Q4 2022 Entegris Inc Earnings Call
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Speaker 2: Good day everyone and welcome to the Integrus Q4 2022 earnings release call. Today's call is being recorded and at this time for opening remarks and introductions, I would like to turn the call over to Bill Seymour in Integrus' VP of Investor Relations. Please go ahead, sir. Good morning everyone. Earlier today we...
Speaker 3: from those projected in the forward looking statements.
Speaker 3: Additional information regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we have filed with the SEC.
Speaker 3: Please refer to the information on the disclaimer slide in the presentation.
Speaker 3: On this call, we will also refer to non-gaft financial measures as defined by the SEC and regulation G. You can find a reconciliation table in today's news release as well as on our IR page of our website at integrity.com.
Speaker 3: To help in your modeling, we have provided in our earnings slides a pro forma P&L for all the quarters and full year of 2022.
Speaker 3: On the call today, our return to the law, our CEO , and Greg Graves, our CFO , was that I plan to call over to retrust.
Speaker 3: Thank you Bill. Good morning, Paul. I would start by saying that our results in the fourth quarter were of solid, especially in the nights of the recent decline in the semi-market.
Speaker 3: The quarter on the pro forma basis, fits were within our guidance, up 1% year on year, and down 5% eventually.
Speaker 3: On a recorded basis, we're up to 49% here on here.
Speaker 3: We did our margins with 28% in the quarter, and on Gap BTS was 83%.
Speaker 3: Looking at the four years 2022 performance sales of 3.9 billion dollars were up 13% and EBGA exceeded 29% of sales.
Speaker 4: We estimate our sales growth with approximately 800 basis points above the market growth for the year on a pro forma basis.
Speaker 4: This above market growth was driven in large part by a strong position at the leading edge technology node led by solutions like liquid filtration, selective edge, gas purification systems and advanced deposition materials. Solutions which are of growing importance and are of great importance to the industry.
Speaker 4: to a custom technology roadmap. Other highlights of 2022 included the announcement of the strategic collaboration with Land Research to develop drive-out-to-resist for EUV resourrophy to be used in the introduction of next-generation logic and data and semiconductor.
Speaker 4: The other was a very good progress made in the construction of new manufacturing facilities in Taiwan, which is expected to start initial production by the end of the third quarter of this year.
Speaker 4: And in December we announced plans to build a new manufacturing center in Colorado Springs which is targeted to begin initial commercial operations in the second half of 2024.
Speaker 4: Moving on to an update on the scene to integration.
Speaker 4: We've been making excellent progress on many critical forms.
Speaker 4: We are on track to deliver the 75 million runways custody bre loot time ???????
Speaker 4: The major milestone for this will be the migration to come and Europe in that form, which has to be completed this summer.
Speaker 4: I am also pleased to report that the first of our EOP conversion was successfully completed earlier this month.
Speaker 4: And so the revenue synergy, we have a base-cated team in place focused on driving plans for the au Paris disagrees.
Speaker 4: Customers see the value in our unique capabilities in and around the CMP module, which will be translated into improved process performance.
Speaker 4: and faster time to solutions for these customers, and ultimately higher share for integrity.
Speaker 4: Next, on the planned divestitures, 5 to 5 cm per portfolio.
Speaker 4: of the disseminated claims transaction in the 6 JSCO database stand.
Speaker 4: Given the current regulatory environment, we were concerned about the protected regulatory process and uncertainty around closing the deal.
Speaker 4: And you also saw, if you look at the growth, the announcement of the sale of QED technology.
Speaker 4: QED's annual revenue is around $35 million, the QED's out of $13 million.
Speaker 4: And the purchase price is approximately $135 million.
Speaker 4: This transaction is expected to close this quarter.
Speaker 4: Looking ahead to 2023.
Speaker 4: Frankly, forecasting the industry this year is challenging.
Speaker 4: There still is a lot of uncertainty about how this studio will play out.
Speaker 4: particularly regarding the shape and magnitude of the downturn in the semiconductor industry.
Speaker 4: So, for the full year 2023, relying largely on discussions with our customers and using serfide estimates.
Speaker 4: We expect the market based on our combination of our units and capex mix
Speaker 4: to be down at approximately 13%.
Speaker 4: While visibility is limited, we currently expect that the industry will bottom in the second quarter of the year.
Speaker 4: But I think about 2023.
Speaker 4: There are three factors that we believe we play in our favor. First, as it relates to the industry, we are much more exposed to logic than memory.
Speaker 4: the system of the 20% of our sales, then the links to CalPACs.
