Q3 2023 Advanced Energy Industries Inc Earnings Call
Greetings welcome to advanced Energy's third quarter 2023 earnings call.
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At this time I'll turn the conference over to Edwin Mok marketing and Investor Relations. Sir you May now begin.
Thank you operator, good afternoon, everyone welcome to advanced Energy third quarter 2023 earnings Conference call.
With me today are Steve Kelley, our president and CEO and Paul Oldham, Our executive Vice President and CFO.
Before I begin I'd like to mention that we will be participating in several investor conferences in the coming months.
If you have not seen our earnings press release and presentation, you can find them on our website at IR dot events and that your dot com.
Let me remind you that today's call contains forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially and are not guarantees of future performance.
Information concerning these risks can be found in our SEC filings.
All forward looking statements are based on managements estimates as of today October 31st 2023, and the company assumes no obligation to update them any targets beyond the current quarter presented today should not be interpreted as guidance.
On today's call all financial results are presented on a non-GAAP financial basis, unless otherwise specified.
Exclude from our non-GAAP results al.
Stock based compensation amortization acquisition related costs facility expansion and related costs restructuring charges and unrealized foreign exchange gains or losses.
A detailed reconciliation between GAAP and non-GAAP measures can be found in today's press release.
With that let me pass the call to our President and CEO, Steve Kelley.
Thanks Edwin.
Thanks to everyone for joining the call today.
We delivered solid results in the third quarter with earnings at the high end of our guidance range on slightly lower revenue.
We delivered record operating cash flow.
Of $73 million.
Benefiting from improved operating margin.
Effective inventory control measures.
And execution of our cost control initiatives.
In a more challenging demand environment.
We continue to deliver solid profitability and.
And cash flow.
Our strong financial performance.
Through the business cycle.
Gives us the freedom to invest in new products and technologies.
As well as improvements in manufacturing efficiency.
We expect that these investments.
Will drive future revenue growth.
Market share gains.
We continue to make great progress.
On the new product front.
Year to date.
We have launched 19, new products across our markets.
In addition.
We have expanded our quick turn customization activity.
Which enables us to quickly adapt our products to.
The particular needs of our customers.
In our targeted markets, we are experiencing strong design win momentum.
And a variety of high value applications.
We continue to expect a record number of design wins in 2023.
Building, a solid foundation for growth.
To improve our operational efficiency.
We are working to optimize our factory footprint.
With the goal of consolidating nearly all of our manufacturing.
It's a highly efficient large scale factories.
As part of that ongoing effort.
We are closing two smaller factories in the current quarter.
This is in addition to the Shenzhen factory closure, we completed last December.
Last month, we broke ground for our new flagship factory in Thailand.
Construction will start next year.
We expect the facility to ramp in 2025.
This new Thailand factory.
Together with our large factories in the Philippines, Malaysia and Mexico.
We will provide the capacity to meet our future needs.
Supply chain issues continue to abate.
No longer a significant constraint on revenue.
There are still components with very long lead times, such as power MOSFET.
But we think that supply will catch up with demand in the coming months.
Now I'll provide further color on each of our markets.
Third quarter revenue increased sequentially to $185 million.
We saw increased demand for RF products used in etch and deposition applications.
In addition, we achieved record revenue.
For our high voltage products.
Which are used primarily in iron and planters.
Service revenue decreased sequentially due to lower fab utilization.
For the year 2023, however.
We expect to set a service revenue record.
Based on our larger installed base.
And a richer menu our value added services.
We continue to work closely with our key customers to design in our next generation Everest.
And he both platforms.
We have received numerous orders for these recently launched platforms.
And are working hard to satisfy the near term demands of our customers.
We believe that Emerson egos willing.
It will enable our customers to more effectively overcome the technical challenges of sub two nanometer processes.
These new technology platforms have the potential to drive meaningful revenue growth for many years to come.
Moving to industrial and medical.
Third quarter revenue was $115 million.
Down sequentially following several record quarters.
Revenue came in slightly below our plan.
Due primarily to softer market conditions late in the quarter.
