Q3 2024 Entegris Inc Earnings Call
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Bill Seymour: Welcome to the Integris 3rd Quarter 2024 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. So others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star 0.
Speaker Change: Welcome to the Integra third quarter 'twenty 'twenty four earnings conference call. At this time, all participants have been placed on a listen only mode and the floor will be opened for your questions. Following the presentation. If you would like to ask a question at that time. Please press star one on your telephone keypad. If at any point. Your question has been answered you may remove yours.
Speaker Change: From the queue by pressing star Jim So others can hear your questions clearly, we ask that you pick up your handset or by some quality lastly, if you should require operator assistance. Please press star Zero I would now like to turn the call over to Bill Seymour Vice President of Investor Relations.
Bill Seymour: I would now like to turn the call over to Bill Seymour, Vice President of Investor Relations. Good morning, everyone. Earlier today, we announced the financial results for our third quarter of 2024.
Speaker Change: Good morning, everyone earlier today, we announced the financial results for our third quarter of 2024.
Bill Seymour: Before we begin, I would like to remind listeners that our comments today will include forward looking statements. These statements involve a number of risks and uncertainties, and actual results could differ materially from those projected in the forward looking statement. 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. Please refer to the information on the disclaimer slide in the presentation.
Speaker Change: Before we begin I would like to remind listeners that our comments today will include forward looking statements. These statements involve a number of risks and uncertainties and actual results could differ materially from those projected in the forward looking statements additional information regarding these risks and uncertainties is contained in our most recent annual report and such.
Speaker Change: Quarterly reports that we filed with the SEC.
Please refer to the information on the disclaimer slide in the presentation.
Bill Seymour: On this call, we will also refer to non-GAAP 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 integris.com. And finally, as a reminder, we have included in the appendix of the earnings slide presentation for your reference consolidated and divisional P&Ls that exclude divestitures for the first quarter of 2024 and for all four quarters of 2023.
Speaker Change: On this call. We will also refer to non-GAAP financial measures as defined by the SEC regulation G.
You can find a reconciliation table in today's news release as well as on our IR page of our website at Integra <unk> Dot com.
Speaker Change: And finally as a reminder, we have included in the appendix of the earnings Slide presentation for your reference consolidated and divisional P&L that exclude divestitures for the first quarter of 2024 and for all four quarters of 2023.
Bill Seymour: On the call today are Bertrand Loy, our CEO, and Linda LaGorga, our CFO.
Speaker Change: On the call today are trying to what our CEO and Linda <unk>, our CFO with that I'll hand, the call over to per truck.
Bertrand Loy: With that, I'll hand the call over to Bertrand. Thank you, Bill, and good morning. Our third quarter revenue, excluding divestitures, grew 7% year-on-year, but was below our expectations. Despite the softer top line, gross margin, EBITDA margin, and non-GAAP EPS were within our guidance. The industry recovery is happening, but it is happening slower than anticipated, and visibility continues to be limited. Customers with strong exposure to AI applications are performing well, but the rest of the industry remains challenged. And because Integris serves all parts of the industry ecosystem, including areas like mainstream and NAN, which remain muted, demand for our products is softer than our original expectations.
Speaker Change: Thank you Bill and good morning.
Speaker Change: Our third quarter revenue, excluding divestitures grew 7% year on year, but was below our expectations.
Speaker Change: Despite the softer top line gross margin EBITDA margin and non-GAAP EPS were within our guidance.
Speaker Change: The industry recovery is happening, but it is happening slower than anticipated and visibility continues to be limited.
Speaker Change: Customers with strong exposure to AI applications.
Speaker Change: Plumbing Wow.
Speaker Change: But the rest of the industry remains challenged.
Speaker Change: Because integra serves all parts of the industry ecosystem, including areas like mainstream and.
Speaker Change: Which remain muted demand for our products is softer than our original expectations.
Bertrand Loy: In addition, 2024 continues to be a year of limited technology transitions which limits our incremental wafer content gain opportunity and our level of art performance this year. Taking a closer look at our quarterly performance breakdown, MS division sales were up 14% year-on-year, excluding divestitures. Growth was particularly strong in CMP slurries and pads, advanced deposition materials, and etching chemistry. The MS division continues to benefit from the combination of the SCM and APS divisions, which has allowed us to leverage cost efficiencies to increase our R&D investment in support of our customers' technology roadmaps. AMH and MC division sales were up slightly in the third quarter year-on-year.
Speaker Change: In addition, 2024 continues to be a year of limited technology transitions, which limit so incremental wafer content gain opportunity and our level of outperformance this year.
Speaker Change: Taking a closer look at our quarterly performance breakdown.
Speaker Change: And this division sales were up 14% year on year, excluding divestitures divestitures.
Growth was particularly strong in CMP slurry and pads advanced deposition materials and etching chemistries.
Speaker Change: Most division continues to benefit from the combination of the SCM and Aps divisions, which has a notice to leverage cost efficiencies to increase our R&D investment in support of our customers' technology Roadmaps.
Speaker Change: G and H and M. C Division sales were up slightly in the third quarter year on year.