Speaker 4: The second important of that is for path construction, which is currently looking more resilient compared to WFP. Third, the new logic and memory, no transitions appear to be largely on track for this year.
Speaker 4: Given our some position and wins in these notes, we expect to outperform the market on a performer basis by approximately five points, which is at the high end of the three to six points, outperforming targets we discussed in our recent energy set.
Speaker 4: Finally, as you recall, our fourth quarter guidance included a $40 to $50 million impact from the US government's new export controls in China.
Speaker 4: The actual impact in the fourth quarter was closer to $40 million.
Speaker 4: In respect that our sales will continue to be impacted in 2023 by these restrictions, but to a significant lesser degree at approximately 20 million per quarter.
Speaker 4: The impact of these retrictions is already factored in two hours' depictions for 2023.
Speaker 4: Putting it all together, we expect our sales in 2023 to be down percentage-wide in a high single digit on a pro forma basis.
Speaker 4: Rapping our outlook for 2023, we expect it to be approximately 27 to 28 percent of revenue.
Speaker 4: Given the challenging industry backdrop, you can expect us to manage our business dynamically this year keeping a close eye on cars.
Speaker 4: As an organization, we will be giving priority to cash flow and debt repayment in 2023. In fact, we have made improving inventory levels a compensable target for the entire company this year.
Speaker 4: While this will be a challenging year for the industry,
Speaker 4: The poverty specular growth drivers of our business remain intact. The semiconductor industry is poorly suited for long term growth, on the way to doubling in size to $1 trillion by 2030.
Speaker 4: In addition, the space of no transitions for both logic and memory continues to be strong and the device of textures are becoming much more complex.
Speaker 4: And with the acquisition of CMC, Integrasys breadth of capability in material science and contamination control will enable us to offer unique solutions to help our customers improve device performance and shorten their time to year.
Speaker 4: These trends and our increasingly efficient critical solutions are translating into rapidly expanding content away through and market share growth for integrity.
Speaker 4: In addition, with approximately 80% of our revenue now unidriven, we expect our platform will prove to be resilient relative to other industry participants.
Speaker 4: As we close what was challenging yet the gratifying year, I want to take a moment to thank our customers for the trust and confidence they played in the integrity. And I would like also to thank the integrity teams around the world for the incredible commitment and grit.
Speaker 4: delivering solid performance while navigating a dynamic industry environment, complex supply chain challenges, and the fast-paced integration of CNC. Before I hand over to Greg, I want to congratulate him on his upcoming retirement and thank him.
Speaker 4: for his immense contributions to integrity over the last two decades. He had 17 years of CFO Greg as being the staunch advocate for shareholders and a great partner to me.
Speaker 4: as we have grown this company into what it is today. So now let me turn the course to gray, right?
Speaker 5: Good morning everyone and thank you Bertrand for the nice comments. It has been an absolute privilege to lead the finance and IT organizations all these years and it has been gratifying to partner with you. We are a good team. I look forward to working with our team to achieve a smooth transition after my success.
Speaker 5: impacted revenue by 38 million year-over-year on a pro forma basis and 6% sequentially.
Speaker 5: Gap and non-gap gross margin was 42.8% in Q4 slightly above our guidance.
Speaker 5: We expect gross margin to be approximately 43% both on a gap and non-gap basis in Q1.
Speaker 5: Gap operating expenses were 261 million in Q4. This included 76 million of non-gap items, 53 million of amortization of intangible assets, and 22 million of integration and other costs.
Speaker 5: NON-GAP operating expenses in Q4 were 185 million.
Speaker 5: The higher than expected op-ax was driven by higher ERD spending.
Speaker 5: We expect gap operating expenses to be approximately $285 to $290 million in Q1 and non-gap operating expenses to be approximately $200 to $205 million. The sequential increase in non-gap OPEX from Q4 to Q1 is $5.
Speaker 5: is driven by a $15 million increase in non-cash equity compensation expense, resulting from the alignment of CMCs and integruses equity benefit plans. We expect Q1 op-ex to be the high water mark for the year.
Speaker 5: and expect OPEX to be down $15 to $18 million sequentially in Q2 as non-cash equity compensation returns to more normalized quarterly levels.
Speaker 5: Q4 gap operating income was 144 million.
Speaker 5: Non-GAP operating income was 219 million or 23% of revenue.
Speaker 5: Adjusted EBITDA was 261 million or 28% of revenue. Looking below the line, the gap and non-gap tax rate was approximately 12% in Q4. The low rate reflected several favorable discrete items. The low rate reflected several favorable discrete items.