We launched five new products into the industrial medical market.
Cooling the IH be liquid.
Our fully sealed liquid cooled power supply design, the upgrade and harsh manufacturing environments.
In the industrial market.
We secured notable design wins across robotics.
Factory automation.
And thin film manufacturing applications.
Our medical designing activity was particularly strong in the third quarter.
With significant wins in diagnostic and therapeutic applications.
In August we launched the new advanced energy website.
Creating the content of this website was a company wide effort.
And we are pleased with the quality and ease of use of our new site.
We expect the new website will enable us to reach a much wider cross section of industrial and medical customers.
In early 'twenty 'twenty four.
We will add e-commerce capability to the web site for.
Providing another way for our customers to order.
And rapidly evaluate our products.
Overall, we believe that our design win pipeline in.
An improved go to market strategy.
Should partially offset the potential impact.
A macroeconomic softening.
In data center computing.
Third quarter revenue increased sequentially to.
The $68 million as expected.
Strong revenue from the ramp of a hyperscale design win for AI applications.
I've set lower sales to enterprise customers.
Telecom and networking revenue decreased sequentially to $41 million in line with our expectations.
Now, let me share a few closing thoughts.
At the beginning of 2023.
We expected that semiconductor revenues will be down year on year.
And that the rest of our business will be flat to up.
We also said that our semiconductor business would trough in the second quarter, largely how things have played out in 2023.
Despite a softer macroeconomic environment the second half of the year.
Looking forward.
We will continue to move full speed ahead.
Executing the strategy, we first articulated two years ago.
New products and technologies.
The more aggressive go to market strategy.
And improved manufacturing efficiency.
<unk> will remain our primary areas of focus.
With our recently completed convertible note offering.
We have secured low cost financing.
Which could potentially accelerate our growth.
We continue to look for M&A opportunities, which make strategic and financial sense for the company.
Leveraging our broad offering of highly differentiated products a.
A record number of design wins.
Fruit manufacturing efficiency.
And a strong balance sheet.
We believe that advanced energy.
Is well positioned to grow faster than our markets.
Paul will now provide detailed financial information.
Thank you, Steve and good afternoon, everyone.
Q3 was a quarter of solid execution.
Earnings that came in at the high end of our guidance on slightly lower revenue.
We saw some demand softening late in the quarter largely due to macroeconomic factors.
However actions, we took to improve our operations and control discretionary spending enabled us to deliver sequentially higher gross and operating margins.
Together with higher interest income and lower taxes earnings increased 16% sequentially on 1% lower revenue.
Importantly, operating cash flow was at the highest level ever for the company.
Finally, with shortened lead times customers are adjusting their order patterns and our backlog came down to $514 million.
We continue to expect our backlog will settle to a level of $4 million to $500 million by the end of the current quarter.
Overall, despite a softer demand environment, we believe the year is shaping up as we had expected.
We are focused on driving new product activity and improving our cost structure, while preparing for the next upturn.
Now, let's review our financial results in more detail.
Total revenue was $410 million down, 1% sequentially and 21% from a peak quarter a year ago.
Revenue in the semiconductor market was $185 million up 7% quarter over quarter consistent with our view that Q2 was a near term bottom.
Revenue in the industrial and medical market was $115 million down, 10% from last quarter and 4% year over year.
Following several quarters of record results.
That's real and medical saw some softening in demand late in the quarter.
Looking forward, we expect incremental revenues from prior design wins to largely offset the impact of a sluggish macroeconomic environment in Q4.
Data Center computing revenue was up 16% sequentially to $68 million due to the ramp of a hyperscale customer for AI applications.
Sales declined 22% year over year due to the cyclical downturn in the enterprise server market.
Telecom and networking revenue at $41 million was down 26% sequentially and 3% year over year as we fulfilled overdue backlog.
Q3 gross margin was 36, 1% up 50 basis points from Q2 on lower volume as we benefited from improved mix and lower material costs.
Premiums, we paid for critical components continued to taper.