Bertrand Loy: Growth this year in AMH and MC has been impacted by the lower demand from mainstream logic customers, slower NuFab construction activity, and reduced backlog which positively benefited sales last year. At Integris, we are continuously looking at ways to streamline and optimize our operations. To that end, we have decided to combine our AMH and MC divisions. They both support the same mission of enabling materials purity. They both serve similar customer segments. They also serve similar applications inside and outside the fab. And AMH is actually one of MC's largest suppliers. With this combined structure, we will develop greater product synergies, optimize our go-to-market strategy, and further increase and differentiate the value we create for our customers.
Speaker Change: Growth this year in aim HN AMC has been impacted by the lower demand from mainstream logic customers slowing new fab construction activity and reduced backlog, which positively benefited sales last year.
Grace: I didn't say Grace, we are continuously looking at ways to streamline and optimize our operations to that end, we have decided to combine our <unk> and C divisions.
Grace: They both support the same mission of enabling materials purity. They both serve similar customer segments. The ulcer similar applications inside and outside the fab in <unk> is actually one of <unk> largest suppliers.
Grace: With this combined structure, we will develop greater product synergies optimize our go to market strategy and further increase and differentiate the value we create for our customers.
Bertrand Loy: As a result of this combination, we expect to generate $10 to $15 million in annualized cost savings that will be reinvested to maintain adequate investment levels in R&D and increase investments in new operational capabilities to better meet our customers' evolving expectations while we continue to operate within the framework of our published target model.
Grace: As a result of this combination we expect to generate $10 million to $15 million in annualized cost savings that will be reinvested to maintain adequate investment levels in R&D and increased investments in new operational capabilities to better meet our customers.
Grace: Evolving expectations, while we continue to operate within the framework of our.
Grace: Published target model.
Bertrand Loy: A few other important items that we'd like to highlight. Our team at our new facility in Kaohsiung, Taiwan, continues to make good progress. Customer qualifications ahead of the end-to-ramp are progressing and remain our number one priority. We are also progressing rapidly at our new Colorado site. Construction of the building for phase one is essentially complete. Two installations are starting this quarter and we expect to ramp up production in second half of 2025. In addition, we continue to negotiate the final terms of the CHIPS grant award and look forward to completing the process in the coming months.
Grace: A few other important items that we'd like to highlight.
Speaker Change: Our team.
Our new facility in Kaohsiung, Taiwan continues to make good progress customer qualifications ahead of you and to ramp our progressing and remain our number one priority.
Speaker Change: We are also progressing rapidly new Colorado site.
Speaker Change: Contraction of the building for phase one is essentially complete tool.
Speaker Change: <unk> installation, so starting this quarter and we expect to ramp up production in the second half of 2025.
Speaker Change: In addition, we continue to negotiate the final terms of the Chiefs Grant award and look forward to competing the process in the coming months.
Bertrand Loy: Our investments in Taiwan and Corrado will provide manufacturing capacity to support the significant growth we expect in the coming years. Given the muted industry recovery we have been experiencing for the past several quarters, we remain focused on balancing costs and maintaining strong profitability. while continuing to engage with customers on their technology roadmaps and continuing to fund critical investments that improve our competitiveness and position us for the upturn. On that note, we are pleased with the POR positions we have secured for key new logic and memory nodes. In particular, our efforts in molybdenum, or moly, deposition materials are progressing well.
Speaker Change: Our investments in Taiwan in Colorado will provide manufacturing capacity to support the significant growth we expect in the coming years.
Speaker Change: Given the muted industry recovery, we have been experiencing for the past several quarters, we remain focused on balancing cost and maintaining strong profitability.
Speaker Change: While continuing to engage with customers on their technology, Roadmaps and continuing to fund critical investments that improve our competitiveness and position us for the upset.
Speaker Change: On that note. We are pleased with the P. O. All positions, we have secured four key new logic and memory nodes in particular.
Speaker Change: Efforts in molybdenum Marty deposition materials are progressing well.
Bertrand Loy: We have already received several PPOR wins in Mali and are well positioned for more. We are particularly excited about these POR positions as they represent incremental Integris content for wafer opportunities, in part, because we do not make the deposition materials MOLLE replacements. We continue to expect MOLI will be implemented in the upcoming 3D Nano transitions expected next year, and in logic, sometime later. These wins validate that our customers' technology roadmaps continue to be opportunity-rich for Integris as they drive for more complex device architectures and further miniaturization. The resulting process complexity is making our expertise in material science and materials purity increasingly valuable.
Speaker Change: We have already received several key wins and Marty and are well positioned for more.
Grace: We are particularly excited about these positions as they represent incremental integrity content per wafer opportunities in part because we do not make the deposition materials multi it replaces.
Grace: We continue to expect money would be implemented in the upcoming <unk> NAND node transitions expected next year and in logic sometime later.
Grace: These wins validate that our customers' technology roadmaps continue to be opportunity rich for integra.
Speaker Change: The drive for more complex device architectures and further miniaturization.
Speaker Change: The resulting process complexity is making our expertise in material science and materials purity increasingly value aboard which is expected to fuel our market outperformance and incremental content per wafer opportunities in the U S to come.