Speaker 5: Q4 gap diluted EPS was 38 cents per share. Non-GAPEPS was 83 cents per share.
Speaker 5: Turning to our performance by division. For ease of analysis, the year-on-year comparison ZIM referencing here are on a pro-forma basis for the SCEM and APS divisions.
Speaker 5: Q4 sales of $285 million for MC were a record and were up 10% from last year and up 1% sequentially. Growth year over year was strong in gas purification and liquid filtration. Liquid operating margin for MC was approximately 38% for the quarter.
Speaker 5: up year on year and up slightly sequentially. The margin increase was driven primarily by higher volumes and solid execution offset in part by higher ER and D investment.
Speaker 5: Two four sales of 214 million for AMH were up 8% versus last year and up 2% Fourthfully on minutes, on January 21, as the
Speaker 5: Year-on-year sales growth was strongest in wafer and fluid handling and liquid packaging solutions.
Speaker 5: Adjusted operating margin for AMH was 22% down your over-year and up sequentially.
Speaker 5: The modest margin decline year on year was driven by additional ERD investment.
Speaker 5: The sequential margin increase was primarily the result of certain inventory charges in Q3, not recurring and favorable product mix.
Speaker 5: Q4 sales of 204 million for SCEM were down 1% year over year and down 9% sequentially.
Speaker 5: The sales decline was seen across most product lines and was primarily driven by the softening in the semi-market and the impact from the export restrictions in China. Adjusted operating margin for SCEM was 7% for the quarter, down significantly both year on year and sequentially.
Speaker 5: The margin decline was driven by greater investment in ER&D, lower volumes, and unfavorable max.
Speaker 5: We expect better execution and improved operating margins for SCEM going forward. Q4 sales of $254 million for APS were down 11% year over year and down 14% sequentially.
Speaker 5: The sales decline in APS was also driven by the impact of the softening semi-market. Adjusted operating margin for APS was approximately 22% for the quarter. The sales decline in APS was approximately 22% for the quarter.
Speaker 5: Down year on year and sequentially, the margin decline was primarily driven by lower volumes and unfavorable product mix.
Speaker 5: Moving on to cash flow and the balance sheet. Fourth quarter cash flow from operations was $32 million and was $352 million for the full year on an S-reported basis.
Speaker 5: CapEx for the quarter was 147 million and 466 million on an as reported basis for the full year.
Speaker 5: We expect to spend approximately 500 million in total CAPEX in 2023, a significant portion of which will be for our new facility in Taiwan and Colorado Springs.
Speaker 5: We also continue to expect CAPEX will decline to a longer-term run rate of approximately 10% of sales starting in 2024.
Speaker 5: As Bertrand said, we are highly focused on improving our cash flow and especially inventory turns.
Speaker 5: We expect inventory turns to improve to approximately three turns by the end of this year.
Speaker 5: With this improvement in terms, we expect to free up over 100 million in cash this year.
Speaker 5: A bit on our capital structure. At the end of the year, our gross debt was 5.9 billion and our net debt was 5.4 billion.
Speaker 5: This equates to a gross leverage ratio of 4.9 times and net leverage ratio of 4.4 times pro forma for the announced cost energy.
Speaker 5: As a reminder, going forward, after taking into account the heads we put in place, our variable rate debt is expected to be approximately 10% of total debt outstanding.
Speaker 5: The blended interest rate on the dead portfolio is approximately 5.5%.
Speaker 5: As Bertrand said, we are very focused on deliveraging.
Speaker 5: On that note, we expect to steadily lower our leverage toward our target of 3.5 times gross leverage by the end of 2023.
Speaker 5: consistent with what we presented at our analyst day.
Speaker 5: Our liquidity position continues to be solid.
Speaker 5: As of the end of the year, we had over 500 million in cash on hand and over 1.1 billion of total liquidity, including our 575 million undrawn revolving credit facility.
Speaker 5: Before I discuss our Q1 guidance, I would like to reiterate that our business model is very flexible. We will be watching our business trends closely and are prepared to just adjust our cost structure as needed.
Speaker 5: Now for our Q1 Outlook, we expect sales to range from $880 million to $910 million.
Speaker 5: We expect to eBidom margin to be approximately 25 to 26%. We expect GAAP EPS to be 5 to 10 cents per share and non-GAP EPS to be 50 to 55 cents per share.
Speaker 5: A few additional notes on our Q1 and 2023 guidance. As I referenced before, Q1 non-GAP guidance includes a non-cash compensation expense with total of approximately 20 million or 11 cents of EPS, resulting from the alignment of CMC and Integrus equity benefit plans.