As costs from prior quarters roll through inventory to the P&L, we expect to see the full benefits of lower premiums in the first half of 'twenty 'twenty four.
We also continue to take actions to optimize our operations footprint and manufacturing efficiency.
Consolidating capacity into larger more efficient factories chicken tribute to higher gross margins over the course of 'twenty 'twenty four.
Operating expenses were $97 $3 million down from last quarter.
Opex was below our guidance as we managed our cost structure and control discretionary spending.
Q3 operating margin was 12, 4% up 50 basis points sequentially.
Depreciation was $9 $7 million and our adjusted EBITDA was $61 million.
non-GAAP other income was $1.3 million due to higher net interest income, partially offset by foreign exchange losses.
Looking forward, we expect our non-GAAP other income to be in the range of three to three $5 million for the next few quarters, given our level of cash and current interest rates.
As a reminder, in the fourth quarter of 2022 we initiated a restructuring plan to optimize our manufacturing operations.
We are on track to our plan and expect to see the benefits of our actions translating to better margins over the course of 'twenty 'twenty four.
Consistent with this plan, we recognized $5 million in restructuring costs in Q3, and expect to incur an additional $5 million to $8 million in the fourth quarter.
Our non-GAAP tax rate was seven 2%.
Below our Q3 target of 17% due to discrete benefits related to tax strategies, we implemented this quarter to lower our tax rate.
As a result of these strategies, we are now modeling, our Q4, and 2024, GAAP and non-GAAP tax rate at around 16%.
Third quarter EPS of $1 28 was at the high end of our guidance of $1 13, and above Q2 of $1 11, but down from $2 12, a year ago.
If you apply our prior target tax rate of 17% Q3, EPS would've been $1 15.
Turning now to the balance sheet.
Total cash and marketable securities at the end of the third quarter were $986 million.
And included approximately 482 million in net proceeds from transactions associated with our 2.5% convertible senior notes offering that we completed in September.
Operating cash flow from continuing operations was a record $72 $7 million.
Excluding the convertible offering and related transactions cash increased from $455 million to $504 million.
Net cash at the end of the third quarter was $66 million.
Inventory decreased to $28 million down, 7% sequentially and 11% year over year.
As actions to monetize on hand inventory started to contribute to cash flow.
As a result inventory days decreased from 132 in Q2 to 125 in Q3.
And turns improved from 2.729 times.
Days payable decreased two days sequentially to 48 days and DSO increased three days to 59 days.
Networking capital was 136 days.
Capex was $13 million or three 2% of sales and below our near term target of approximately 4%.
We continue to expect our Capex for this quarter and the next year to remain around 4% of sales, which includes the cost of our manufacturing consolidation plan and the investment in the new Thailand factory.
During the quarter, we made debt principal payments of $5 million and paid $3 $8 million in dividends.
Finally, as part of the convertible note offering we used $40 million to repurchase 378000 shares of our common stock.
Now, let's turn to our guidance.
Consistent with our commentary from last quarter, we expect that second half semiconductor revenue will be flat to up versus the first half.
For our non semiconductor markets in aggregate, we continue to expect 2023 revenue to grow slightly from last year.
With low double digit growth in industrial and medical and telecom and networking offset by cyclical weakness in data center.
However, looking forward, we expect telecom and networking revenues to continue to normalize towards $30 million a quarter over the next couple of quarters.
As a result, we are forecasting a Q4 revenue at $405 million plus or minus $15 million.
We expect Q4 gross margin to be similar to Q3 on slightly lower volume.
We expect Q4 operating expenses to be about flat with Q3 with timing of investments in new products offset by other cost reductions.
Based on a tax rate of 16%, we expect Q4 non-GAAP earnings per share to be $1, 15, plus or minus 20 cents.
Let me make a few concluding comments.
Overall, we are executing our plans for 2023.
Our diversification strategy is enabling us to mitigate the impact of a sluggish macroeconomic environment and ongoing corrections in some of our markets.
We continue to expect to perform better than in our markets and significantly better than in previous semiconductor cycles.