Bertrand Loy: which is expected to fuel our market art performance and incremental content for wafer opportunities in the years to come.
Linda LaGorga: Let me now turn the call over to Linda. Linda?
Speaker Change: Let me now turn the call over to Linda Linda.
Linda LaGorga: Good morning and thank you, Bertrand. Our sales in the third quarter of $808 million were up 7% year over year, excluding the impact of divestitures. On an as-reported basis, our sales were down approximately 9% year over year, and down 1% sequentially. Foreign exchange negatively impacted revenue by $1 million year over year and positively impacted revenue by $3 million sequentially in Q3.
Linda: Good morning, and thank you Bertrand.
Linda Linda: Our sales in the third quarter of $808 million were up 7% year over year, excluding the impact of divestitures.
Linda: On an as reported basis, our sales were down approximately 9% year over year and down 1% sequentially.
Linda: Foreign exchange negatively impacted revenue by $1 million year over year and positively impacted revenue by $3 million sequentially in Q3.
Linda LaGorga: Our sales in the third quarter were below our expectations, driven by a softer overall semi-market, especially in mainstream and 3D NAN. and Discrete Supply Chain Constraints. Gross margin on a gap and non-gap basis was 46% in the third quarter within our guidance range. Operating expenses on a gap basis were $236 million in Q3. Operating expenses on a non-GAAP basis in Q3 were $186 million below our guidance. Adjusted EBITDA in Q3 was 28.8% of revenue within our guidance range. Net interest expense was $50 million in Q3. The GAAP tax rate in Q3 was approximately 10% and the non-GAAP tax rate was 13%.
Linda: Our sales in the third quarter were below our expectations driven by softer overall semi market, especially in mainstream and three D. NAND.
Speaker Change: Discrete supply chain constraints.
Speaker Change: Gross margin on a GAAP and non-GAAP basis was 46% in the third quarter within our guidance range.
Speaker Change: Operating expenses on a GAAP basis or 236 million in Q3.
Speaker Change: Okay.
Speaker Change: Operating expenses on a non-GAAP basis in Q3 were $186 million below our guidance.
Speaker Change: Adjusted EBITDA in Q3 was 28, 8% of revenue within our guidance range.
Speaker Change: Net interest expense was $50 million in Q3.
Speaker Change: The GAAP tax rate in Q3 was approximately 10% and the non-GAAP tax rate was 13%.
Speaker Change: Okay.
Linda LaGorga: GAP diluted EPS was $0.51 per share in the third quarter. Non-GAAP EPS was $0.77 per share within our guidance range. Sales for MS Division in Q3 were $347 million. Sales were up 14% year-on-year, excluding the impact of divestitures. Sales were up 1% sequentially. The largest contributors to the sales increase were CMP slurries and advanced deposition materials. Adjusted operating margin for MS was 20.7% for the quarter, approximately flat sequentially. Our AMH division sales in Q3 of $182 million were up 1% year-on-year. and we're down 3% sequentially.
Speaker Change: GAAP diluted EPS was <unk> 51 per share in the third quarter.
Speaker Change: non-GAAP EPS was <unk> 77 per share within our guidance range.
Speaker Change: Sales for MFS Division in Q3 was $347 million.
Speaker Change: Sales were up 14% year on year.
Speaker Change: Excluding the impact of divestitures.
Speaker Change: Sales were up 1% sequentially.
Speaker Change: The largest contributors to the sales increase were CMP slurry and advanced deposition materials.
Speaker Change: Adjusted operating margin for MFS was 27% for the quarter approximately flat sequentially.
Speaker Change: Our A&H division sales in Q3 of $182 million were up 1% year on year.
Speaker Change: And were down 3% sequentially.
Linda LaGorga: The sequential decline was primarily driven by lower demand of our CAPEX-driven microenvironments products. Adjusted operating margin for AMH was 16.8% for the quarter. The 140 basis points sequential increase in margin was primarily driven by lower spending. Q3 sales for our MC division of $287 million were up slightly year-on-year and were down 2% sequentially. Revenue was down across most major product lines except for gas filtration. Adjusted operating margin for MC was 33.7% for the quarter, up 180 basis points sequentially. The sequential increase in the margin was driven by lower spending and a more favorable mix.
Speaker Change: The sequential decline was primarily driven by lower demand of our Capex driven microenvironment products.
Speaker Change: Adjusted operating margin for Am H was 16, 8% for the quarter.
Speaker Change: The 140 basis points sequential increase in margin was primarily driven by lower spending.
Speaker Change: Q3 sales for RMC division of $287 million were up slightly year on year.
Speaker Change: We were down 2% sequentially.
Speaker Change: Revenue was down across most major product lines, except for gas filtration.
Speaker Change: Adjusted operating margin for AMC with 33, 7% for the quarter up 180 basis points sequentially.
Speaker Change: The sequential increase in the margin was driven by lower spending and a more favorable mix.
Linda LaGorga: Moving on to cash flow. Third quarter free cash flow was $115 million. CapEx for the quarter was $82 million. We now expect to spend approximately $300 million in total CapEx in 2024, down from our previous expectation of $350 million.