Speaker 5: in 20% on a non-GAAP basis for the full year of 2023. On a sequential quarterly basis, the higher tax rate has approximately $5 per share impact on non-GAAP BPS.
Speaker 5: Amortization is expected to be 65 million per quarter, and depreciation is expected to be 40 to 45 million in Q1, increasing to over 55 million in Q4.
Speaker 5: In closing, we are pleased with our execution and our team's relentless focus on our customers, especially giving a challenging industry environment. The team is doing an excellent job driving a fast-paced integration of CMC, and we are well-entragged to deliver on our key milestones.
Speaker 5: We have a strong conviction in the long-term secular growth of our industry and are highly differentiated unit-driven business model. And we are focused on dynamically managing our cost structure while making the investments that are crucial to supporting our customers no transitions in 2023.
Speaker 2: and one on your telephone keep at.
Speaker 2: Pressing star and one will place your line into a queue and we're asking that if you're joining us today on a speakerphone, please return to your handset prior to pressing star and one to be certain that your signal does reach our equipment. Once again ladies and gentlemen, that is star and one if you would like to ask a question.
Speaker 2: We'll hear first from the line of Toshiyahari at Goldman Sachs. Please go ahead. Morning. Thank you for taking the question and big congrats to Greg on an amazing run. I had two questions. First one for for trying was was hoping you could talk a little bit about.
Speaker 6: the overall industry dynamics, how you're thinking about the year. You did give quite a bit of color in your prepared remarks, but you call Q2 as sort of the potential bottom for the industry. I guess as we model your business, should we be thinking your business bottoms in Q2 as well? And more importantly, the recovery into the second half, can you speak to some of the drivers that you're focused on both on the...
Speaker 4: on direct discussions with customers. We expect the blended industry index for us to be down 13%. And behind that number we are assuming an aside down approximately 10 points with Q2 likely to bottom. And remember that about 80% of our business is unit driven.
Speaker 4: So, cat facts, we expect the contraction close to 20 percent for the year.
Speaker 4: And currently expect the second half, lowered and the first half, as our OEM customers will be working through their contact log in the first part of the year. But remember that the capex business only will present approximately 20% of our surveillance ability to fresh air had benefited customers and found a imminent return to data.
Speaker 4: And then finally, maybe a pro comment on the note transitions that we expect in 2023. And that's completely taping on the stamp how we're thinking about the shape of the up for us as you know.
Speaker 4: our customized notad?
Speaker 4: are key factors to ability to achieve top-line outperformance and in the case in particular that 5 points outperformance target that we have. And as of right now, these two traditions appear to be mostly on schedule with a number of very important traditions expected in second half of the year in NAN.
Speaker 4: and largely in particular. So the net of all of this is, you know, we expect
Speaker 4: the failure to be down approximately 8%, and we expect the back half of the year for us to be early bit better than the first half of the year.
Speaker 6: That's great color. Thank you. Thank you for that. And then one for Greg. You talked about gross leverage coming down from 4.9. I think you said 3.5 by the end of 23. It would be really helpful if you can kind of provide a bridge how you guys get there again from 4.9 to 3.5.
Speaker 6: The PIM deal not closing was obviously a disappointment, but what are your thoughts on DRA and QED and anything else that you guys have planned as you look to de-lever the balance sheet? Thank you.
Speaker 5: Hi, Tushya. I'm not going to provide a specific bridge. That continues to be our target. We do continue to look at various asset sales. We continue to look at the cost structure. We'll have some benefit as we move through the year on synergies.
Speaker 5: We expect it will bring working capital down. So, well, 2023 from a performance perspective is not what we've seen in the prior years. You know, as we move forward, we expect the company will come back to be the strong cash generator that it's...
Speaker 5: expect it will bring working capital down. So well 2023 from a performance perspective is not what we've seen in the prior years. You know as we move forward we expect you know the company will come back to be the strong cash generator that it's that it's always been.
Speaker 5: With regard to asset sales, we're quite confident that the QED transaction will close, and we'll continue to review our options with regard to the rest of the portfolio. Understood. Thank you. Our next question will come from Karen DeBruyn. We'll continue to review our options with regard to asset sales. Understood. Thank you. Our next question will come from Karen DeBruyn. We'll continue to review our options with regard to asset sales. Understood.
Speaker 3: they should control it seems like NC still remains pretty resilient and should kind of, you know, I guess be that bright spot as we kind of move through the year. But SCM I think was a little bit weaker than maybe we were expecting on the margin. So if you can just expect, help us bridge, you know, how you're thinking about that improving throughout the year and trending that would be helpful.