Looking forward to 'twenty 'twenty four we expect semiconductor revenues to continue to bounce around these levels for the next few quarters, but are prepared for upside if the market recover sooner.
We expect performance in our other markets to be paced by macroeconomic factors timing of customer orders in hyperscale and normalization of revenue levels and telecom and networking.
All partially offset by opportunities for growth from new products and channel investments.
In the meantime, we are focused on improving gross and operating margins, while investing in critical programs to prepare for the next cyclical upturn.
We believe our actions to control costs improve operational efficiency and shift mix towards higher margin products positioned the company to reach our long term gross margin target of over 40%.
Finally, with solid operating cash flow and a strong cash position, we have financial flexibility and multiple paths to create value for our shareholders.
With that let's take your questions operator.
Thank you.
At this time, we'll be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you and our first question today comes from the line of Jim Ricchiuti with Needham <unk> Company. Please proceed with your question.
Hi, good afternoon.
I wanted to pursue the Ah.
The areas of the eye and ambitions, where you've seen some softness I wonder if you could just maybe expand on that and then Conversely as you.
Talk about some of the recent design win activity, you've had there where where you see some pickup potentially offsetting some of this weakness.
Yeah, Jim This is Steve.
Yeah, we saw a little bit of weakness in iron and towards the end of the quarter.
We actually had orders to fulfill our forecasts, but we weren't able to.
To get the kids together in time to ship in Q3.
And so what what we're in now is there more of a short lead time environment. So we don't have a long term backlog like we did for much of the past year.
And so it's really on us to try to scramble and meet the needs of our customers in the short term.
That said you know looking at Q4.
It'll be about the same as Q3 for industrial medical.
As we look forward into 'twenty 'twenty four against the short lead time environments. So our.
Our visibility is somewhat more limited as we look into next year.
And I think one of the nice things about I N M.
Our industrial medical is that there are many different submarkets, each with their own dynamics and <unk>.
Some are up and others are down.
What we see right now is probably the strongest verticals.
I am including factory automation, the 1000 Aero.
Segment.
Solar and then.
In film.
And on the medical side, our therapeutic and diagnostic type of applications.
I think the weakest areas.
Right now, we're probably test and measurement because that's tied into semiconductor.
And probably.
Some of the horticultural applications have slowed down as well.
Maybe just a little more color on on our industrial medical.
You know this is the one area, where we sell a fair amount of product through distribution, so roughly 45% of or I N M business goes through distributors.
Distributors.
And so we track that that inventory and the resale information pretty closely I can tell you as we exited Q3, we had a little less than three months of inventory in the channel and that's a very comfortable place for us.
And the resales, they've actually increased each quarter in 2023. So we think we're in pretty good shape in the distribution channel.
The other thing I'd like just like the notice is industrial medical was a fairly new area for us.
A new area to focus on at least and we've been doing it for the last two years.
And I think it's making a difference we're seeing some of the effort we put into it turn into wins.
Some of those wins to turn into revenue.
And the.
The other positive data point is on the customization side, which I mentioned during the call.
Now we're seeing record.
Our turnover in the customization area.
And so those two aspects, where we put more focus on N M and also doing more customization work.
<unk> worked to counteract any any macroeconomic issues we face.
And the general market.
Got it.
Color Steve.
My follow up question and yeah, I realize youre not going to be able to be very specific with respect to the M&A pipeline. How much activity are you seeing in the eye and an area of the business and if you were to maybe.
Be a little bit more specific as to whether you see.
More opportunities or would you.
Prefer one area versus the other in terms of where you'd like to focus on with the <unk>.
Resources.
Yeah. So first let me just start with the general approach to M&A that we have and then.
Zero in on industrial medical.
So I think first of all we're fortunate that we're consistent cash generator.
Even in down cycles, we generate a lot of cash so it gives us the ability to.
So to make strategic investments into to go on the hunt for acquisitions.
So the types of targets, we're looking for are going to be primarily in the industrial medical space.
We're looking for targets that are a good strategic fit.
Did are clearly accretive from a financial standpoint to have a reasonable payback period.