Speaker Change: Moving on to cash flow.
Speaker Change: Third quarter free cash flow was $115 million.
Speaker Change: Capex for the quarter was $82 million.
Speaker Change: We now expect to spend approximately $300 million in total capex in 2024 down from our previous expectation of $350 million.
Linda LaGorga: While not reflected in the Q3 balance sheet, shortly after the end of the quarter, we paid down $65 million of the term loan from cash on hand. which means to date, we have paid down approximately $1.9 billion of total debt since the close of the CMC acquisition. The blended interest rate on the debt portfolio is approximately 4.9%. And since the term loan is fully hedged, currently 100% of our debt is fixed. As of the beginning of October, our gross debt was approximately $4.1 billion and our net debt was approximately $3.8 billion. Gross leverage was 4.6 times and net leverage was 4.2 times.
Speaker Change: While not reflected in the Q3 balance sheet. Shortly after the end of the quarter, we paid down $65 million of the term loan from cash on hand.
Speaker Change: Means to date, we have paid down approximately $1 9 billion of total debt since the close of the CMC acquisition.
Speaker Change: The blended interest rate on the debt portfolio is approximately four 9%.
Speaker Change: And since the term loan is fully hedged currently 100% of our debt is fixed.
Speaker Change: As of the beginning of October.
Speaker Change: Gross debt was approximately $4 $1 billion.
Speaker Change: Our net debt was approximately $3 $8 billion.
Speaker Change: Gross leverage was four six times and net leverage was four two times.
Linda LaGorga: We will continue to use our free cash flow to repay debt and we remain committed to reducing our leverage.
Speaker Change: We will continue to use our free cash flow to repay debt.
Speaker Change: And we remain committed to reducing our leverage.
Linda LaGorga: Moving on to our fourth quarter outlook. We expect sales to range from $810 million to $840 million. This equates to a year-on-year revenue growth of approximately 8% excluding divestitures. We expect the EBITDA margin to range from 28.5% to 29.5%, consistent with the flow-through of our target model we shared at our analyst day. We expect GAAP EPS to be $0.49 to $0.56 per share. and Nongap EPS to be $0.75 to $0.82 per share.
Speaker Change: Moving on to our fourth quarter outlook.
Speaker Change: We expect sales to range from $810 million to $840 million.
Speaker Change: This equates to a year on year revenue growth of approximately 8% excluding divestitures.
Speaker Change: We expect the EBITDA margin to range from $28 five to 29, 5%.
Speaker Change: <unk> with the flow through of our target model, we shared at our analyst day.
Speaker Change: Yeah.
Speaker Change: We expect GAAP EPS to be 49 to 56 cents per share.
Speaker Change: And non-GAAP EPS to be 75 to 82 per share.
Linda LaGorga: Let me provide additional modeling information for Q4. We expect a gross margin of 45.5 to 46.5 percent, both on a gap and non-gap basis. GAAP operating expenses of $232 million to $236 million and non-GAAP operating expenses of $186 million to $190 million. We also expect depreciation of approximately $48 million. Net Interest Expense of approximately $52 million. and a non-GAAP tax rate of approximately 15%.
Speaker Change: Let me provide additional modeling information for Q4.
Speaker Change: We expect gross margin of 45.5 to 46, 5%.
Speaker Change: Both on a GAAP and non-GAAP basis.
Speaker Change: GAAP operating expenses of $232 million to $236 million.
Speaker Change: non-GAAP operating expenses of $186 million to $190 million.
Speaker Change: We also expect depreciation of approximately $48 million.
Speaker Change: Net interest expense of approximately $52 million.
Speaker Change: And a non-GAAP tax rate of approximately 15%.
Bertrand Loy: I'll now hand it back over to Bertrand for some closing remarks.
Speaker Change: I'll now hand, it back over to Bertrand for some closing remarks.
Bertrand Loy: Thank you, Linda. In closing, for the full year, excluding divestitures, we expect sales to grow 4%, and we expect EBITDA to grow 8%, continuing to demonstrate the leverage that exists in our model. As Linda noted, we also remain committed to paying down debt and lowering our leverage. While 2024 is a year of transition for the semiconductor industry, looking ahead, we remain very confident about the growth prospects for both the industry and for Integris. In the meantime, we continue to manage through a soft market environment focused on delivering strong profitability in line with our target model while making the necessary investments to position us for the future.
Bertrand: Thank you Linda in closing for the full year, excluding divestitures, we expect sales to grow 4%.
Bertrand: And we expect EBITDA to grow 8% continuing to demonstrate the leverage that exists in our model.
Bertrand: As Linda noted, we also remain committed to paying down debt and lowering our leverage.
Bertrand: While 2024 is a year of transition for the semiconductor industry. Looking ahead, we remain very confident about the growth prospects for both the industry and for integrity.
Bertrand: In the meantime, we continue to manage through a soft market environment focused on delivering strong profitability in line with our target model.
Bertrand: While making the necessary investments to position us for the future.