Speaker 4: Yes, so she's good to buy STM, so it's amazing.
Speaker 4: we've seen some significant sequential decline. But remember two things. One is that this is the division with the most exposure to memory, and this is also the division with the most exposure to advanced nodes in China. So there was a double negative impact on this business for the last.
Speaker 4: So I think things will stabilize and we expect a number of new products linked to some of the new transitions in the back half of the year to help both in terms of
Speaker 4: growth and in terms of marketing potential for the business. If you think about SCM for 2022, the division actually performed on a fully-off basis.
Speaker 4: the form actually clearly well and very much in line with our expectation.
Speaker 4: And all facing the industry by about six points. And we would expect a similar level of health performance.
Speaker 4: in 2023 as a result of the opportunities that we have in some of the new notes in the back up video.
Speaker 4: On the end, see the right. I think we are seeing a very resilient business.
Speaker 4: We know that purity is increasingly important to our customers, purity in manufacturing processes.
Speaker 4: Translates into re-betonization, translate to faster time to year, and also translates to long-term device reliability. And we have been credible franchise when it comes to advanced certification. So we do believe that this business will prove to be very resilient.
Speaker 4: in 2023 and we're saying that this is probably going to be the best summary division for in? ?? chronic COVID-19 pandemic, looking after whether climate Montenegro is goingnt
Speaker 3: And then maybe just a really quick follow up. I think on the revenue synergy side, you mentioned having the dedicated team in place. It seems like there's more visibility and traction into the potential for those revenue synergies going forward. I'm just curious, are there any kind of preliminary thoughts on things that you've seen based on what that team has already achieved that are giving you?
Speaker 3: optimism towards some of those synergies and back after this year maybe in into 2024. Thank you. Yes, I'll see. The team is very focused on short term cross-fitting opportunities. There's something that we started to aggressively pursue in 2022. This will remain a big area of focus.
Speaker 4: in 2023 as well. The development teams have been in product work in 2022 also trying to optimize the complementary solution sets around the CNT module. I would not expect any new products coming out of those efforts to hit the module.
Speaker 4: solution selling from, you know, film development to pollution solutions all the way to first key empty clean, clean and catchability is in. So I just say that you see the value of offering the eager to.
Speaker 4: engage more fully with us. And frankly, a downtown environment provides a lot of opportunities for us to accelerate these engagements. So we are going to be very focused on those in 2023.
Speaker 4: very well put on to our close to the revenue section, as we said during the annual step.
Speaker 4: We'll take time to unlock those revenue synergies, as we said during the end of the step. Thank you very much.
Speaker 2: Our next question will come from Sydney Ho at Deutsche Bank. Thanks for taking my questions. Greg, congrats on your retirement. It was a very nice working with you.
Speaker 7: So my question is just to follow up to an earlier question on the market outlook. Bertrand, you talked about MSI down about 10%. I'm hoping we can double click on that a little bit. Can you talk about the trends you see between memory versus logic and sound rate? Are you expecting both segments to bottom in the second quarter this year or are they...
Speaker 4: to revenue. We have about a 17-30 ratio between logic and memory. So this is the fact.
Speaker 4: When it comes to exactly when we would see the bottom memory versus the object, I'm not going to answer that question quite yet. Sydney, I think, has said that there's a lot of, I mean, there's a lack of physical energy right now in industry. I think that we are engaged with our customers. We are mostly focused on their ramps for the new nodes.
Speaker 7: Going forward, is the biggest leverage coming from volume? And what kind of incremental growth and operating margin should we be thinking about? I'm just trying to figure out your path to go back to the 46, 47% range that it used to be. Maybe that's not realistic, given the inclusion of the CMP products. Thank you. Yeah, so I'll take that, Sidney. So as it relates to gross margin,
Speaker 5: If you look at Gross Margin over really the last eight quarters, pro-forma basis, it's been right between 42 and 44. I mean, the outlook for Q1 we said slightly higher. When you think about sort of the headwinds and tailwinds.
Speaker 5: The had winds are obviously lower volumes.
Speaker 5: and then we'll be bringing additional assets, particularly the KSP facility online, at some point in the middle of this year.
Speaker 5: And then, you know, the tailwinds continue to be, I mean, our highest, our fastest growing business continues to be our MC business, which also happens to be our most profitable business. When I think about margins generically, when you talk about that, you know, the...