We look for companies with strong technology <unk>.
<unk> solid product portfolio.
Preferably with a significant percentage of revenue coming from sole sourced products.
Similar to our.
Portfolio.
And we look for long lifecycle products and technologies.
So within industrial medical.
We are looking for larger acquisitions, if possible and we intend to integrate those acquisitions quickly like we did last year with S. O power I think that acquisition worked out pretty well for us very complementary portfolios and it helped us a lot in the medical area in particular.
I think the biggest hurdles were looking at now in M&A or just the valuations because valuations are are in flux and.
So it probably would take longer than.
We would expect to get a deal done.
But I think the important thing to realize is where we're not in a rush to make a deal.
So we're going to maintain financial discipline.
But we have nearly $1 billion sitting on our balance sheet. So we have a lot of dry powder.
And I think we're an attractive acquirer.
Got it. Thanks, thanks, very much I'll jump back in the queue. Thank you.
We can Jim.
Our next question is from the line of Krish Shankar with TD Cowen. Please proceed with your questions.
Hi, Thanks for taking my question I told them close one maybe a two part question on semi.
Paul or Steve you said semi revenue bounce around this level.
Jim.
Flattish sequentially equal December and then along the same path, Steve you mentioned that the semi revenue.
So I'm Gonna, Ireland plant, not dep and edge.
It seems like unemployed, it's more levered to mature technology silicon carbide.
So can you help us understand how much of that revenue already been island plan came from matured with a compound semi and then as a follow up.
Sure I'll start and you can finish Paul sure. So so basically what we've seen the entire year Krish is there has been weakness in the etch and dep market. The overall volume has been weak and that's that's well known.
We've been able to offset some of that weakness.
In three ways, one was our <unk>.
Service business, which has been very robust this year.
The second is with design wins, which had been ramping in.
In the dirt isn't the high voltage area.
And.
Your specific question about high voltage and where it's used it is primarily iron and planters and to the best of my knowledge. You know the vast majority of that is going for mature technologies silicon carbide as well as silicon technologies.
There to meet the surge.
For high voltage technologies or for Evs and other other types of applications.
So.
That's about where we stand with high voltage.
I guess more broadly what we said is that we still expected that semiconductor would be flat to up a little for the second half versus the first half. She can kind of take a look at the math there, but yeah I think bouncing around these levels I think is accurate.
If you look at that math, you're probably flat or up a little bit in the Q in Q4.
And look as we've talked with our customers I think they've generally said they expect business to be about flat as we look into 'twenty 'twenty four but at the same time, we've worked hard tube beef I'll say financially prudent in terms of how we planned our business, but also be operationally prepared.
We realize that when the semiconductor starts to turn it can turn quickly and so we're prepared if we see if we see the business start to rebound more quickly over the course of next year.
Got it got it that's very helpful. And then a follow up on data center.
The data center revenues grew nicely like 15 close in Q O Q, but it's still down 22, both of them together. We go basis I think Steve you mentioned as one hyperscale customers ramping for AI.
Got you and as well as the incremental $10 million revenue largely isn't but at one customer.
The sole source or is it still like multi zone.
I kind of like what is the strategy on a go forward basis.
No.
If I'm correct, maybe the terminology is to.
Exaggerated, but he kind of deemphasize hyperscale doesn't focus on O&M.
There are new renewed focus on data center.
Yeah. That's a good question and let me just it's a multipart question. So I'll give you a multipart answer.
So first of all yes, its a soft environment today from a demand standpoint and data center.
But we do have the sole source design win which we touched on our last call as well as this coal and that's been ramping it has acted as a.
The soccer Zorba basically so we're not seeing the degree of of correction that some others may be because of this ramping design win.
You know I think this is a cyclical market.
We don't know exactly when the demand is going to snap back, but if history is any guide.
Could snapback as soon as our first half 'twenty four.
Because the last time you went through this inventory digestion that took us about three quarters to get through it.
So we're ready we're ready for a snapback in the datacenter market, we think the fundamentals are great.