Operator: With that, operator, let's open the line for questions. Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your telephone keypad. If at any point your question is answered, you may remove yourself from the queue by pressing star 2. Again, we ask that you pick up your handset when posing your questions to provide optimal sound quality.
Bertrand: Operator, let's open the line for questions.
Bertrand: Thank you.
Speaker Change: The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad. If at any point. Your question is answered you may remove yourself from the queue by pressing star to you again, we ask that you pick up your handset when posing your questions provide optimal sound quality and our first question is coming from <unk> Hari with Goldman.
Toshiya Hari: And our first question is coming from Toshiya Hari with Goldman Sachs. Please go ahead. Hi, good morning. Thank you so much for taking the question. Bertrand, I guess on 2024 and your view into 2025, I think based on your updated outlook, you're taking down 2024 revenue by about $85 million. I know you spoke to a couple of factors driving the reduction, but if you can sort of expand on what you're seeing in mainstream and NAND, that would be super helpful. And then into 2025, you talked a little bit about molybdenum. I think there's an expectation for GATE all around to provide a tailwind to your business as well.
Bertrand: <unk>. Please go ahead.
Hari: Hi, good morning. Thank you so much for taking the question Bertrand I guess some.
Hari: On 2024, and your view into 'twenty five.
Hari: I think based on your updated outlook Youre, taking down 24 revenue by about $85 million.
Hari: I know you spoke to a couple of <unk>.
Hari: Factors driving the reduction, but if you can sort of expand on what youre seeing in mainstream in there and that would be super helpful. And then into 'twenty five you talked a little bit about molybdenum I think.
Hari: There is an expectation for forget all around to.
Hari: Provide a tailwind to your business as well how are you thinking about your ability to outperform the market and if you can sort of.
Bertrand Loy: How are you thinking about your ability to outperform the market? And if you can sort of provide some quantitative feel into 2025, the rate of outperformance, that would be super helpful. Thank you. Yeah, thank you, Toshiya.
Hari: Provide some quantitative.
Hari: Feel into 25% rate of outperformance that would be super helpful. Thank you.
Hari: Okay.
Speaker Change: Yeah. Thanks, <unk>. So let me start with our view on the market for 2004, which has evolved I mean, I'll just see about a quarter ago, we're expecting the industry to grow at about 3% of use or more.
Bertrand Loy: So let me start with our view on the market for 2024, which has evolved. I mean, obviously, about a quarter ago, we were expecting the industry to grow at about 3% of use or more moderate with the expectation that the industry will be growing at about 1% to 2%. And that comes from wafer starts up modestly, think about plus 1% range, roughly. And that's a function of strength in advanced logic, obviously. But memory remains very subdued, and mainstream remains very challenged. So the net of that again, wafer starts up about 1%. 24. The industry capex is also a little bit of a state of two cities with WFE up and improving and we expect WFE to be up in the mid-single digit.
Hari: Moderates.
Hari: With the expectation that the industry will be growing at about 1% to 2% and that comes from.
Hari: With his thoughts up modestly.
Bertrand: About plus 1% range, roughly and Thats a function of strength in advanced logic obviously.
Bertrand: But memory remains very subdued.
Bertrand: In mainstream remains very challenged so the net of that again wafer starts up about 1%.
Bertrand: 24.
Bertrand: The industry Capex, it's also a little bit of state of two cities with Wi Fi.
Bertrand: <unk>.
Bertrand: Up and improving and we expect <unk> to be up in the mid single digit in 2024, but perhaps construction activity has declined and.
Bertrand Loy: 2024. But the fact is construction activity has declined and we expect that to be a headwind for CAPEX. So overall, CAPEX, our view is that it's going to be up in the low single digit in 2024. So, in that context, you know, we expect... To outperform the industry by about three points this year on a constant currency basis, a lot of the growth is obviously coming from our material solution division. But again, I think it's a difficult industry backdrop for us to outpace the industry simply because there hasn't been a lot of node transition this year, none in logic and very modest transitions in memory.
Bertrand: And we expect that to be a headwind for capex. So overall capex.
Bertrand: Our view is that it's going to be up into the into low single digit.
Bertrand: In 24.
Bertrand: So in that context, we expect.
Bertrand: <unk> outperformed the industry by about three points this year on a constant currency basis, but a lot of the growth is obviously coming from our material solution Division.
Bertrand: But again I think it's it's a difficult industry backdrop for us to outpace the industry simply because <unk> been a lot of node transition this year.
Bertrand: None in logic.
Bertrand: And very modest traditions in memory so.
Bertrand Loy: So, and you're inviting me to provide maybe and contrast the picture going into 2025 and qualitatively. I would agree with your implied statement.
Bertrand: And Youre inviting me to provide maybe an income trust the picture going into 2025 and qualitatively.
Bertrand: I would agree with.
Bertrand: Your implied statement, we expect.
Bertrand Loy: Thank you to the journalists and the presenters. and hopefully the introduction of molybdenum next year. And all of that actually should create the conditions for us to be able to operate on the higher end of our market outperformance range of three to six. That's really helpful.
