's probably best to ask the chip guys, whether they see a demand drop but from what I've read.
To your point, they're all up into the right.
That's fair. Thank you I just wanted to maybe sneak 1 more and years. So on you know on it and are tech. The the acquisition, obviously very exciting time sure inside the company.
And what's always crucial and these things just like the first hundred days and I'm just.
Wondering if you you know I'm sure that you've already mapped a lot of this out what.
The initial points of focus with that acquisition and with it.
<unk> closure and the fourth quarter.
Oh, Yes got you know and.
We have to be a little careful before close in terms of any commentary but.
<unk> is a well run company.
And so our first mantra is.
What are your and arm.
Theyre doing well other markets are growing and then you know obviously, we've talked a little bit about the potential revenue synergies of the combination and we talked a little bit about and the script, we talked about it and the announcement of.
For the <unk> acquisition and.
I think if you kind of listen to you.
Do you know some large.
Chip companies presentation. This week, there was a lot of discussion about advanced packaging.
The ability to connect these really amazingly powerful chips.
2 other chips, so that you don't have limitations and communication and speed.
And this is now being enabled by the PCB and interconnect, we caught PCB and I think a lot of people think that's the old stuff. That's really high density very dense PCB and this is the kind of.
Technologies that large chip companies are investing and and that is exactly the kind of things at a tech as.
2 in addition to the entire rest of the PCB.
Supply chain. So we're really excited about closing this.
Acquisition, it's a great team we've met many of them now and then.
We look forward to the integration.
Thank you John.
Thanks Scott.
Our next question comes from <unk> Misra with burden Berg.
Thank you and good morning, and can you provide some more color on your RF power business this quarter.
How much more sand stop and and what sort of supply chain issues, you're experiencing and that business.
Yeah.
Leverage our power with another record.
We don't break it out specifically as you know but.
And Thats.
On the growth and market share gain of 10 points.
10%, sorry, 1000 basis points last year as 2020. So we're really excited about this I think you heard and some of our customers talk about.
Okay.
How V NAND vertical NAND and <unk> NAND scaling continues.
And that's how and that's enabled by these really high aspect ratio etch, which is enabled by our RF power.
We think this continues.
And this trend towards vertical a day is not.
Just a 3 D NAND is actually DRAM.
We're talking people are working on 3 D DRAM.
So when that takes off I think youll see another step up and the need for vertical <unk>.
<unk> tools.
And any supply chain issues that you.
And that business this quarter.
No not anymore, and then all the other and.
Instruments.
And products critical subsystems that we have any product that has electronic components. We will have that constraint I think our competitors are seeing that or.
The rest of the industry is seeing that so not anything more than that.
And just to electronic components for everything.
Got it and then maybe if you could maybe talk about the your laser business within the light and motion segment in terms of what are you seeing there and perhaps any and.
Color on the on.
The order book, and which end market share driving demand growth.
Yeah.
And I talked a little about light and motion group growing.
Sequentially quarter on quarter on quarter.
Part of that is lasers for sure and that's driven by just the several industrial applications, but also solar and then advanced electronics manufacturing using.
Lasers.
And then more importantly, we're seeing the first volume shipments that we have and our picosecond.
UV laser design.
And we've talked about a lot of design wins over the last 18 months and <unk>.
Some of those are now turning into volume orders. So that's another growth area, where we have you know we're coming from very low share.
And usually and we're starting to see that momentum and grow as well for lasers.
Great. Thanks, and perhaps the last 1 from me on your acquisition after tax and and.
In terms of clothing, and any progress on that process since the announcement and what's your current expectation as to when and when do you think you can close the transaction. Thank you.
Yeah and parents nothing changed.
And as and we said late 2021.
Give or take and probably a lot and a lot of it depends obviously on the HSR filings and approvals from the various countries. So nothing has changed.
Understood. Thanks, guys.
Thanks for your time.
Next question comes from Mark Miller with the benchmark company.
Perhaps on another record quarter, and just wanted and what was it.
Wanted to talk about and some of the DRAM manufacturers are increasing their forecast for capital spending because of the transition that you be are you starting to see that or is that yet to come.
I don't think we could point to specific to EV, causing any kind of uptick and the demand market I think it's really today really driven by just the need for more chips and more applications and all the things that we've all talked about.
And so certainly <unk> is a great driver that is for the future.
And more and more EV adoption is occurring.
And in the past and <unk> and enabler for more dep etch, because youre actually able to make the smaller transistors and.
And therefore, our shrink everything else and so more multiple patterning and has to occur et cetera, and then.
<unk> is when I.
And earlier about 3.
<unk> Ah structures were you trying to get around limitations on lithography.
Vertical man being 1 of the the poster child and the last couple of years, but we think <unk> DRAM eventually will also be a.
A driver for that as well so he's a big driver for shrinkage logic.
Now DRAM.
But there is also the shift toward vertical structures as well.
You've tried it up power approximately $2 million alone on Opex, even though sales would be somewhat lower does that come and Maureen and R&D or SG&A are split between them.
Yeah, It's Seth and.
So it's really more variable compensation and move around a little bit I don't think there's really much fundamental changes and our cost structure and it can bounce around with it by quarter by quarter, but it's.
Probably variable comp is probably the bigger piece of and the way that rolls out.
The annual competition and kind of.
And is based on a year to day type accrual day.
Just approach.
Probably the bigger driver and that is really no major changes we are adding a few people, obviously things and some investments and R&D and when would be a little more lenient to the R&D side I would say back half of the year.
Thank you yeah.
Yeah.
And I'm not showing any further questions at this time electro and the call back to David or is it pretty closely for months.
And.
Thank you Kevin and thank you all for joining us today and free interest and MKS operator, you may close the call.
Ladies and gentlemen, and so that concludes today's presentation. You may now disconnect and have a wonderful day.
And.