Speaker 5: that 46-ish range. To get back there, short of a very large increase in volumes, it would also... There are a number of things, as you point out, in the CMC portfolio that have relatively low gross margins. I think we've commented, including the PIM business, which is a business that we thought we were gonna dispose of.
Speaker 5: So I would say it's higher volumes, it's improving mix, and that it's potential adjustments to the portfolio are what drive the margins higher longer term.
Speaker 2: Thank you. What's the connoisseur on that is Star and One for Questions. We'll hear next from John Roberts at Credit Suisse. Thanks Greg for all your help and could you come in? Are you seeing any additional pricing pressure in light of the severe volume weakness that you have? Thank you.
Speaker 4: I didn't stick that, Veg get you on it. OK, let me see how it goes.
Speaker 4: Just to say that as you would expect, we're watching the carefully devolution of our input is familiar with the time that we have spent, and you can access the game from the
Speaker 4: And we will continue to take appropriate steps as needed as we have in the past.
Speaker 2: a couple of years, so we will continue to raise prices as necessary, but we are not going to go into a lot of detailed descriptions of all pricing strategy. Okay, could I ask, how deep was the pool of potential buyers for PIM? And how would you characterize the potential buyers as strategic versus financial, you know, outside of Infinium?
Speaker 4: What I would just say again is we decided to terminate the transaction. We are concerned about the certainty of the deal. At this point we are in the process of regrouping.
Speaker 4: assessing our options. So we said a few months back, we continue to believe that we are not the best owner for this business. This is a product platform that is non-core to the rest of the integrates. That's probably as far as we go on this call today. We will update you when appropriate. Thank you.
Speaker 2: Okay, thank you. My carousel with C-port research partners, your line is open. Hi, good morning.
Speaker 8: I was wondering if you can talk a little bit about the China export restrictions and how you see the impact they're going forward. It sounds like for Q4, it was toward the lower end of your expectations and you're expecting it to be about 20 million a quarter going forward. Is that going to be?
Kind of the number for the full year or is it declining during the year? And I guess just from a segment perspective, it seems like SCEM saw the biggest impact. Is that the case or can you maybe give some more detail on how those restrictions impacted other segments? It's justoldsburg Stillo, our sister ofante Toma Drive.
So let me start maybe with the last part of your questions. Every division did see an impact, a negative impact on restrictions. But as I said earlier, SCM was the division.
seeing or being the most affected by those restrictions simply because
We have uncovered many new opportunities at the leading edge in timeline and new restrictions honestly of preventing us from serving those applications and these customers.
back to the first part of your question as many of the companies in the industry we.
stand the better part of the fourth quarter to engage very closely with our Chinese domestic customers.
of the fourth quarter to engage very closely with our Chinese domestic customers. We perform...
very extensive due diligence to assess whether these Chinese customers would be committed.
to operate within the new municipal guidelines. We completed your assessment and based on that, we can now
quantify the more permanent impact which is, as I said on the court, about $20 million.
per quarter. I'm not going to speculate on how it's going to be bothering the year, but to assume for a modern purpose, the negative impact of about $20 million per quarter.
And that's already reflected into the overall.
I don't guide in that we provided. Understood. All right. Thank you. And then we discussed this a little bit on the last call, but it seems like you're still talking about good growth that you're seeing in advanced nodes or more advanced applications. Yet in a couple of your segments, including advanced planarization solutions, you're talking about a negative mix impact.
So I just want to understand why is mix getting worse if your highest value applications are still strong? The Greg Duand takes that. Do you want me to do that?
Yeah, why don't you go ahead, Bertrand? I think that if you look at modeling some products, particularly those margins are higher than all the technologies.
Why don't you go ahead, Bertrand? Well, I think that if you look at modeling some products, particularly those margins are fired than all the technologies.
I think that the reason we've been seeing some pressure on Ghost Margin really has to do with the lack of leverage due to reduced volumes, but I'm not sure I want to go beyond that.
Okay, so it sounds like you just don't even really want to comment done mix or is mix depressed right now? No, I guess I'll comment on it. Yeah, I mean, I think mix is depressed right now. I mean, if you look at our...
are higher in the memory sector than in other sectors, but the weakness in the memory sector has impacted some of our most advanced products. And so I could go division by division, but that's not what we don't disclose sort of margins by product line or division.
But broadly speaking, we've seen weakness in some of our higher margin products. And I will say it's not a secular thing, it's just the nature of what's happening in the market right now. Let's take a look at our...
new products. I mean, we've got as much confidence as we've ever had in terms of our position in the marketplace and where we're going, but we can't swim against the current.
And it would, you would expect mixed to improve with some of the advanced node transitions going on and the better performance in the second half. Is that fair?