Bertrand: The industry to be in a better state and we expect to see more activity in terms of node transitions both in logic as well as in memory, where we expect the non in particular, we expect the transition to <unk>.
Bertrand: 300 <unk>.
Bertrand: Plus.
Bertrand: Devices, and then hopefully the introduction of of molybdenum.
Bertrand: Next year.
Bertrand: And all of that could you should create the conditions for us to be able to operate on the higher end of our market outperformance range of three to six points.
Bertrand: Yeah.
Speaker Change: That's really helpful and then as my follow up.
Toshiya Hari: And then as my follow-up on the molybdenum opportunity, you mentioned you expect adoption in 2025. I was hoping you could sort of contextualize the opportunity for us. I know for Integris, no one product group or application accounts for a large percentage of revenue, but I do get this question a lot from investors. How should we think about the magnitude of the tailwind in 2025 as hopefully a couple of your customers make that transition? And I know you talked about Logic adopting molybdenum in the out years as well. So how big is the opportunity for you into 2025 and how big could it be over the medium to long run?
Speaker Change: On the molybdenum opportunity.
Speaker Change: You mentioned you expect adoption in 2025, I was hoping you could sort of contextualize the opportunity for us I know for Integra no one.
Bertrand: Product group, our application accounts for a large percentage of revenue, but I do get this question a lot from investors.
Bertrand: How should we think about the magnitude of a tailwind in 'twenty five as hopefully a couple of your customers make that transition and I know you've talked about logic.
Bertrand: Adopting molybdenum in the out years as well so how big is the opportunity for you into 'twenty, five and how how big could it be over the medium to long run.
Bertrand Loy: Thanks.
Bertrand Loy: Yeah, Toshiya, as you will understand, I won't provide a quantification to my answer simply because the timing of the adoption is still not entirely set. So a lot of things could move and obviously will impact the magnitude of the MOLLE opportunity for us in 2025. But we feel really good about... Our competitive standing, we believe that We have developed a film that is of great quality and we believe that we have developed a comprehensive. delivery solution for the material that actually provides the lower cost of ownership for our customers, both of which being obviously very important for our customers, especially at a time when they need to decide when to introduce molybdenum in high-volume manufacturing.
Speaker Change: Yes, Toshi I was as you will understand I wont.
Bertrand: Provide quantification.
Bertrand: My answer is simply because the timing of.
Bertrand:
Bertrand: The adoption.
Bertrand: Is still not entirely Seth so a lot of things can move and obviously will impact the magnitude of the multiyear opportunity for us in 2025, but we feel really good about.
Bertrand: Sure.
Bertrand: Our competitive standing we believe that.
Bertrand: We have developed a film that is of great quality.
Bertrand: And we believe that we have developed a comprehensive.
Bertrand: Delivery solution for the material that actually provides the lowest cost of ownership for our customers both of which being obviously very important for our customers.
Bertrand: Especially at a time when they need to decide when to introduce molybdenum in high volume manufacturing. So we feel good about where we stand today, obviously a lot of work.
Bertrand Loy: So we feel good about where we stand today. Obviously a lot of work for everyone in the ecosystem before moly is fully adopted in high volume, but we feel good about where we stand.
Bertrand: Everyone in the ecosystem before <unk> is fully adopted.
Bertrand: And in high volume, but we feel good about where we stand today.
Toshiya Hari: Got it. Thanks, Bertrand.
Speaker Change: Got it thanks for your time.
Operator: Thank you.
Speaker Change: Thank you and our next question is coming from Bob <unk> with BMO capital markets. Please go ahead.
Bhavesh Lodaya: And our next question is coming from Bhavesh Lodaya with BMO Capital Markets.
Bhavesh Lodaya: Please go ahead. Good morning Bertrand. Maybe to follow up on that conversation. So in the current backdrop of slower mainstream growth, you are exiting the year with a sales growth of around 8% year over year. Now expectations are for MSI to grow faster next year. You also have more fab startups next year.
Bertrand: Okay.
Bob <unk>: Hi, good morning.
Bob: Maybe to follow up on that conversation.
Bertrand: And backdrop of slower mainstream growth.
Bertrand: Exiting the year and with the <unk> eight.
Bertrand: <unk>, 8% year over year.
Bertrand: No expectations for MSI too.
Bertrand: Foster's next year.
Speaker Change: They have more fab startups next year is it fair to say all else equal you would see top line growth of at least 8% next year and then.
Bertrand Loy: So is it fair to say all else equal, you would see top line growth of at least 8% next year and then hopefully a faster or a stronger outperformance over that?
Bertrand: Hopefully a faster outperform.
Bertrand: The outperformance over that.
Bertrand Loy: Look, I will not quantify our views about 2025 on this call today. It's just too early for us to do that. But as I said, I think there are reasons to be optimistic in terms of. The industry and NMSI in particular, we believe that the inventory digestions that have been a major headwind in memory and in mainstream will largely be behind us or should be behind us as we turn into 2025. We also expect better conditions for a PC refresh cycle going into 2025. So all of that should be a basis for better industry fundamentals for 2025.