Still a lot of data being generated and transmitted and stored.
So the long term story is very strong.
We think there are a couple.
Accelerators next year, one is AI of course.
The second is the transition to 48 volt.
So so we think there there's some positives on the horizon for data center, but our strategy remains unchanged.
We're still going after opportunities, where we can get paid for.
For the engineering value that we provide.
And so again, we're trying to keep our margins going up into the right.
Not as concerned about revenue growth in data center.
Got it thanks, a lot Steve.
Yes.
Our next questions are from the line of Steve Barger with Keybanc capital markets. Please proceed with your questions.
Thanks you.
You talked about inventory being in good shape in the channel, but can you expand on your comment about having a more aggressive go to market strategy and tie that into the efforts to cultivate distribution and bar relationships you will it seems like that'll be an important force multiplier if end markets do get a little bit weaker going forward.
Yes, Steve I think we've done a lot on the go to market strategy.
Let me just list some of the things that we're doing that are I think most important the first is probably our website.
We launched a new website in August and it's been a big hit with our customers and our distributors.
If we take a look at some of the statistics.
Hey, we're seeing roughly double number of hits on a daily basis on our web site.
And we've tripled the number of.
Of the customers, who are downloading and interacting with the website typically doesn't any data sheets or application notes.
So we're very happy with that and then we'll let me add.
The E Commerce capability next quarter, that's going to help us as a company. It's also can help our distributors as well.
And so that's that's a big plus.
The second Big thing, we did was on the sales side.
Or are we basically split our salesforce into two parts.
And one of those parts is focused exclusively on industrial and medical.
So those those people via apps engineers.
And the sales engineers only get paid on industrial medical design wins and revenue.
So it's been it's brought a tremendous amount of focus.
You know to our effort.
Not just through distributors, but also directly with customers.
So that's that's been a big big plus for the company.
And certainly I think we've raised their game and the marketing communications area.
And our ability to train our distributors and salesforce and how the seller product and how they fit.
From a customer standpoint, so I think we're in much better shape than where two years ago.
Yeah, I'll just add to that Steve I think our prepared comments were such that we think that the inventory in the distribution channels about right but.
But we've actually seen more sell through and you're right as market forces potentially weekend getting broader reach is one of our primary strategies in the distribution channel is certainly a key part of that and there is even potential for us to expand further.
From a distribution channel perspective, as we focused on that.
Got it thanks, and Paul backlog was down about 50% year over year to $514 million, which I think is at the high end of what you consider a more normal range can you talk through segment exposure in backlog the timing of delivery and maybe talk through a book to bill for semiconductor and.
Industrial medical.
Yeah, So you're right the backlogs down frankly, the back like we had a year ago is extremely unusual if you go back historically before the parts shortages. We saw roughly 24 to 30 months ago. We would typically carry backlog that was 60% of quarterly revenue and.
That's because a lot of our products are relatively short lead times and we have many customers who don't technically give us orders. So theres not really a book to bill because we feel revenue through jet bands or through hub polls.
And we'd expect to move back towards that situation and that's that's exactly what's happening.
Think by the end of this Q4 will be back well within that $4 million to $500 million range.
About $400 million is about a quarters worth of backlog.
That's probably a quarter a quarter plus is kind of probably where things will run probably a little more than it did they did historically so we think that the contraction in backlog is pretty natural and it mainly just reflects those shorten lead times and people are returning to their normal ordering patterns.
You know from from that perspective, if you look at what's in backlog. The majority of it is relatively short orders now I'd say within.
A quarter and a half or less.
It's also still heavily weighted towards industrial and medical and and semiconductor and as we look forward again, it's hard to say a particular book to bill because many of our customers don't don't order that way.
Got it I appreciate the detail thanks.
Yep.
Our next question is from the line of Matt He has seen with S. E T.
With your question.
Yes. Thanks for taking my question, Paul just wanted to go back to the backlog.
I look at the commentary by some of your customers in industrial and semi it seems like they don't really have a whole lot of visibility looking into calendar year, 'twenty four and as such.