And you would expect MIPS to improve with some of the advanced node transitions going on and the better performance in the second half. Is that fair? I think that's fair.
All right, perfect. Thank you very much. Our next question will come today from Charles Shee at Needham and Company.
Good morning. Thank you for taking my questions. Maybe the first one. Can you guys give us a sense how the business will turn into the first quarter 23? I mean a little bit second and details. And as a second part to the same question, I mean looking into the four year 23.
I think that Bertrand mentioned a Q2 potentially be the bottom for MSI, but if I look at your historical performance, let's say 2019, different segments, kind of 12 at slightly different quarters, FEM, in 2019, FEM, first 12, but MC and AMH, kind of 12, quarter later, I made obviously 20th grade downturn.
We expect a
If you look at the midpoint of the guidance, it's a sequentially decline of about five points.
It's driven by further deterioration in the way it starts both in memory and advanced logic as well as the further decline in our OEMs.
On the positive side, as we think about, we expect mainstream fat to...
to remain right in the study, and the study would be true for new fact construction projects, which have been...
in Q4 and we expect to continue to be steady in Q5. So if you think about the other part of the question about will the four divisions bottom at different time, I would say most likely I'm not going to
specific breakdown simply because as I said visibility is not very clear right now, but in general it turns.
think about SCM and APS being within terms with businesses with very short time and think about MCM and AMH with businesses that have a little bit more exposure to CAPEX but also have traditionally longer lead time. and so working sugar dollars.
I think that I would expect APS and SCM to bottom a little bit earlier than an MCNNA image, but I won't give you exactly which core because we don't have that big precision like that.
Thank you, Patron. So maybe my second question. I want to ask you a bit more about the potential for the divestiture after your CMC acquisition. I don't know if you have further plans, but if you use my question, I think some part of the CMC portfolio doesn't seem to...
Is there potential for the divestiture possible in that area or but I also see like the reshoring, stab reshoring, localization of semiconductor manufacturing may provide you some tactical opportunities for revenue growth or share gains in those more.
I mean, I would say less sticky product categories here. Can you provide us some comments there? Thank you. Yeah, I'll go back to what we said during the recent analysis day in 2022, which is to spend a lot of time asking ourselves.
that very question, are we the right owners of the various parts of the CNC Materials portfolio? We have reached conclusions and now we are left with the question of finding the right timing for us to act on those decisions.
But I will not go into a lot more specific, I think we have a key view of what we believe to be long-term in the portfolio of integrals.
And as I said, we keep you updated when the time is right. Thank you.
Next we'll hear from the line of Alexey Yafremov at Keybank Capital Markets. Thanks and good morning everyone. Bertrand, your comments about node transitions largely being on track. Is this related to 2023 or also looking out to 2024 things are also...
No transitions always fluctuate and we do not control the timing of those no transitions. So when customers change their plan, so I don't think it would be prudent for me to...
comment on 2024 road transitions. I would just say that if indeed our nan logic customers stick to their 2023 road transitions, that would be a great start and we would be very, very happy with that outcome.
And then later in 23 years, the app is too long to answer your question and try to provide some color on what to expect in 2024. It's just too early for me to comment right now on 2024.
I'm just to thank you. On the short term, you mentioned to use likely the bottom for the industry. Does this also imply that your second quarter is likely weaker than first quarter in terms of sales in EBITDA, or that's not necessarily the case? We'll, you know, we will provide.
Q2 guidance, when we report first quarter results, but directionally I would say that we expect some level of sequential decline, but we will provide some more.
guidance when we report a first quarter results but directionally I would say that we expect some level of sequential decline but we will provide some more, you know, some more.
VTicks around that in a few months. Thanks, Love. Our next question comes from Timothy R. Curry at UBS.
Hi, thanks a lot. Greg, there's assets being held on the balance sheet. I think it's $247 million being held on the balance sheet. The sale price of the PIM business was $240 and I think the QED was $135. So to clarify, does the guidance for March still include PIM? I assume it does and I think that was running at $25 million per quarter.
QED is not there because we did not execute the transaction prior to year end. PIM at year end, which is the day that the balance sheet, the expectation is that business is going to be sold.
Got it. Okay, so 240 is the tent business. That's PIM. Okay, got it. Okay, and then Bertron, just a question for you and I ask you this a lot, but sort of the questions more around your visibility into the amount of inventory that your customers have of your stuff.
You have service people on site at all these different customers, but we've just come through the mother of all inventory building cycles during the past year, year and a half where people couldn't get product and they were just stockpiling what they could get. So how much visibility do you have in terms of inventory of your materials at your customer site? How would you characterize it versus normal inventory? Thanks.