Speaker Change: Look I will not quantify of use about 2025 on this call today. So it's just too early for us to do that but as I said I think there are reasons to be optimistic.
Bertrand: In terms of <unk> industry and MSI in particular, we believe that.
Bertrand: The inventory Digestions, there have been a major headwind in memory and in midstream.
Bertrand: Well largely be behind us so should be behind us as we turn into 2025, we also expect better conditions for the PC refresh cycle going into 2025, so all of that should be a basis for battery industry.
Bertrand: Fundamentals.
Bertrand Loy: But again, I'm not going to comment and I'm not going to quantify all of that on this call today. Understood.
Bertrand: For 2025, but again I'm, not I'm, not going to comment and I'm not going to quantify all of that on this call today.
Speaker Change: Understood and maybe a couple of questions on the Taiwan DSP facility is that timeline for customer qualifications in line with what your expectations, but are they on time or the slower.
Bertrand Loy: And maybe a couple of questions on your Taiwan KSP facility. Is the timeline for customer qualifications in line with what your expectations were? Are they on time? Are they slower? And then, are you still seeing the $40 million of sales that you expected for this year? Yeah, so I think that the qualifications are progressing well and they remain our number one priority. Right? It's very important for us to try to qualify as many of the KSP-made products ahead of the N2 ramp next year. So if you look at the fluid handling and the deposition materials, the qualifications are mostly complete.
Speaker Change: And then are you still seeing the $40 million of sales that you expected for this year.
Speaker Change: Yes, so I think that the qualifications are progressing well and they remain our number one priority right. It's important for us to try to qualify as many of the case be made products ahead of the end too.
Speaker Change: Ramp next year so.
Bertrand: If you look at the fluid handling and the deposition materials qualification cycle.
Bertrand: Recompete.
Bertrand Loy: Right? Right. For our liquid filters, it's taking a little bit longer, as expected, and it's taking longer because we chose actually to not take a copy exact approach when transferring the manufacturing capacity there. We changed both the process and we changed the supply chain. By that I mean we wanted to be relying more on local chemical suppliers or regional chemical suppliers. All of that will yield long-term benefits, for sure, in terms of shorter lead times and a more resilient supply chain. But it just takes longer for both us and our customers to qualify the line.
Bertrand: For our liquid filters, it sticking a little bit longer as expected and it's taking longer because.
Bertrand: We chose actually to not.
Bertrand: Take a copy exact approach when transferring the manufacturing capacity there.
Bertrand: We changed both the process and we change the supply chain.
Bertrand: I mean, we wanted to be relying more on roku chemical suppliers or region with chemical suppliers. So.
Bertrand: All of that will yield long term benefits for sure in terms of shorter lead times.
Bertrand: More resilient.
Bertrand: Resilient supply chain.
Bertrand: But it just takes longer for both us and our customers to qualify the line.
Bertrand Loy: But we're pleased with the progress.
Bertrand: We are pleased with the progress.
Speaker Change: Thank you.
Operator: Thank you.
Speaker Change: Thank you and our next question is coming from John Roberts with Mizuho. Please go ahead.
John Roberts: And our next question is coming from John Roberts of Mizzou Hope. Please go ahead. Thank you.
John Roberts: Thank you.
Bertrand Loy: Will AMH and MC be reported separately in the December quarter? Yes, they will.
John Roberts: Hey, Amit and N CB will be reported separately in the December quarter.
Speaker Change: Yes, they will.
Bertrand Loy: Thank you.
Speaker Change: Okay, Oh, no no no I'm sorry, it's a separate day no no no no we will combine.
Speaker Change: I am sorry, yes, we will combine them.
Speaker Change: Starting Q4 of this year.
Bertrand Loy: Okay, and then what kept you from doing this earlier, and what keeps you from combining MS as well and going to just being a one-segment company? Well, I think that there are really two parts to our value proposition. One is really around materials purity, and then the other one is really around material solutions. So, we went through a little bit of an experiment last year when we combined SCM and APS, and that experiment paid off. I think we were able to generate cost synergies, which did allow us to increase the level of reinvestment into R&D.
Speaker Change: Okay, and then what kept you from doing that earlier and what keeps you from combining MFS as well go into just being a one segment company.
Speaker Change: Well I think that.
Speaker Change: There are really two parts to our value proposition one is really around materials purity and then the other one is really around material solutions. So.
Speaker Change: We went through a little bit of an experiment last year, when we combine STM in EPS.
Speaker Change: And that experiment paid off I'd say, we were able to generate.
Speaker Change: Cost synergies, which didn't allow us to increase the level of reinvestment into into R&D and.
Bertrand Loy: And we've seen, actually, evidence of that. of the returns on those investments in the form of the success that we're seeing in MOLLE, the deposition materials, but also MOLLE Edge. Also great, you know, progress in slurry.
Speaker Change: And we've seen actually evidence.
Speaker Change: <unk>.
Speaker Change: Of the returns on those investments in the form of the success that we're seeing in Mali.
Speaker Change: Physician materials, but also muddy etch.
Speaker Change: So great.
Speaker Change: And our progress in in slurry, if you look at advanced foundries, we believe that for the.