Could there be a scenario, where your backlog with actually moved towards the low end of that four to 500 million band.
Yeah, I think it could again, our estimate there is a little bit of.
Based on market factors, and where things could end up historically, we've run and under that level and that would be that would be normal. So I think as you know <unk>.
Customers move back to more normalized patterns. We you know we could certainly move towards the low low end of that that wouldn't be a surprise again that would still be about a quarters worth of backlog, which should be higher than the historical norm.
Okay, and then just a double clicking on your semi business if your customers.
Our are right now.
Think aloud.
Elaborate or talking about 'twenty 'twenty four as a flat in terms of the system shipment with system revenue compared to 23.
Does that imply that just some inventory refresh.
Components would would lead to some growth.
In advent synergies semiconductor business unit.
Yeah, I think that's a fair scenario ready.
Sure.
Like you said the customer consensus seems to be that their end customer shipments will be roughly flat year on year.
But we do see some room for growth in the gym bends and we see some room for growth in our new products as well.
That should push us into slight growth year on year.
Yeah got it thank you.
Thank you.
As a reminder to ask a question today you May press star one from your telephone keypad.
The next question is from the line of Mark Miller with benchmark. Please proceed with your question.
Thank you for the question.
Talked about the <unk>.
Implant, what's driving your high voltage opportunity.
In the last couple of weeks. So there's been concern about slowing in the EV market EV sales in China. This past quarter were down 27% sequentially are you seeing any slowing of quoting activity orders as a result of this Ford also delayed.
Our capacity additions because of slowness.
Yes, Mark the short answer is no we have not seen that so right now our backlog is still very.
Very robust very strong and we're not getting any signals from our customers that figured into.
And the forecast downward.
Next question Telecom area.
And are your customers, telling with an inventory digestion situation.
Just telecom.
I'm not aware that they're dealing with a lot of inventory, but it's also clear if you look at the telecom manufacturers. They are in a pretty pretty severe down cycle right now so.
So I don't think there's a lot of inventory overhang there, but also there's not a lot of orders. So one of the reasons, we talked in our prepared remarks about that we.
Wed anticipate that our telecom and network businesses continuing to trend back towards.
$30 million run rate versus where it's ran the last most of the last year.
Thank you.
Thank you. The next question is from the line of to Val <unk> with Raymond James. Please proceed with your questions.
Yeah. Thanks for taking the question.
Talking about all of the macroeconomic headwinds and in a lot of the verticals.
But you also said that valuations on prospective M&A or.
Too expensive.
From the perspective of the sellers, who are insisting on these high deal multiples.
Why what are they looking at.
You know I can only comment for advanced energy and and I think.
Valuations have adjusted over the past year and a half.
And I think.
Different parties adjust the new valuation is different rates.
And I think.
That's going to I think the answer to your question is going to vary depending on and.
And which target were talking about.
But we think over the next.
So six to 12 months, we'll probably be able to come to a.
The deal with one or more of these targets, but again, it's going to depend on on.
If it makes financial sense for advanced energy and strategic sense for the company.
Right.
You also mentioned that for M&A, you're looking for kind of Chunkier deal sizes versus may be what you would consider historically.
If artisan was the largest M&A deal in the company's history.
<unk> to that are you looking to do something even larger.
I think if it weren't for goalposts I would say, it's all power would be the smallest kind of deal we would like to do and I N M and artist can be the largest type of deal. So it's going to be somewhere in between those two goalposts.
Okay, that's debt that's interesting and lastly.
Within industrial medical periodically asked this question.
More and more headlines about new solar many factoring not just in the United States by more broadly outside of China can you talk about your opportunities.
Opportunities in that infrastructure Buildout.
Yeah, I think as solar you know our primary opportunities probably in the plasma space, where many of these solar cells solar panels need extremely precise.
Thin layers of various things deposit on a flat surface and this is a ideal type of application for plasma.
And so we we provided basically RF solutions.
For thin film manufacturers, which includes solar.
Alright, thanks very much.
Thank you.
Thank you.
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