Yeah, it's a good question. Like, we have some level of visibility. It's not perfect visibility. I would say that at this point, we have no reason to believe. There is a significant inventory of integrity products in the channel. And the reason for that is that we have not seen any...
and a mutual amount of all the constellations or pushouts. So that's something that we are obviously watching very, very carefully, but that's why now we have no reason to believe this, a ballooning, inventory situation. Thanks, Robert Trin. Christian Schwab at Craig Hallum, Capital Group. Your line is open. Thanks for taking the question. Congratulations.
Greg, it's been great working with you. On the China exposure, can you clarify that between domestic and multinational?
So on the China exposure, can you clarify that between domestic and multinational fix?
So we think that it's about 60% domestic and about 40% international when it comes to the revenue that you were seeing in our Fund for Reporting China prior to...
the export restrictions. I'm not going to run the numbers. Is there a Chinese alternative to your different products that you're selling into domestic carriers, domestic manufacturers? The reason I asked that is a lot of our checks are suggesting that they're done buying.
from U.S. vendors if they can at all help it and move to somebody in the China supply chain. Is that part of the reason for?
The revenue or is it just purely they can't get advanced manufacturing equipment? So when it comes to...
competitive alternatives to our products, I think they are limited and they are of all the generations and to years that are available.
from China manufactured by Chinese suppliers, but this is really the minority here. For the most part, there are no current alternatives to what we do in China. And again, so to first.
Part of the exercise was really to validate which customers would still be able to serve And we had to do that in the context of the new restrictions. And we completed the assessment of the set. And we believe that.
The negative impact would be about $80 million for you, so 20 minutes at the point. Great. Then my last question, I know we talked about earlier the long term growth drivers and $1 trillion for the revenue. This has been talked about for years, but we did probably $600 million last year, and obviously this is going to be...
a big downturn. You know, I guess if you have conviction in that trillion, you know, when do you see, when would you anticipate, you know, a material improvement in the entire business to have confidence that that number is still directionally accurate? All right. Let's try. I mean, I think for all of you who have been in this industry long enough, you remember?
I don't think that the industry conditions that we are currently experiencing
are putting at risk the...
possibility of reaching $1 billion in semiconductor revenue. Are you exceeding that in 2030? I mean, industry has demonstrated time and time again that it can really accelerate in an exponential way. And frankly, that's what I would expect as a result of the emergence of a number of new drivers for semiconductors, which is...
We're going to be changing every part of our lives going forward from transportation systems to healthcare to the way we...
relate and interact with one another. So my conviction in secular growth potential of this industry remains absolutely intact. The only question we have to deal with right now is how much of a downturn are we going to be seeing?
the timing of the recovery, but not of what we're seeing today is putting a question that I mean the second growth potential of this industry or the second growth potential of our business.
Great, fabulous. Thank you for that. No other questions. Thank you.
Thank you for that. No other questions.
And ladies and gentlemen, our final question today comes from the line of Chris Katch at Loop Capital Marker. Yeah, thank you. Good morning.
So one question was with respect to your comments about the prospective outperformance relevant to the market. I think it said 500 this. Just curious if given the node transitions that you see and you anticipate in the second half of this year, is it fair to think about your outperformance relative to the market expanding, given that was kind of an average. So it's you know hired
Okay. And then so the other question I had related to the CMC portfolio. So back in late 2021, you that company won what I thought was an important patent infringement litigation. And um.
The DOJ gave the customer involved a pretty healthy period to transition, given the challenges of re-qualifying and process of records. And so, curious if you're now seeing any benefit from that, is that something that could be a buttress, your demand in your advanced oxides, lurries, and curious if you've...
If you can comment on any similar litigation and other jurisdictions around the world, thank you. So, Chris, a good question, but as we understand, I can't comment really on any ongoing mutations. But what I can share with you is that obviously we were very pleased with the ITC holding.
And what I can also say is that we've been working very, very closely with customers to help them transition away from the infringing products. We are seeing today positive revenues coming from this work, but I won't go into quantifying this for you. But it's positive and it's playing out the way we were hoping it was.
Fair enough, thank you very much. All right. At the time we have no further questions. I'll turn it back to you, Mr. Seymour. Thank you very much.
Thank you very much for joining the call today. Please follow up with me if you have any additional questions. Have a good day. This does conclude today's teleconference and we thank you all for your participation. You may now disconnect your lines and we hope that you enjoy the rest of your day.
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