Bertrand Loy: If you look at advanced foundries, we believe that for the The next node we should have... twice as much revenue in terms of slurry revenues. And that's, again, a function of the new level of investment in R&D and a new focus that we've been able to drive within that division.
Speaker Change: The next node we should have.
Speaker Change: Twice as much revenue in terms of slurry revenues and that's again a function of the new level of investment in R&D and our new focus that we've been able to drive within within the divisions. So so that experiment worked really well last.
Bertrand Loy: So that experiment worked really well last year for SCM and EPS, and we thought that it was time to actually do the same for AMH and MC. So something that we had been thinking about in the past, to your point, but I think we were emboldened by what we saw in SCMAPS. So again, as I said, very similar customers, very similar applications. Think about the solutions we developed for the bulk chemical manufacturers, the solutions that you will find in the chemical loops, in the subfabs, but of course also all of the solutions in the wet tools in the fab floor.
Speaker Change: Last year for HCM, and EPS and we thought that.
Speaker Change: It was time to actually.
Speaker Change: Do the same for A&H and NMC. So we something that we had been thinking about in the past to your point.
Speaker Change: But the thing we were emboldened by what we saw in SCM Aps. So again as I said very similar customers stay similar applications. So think about the solutions, we different up for bulk chemical manufacturers distributions that you will find in the chemical loops into sub fabs, but.
Speaker Change: Of course, our sort of the solutions into wet tools in the fab floor.
Bertrand Loy: So a lot of affinity between the two divisions, which will allow us to generate cost savings by eliminating the redundant cost of the support functions for two divisions. I would expect also a more optimum go-to-market strategy with a greater customer coverage, greater impact. And ultimately, I think that by combining the R&D organizations, I would expect to unlock new product development synergies, which ultimately will drive further differentiation. So I think that, you know, having two segments, two divisions is the right way to organize the company. And it's very consistent, by the way, with the way we've been describing our value proposition to investors and to customers.
Speaker Change: So a lot of high affinity between the two the two divisions, which will allow us to generate cost savings by eliminating.
Speaker Change: The redundant cost of to support functions with two divisions.
Speaker Change: I would expect or so.
Speaker Change: E.
Speaker Change: A more optimum go to market strategy with a greater customer coverage greater impact.
Speaker Change: And ultimately I think that by combining the R&D organization. So I would expect to unlock new product development synergies, which ultimately will drive further differentiation itself.
Speaker Change: So I think that I think I think two segments. Two divisions is the right way to organize the company and its very consistent by the way with the way we've been we've been disc.
Speaker Change: Describing our value proposition to investors and to customers.
Speaker Change: Thank you.
Speaker Change: Thank you and we will take our next question from Melissa <unk> with Deutsche Bank. Please go ahead.
Melissa Weathers: And we will take our next question from Melissa Weathers with Deutsche Bank. Please go ahead. Hi there, thank you for letting me ask a question. On the leading edge side, can you help us? I know we've got, for good news on the gate-all-around side, even the three nanometer nodes appear to be doing well. So can you help us reconcile the weakness that you're seeing and the strength that you're seeing on the AI side at the leading edge? And then, especially ahead of the gate-all-around node ramps, can you talk about any lumpiness? How do the customer behavior, like purchasing patterns, differ at the beginning of a node cycle versus once they ramp into high-volume production?
Melissa: Hi, there. Thank you for letting me ask a question.
Melissa: On the leading edge side can you help us I know we've got them for good news on the gate all around side, even the three nanometer nodes appear to be doing well. So can you help us reconcile the weakness that youre seeing and the.
Melissa: The strength that youre seeing on the AI side at the leading edge and then especially ahead of the gate all around node ramps can you talk about like any lumpiness or what how does the customer behavior like purchasing patterns differ at the beginning of a node cycle versus once they ramp in high volume production.
Bertrand Loy: Yeah, so, I mean, I think, look, if you look at our revenue... Going into advanced foundry, I mean, we are seeing very healthy growth, as you would expect, right? You know, we, we, we don't. We don't offer customer details on those calls, but if you look at Taiwan as a proxy, you will see that year-to-date we are growing at 15%. And again, It's a combination of a number of different players on this particular geography. So highlighting the strength of Advanced Foundry and the benefit of AI-related demand. When it comes to your second question around...
Speaker Change: Yes, so I mean, I think look if you look at our revenue.
Speaker Change: Going into advanced.
Speaker Change: Foundry I mean, we are seeing.
Speaker Change: <unk>.
Speaker Change: Has the growth as you would expect right.
Speaker Change: And.
Speaker Change: We don't.
Speaker Change: We don't offer customer details on those calls but.
Speaker Change: If you look at that.
Speaker Change: Taiwan is a proxy you will see that year to date, we're growing at <unk>.
Speaker Change: 15% and again, it's it's a combination of a number of different players on this particular.
Speaker Change: The geography so.
Speaker Change: Highlighting.
Speaker Change: The strength of.
Speaker Change: With advanced foundry and.
Speaker Change: The benefit of AI related demand.
Speaker Change: When it comes to your second question around.
Bertrand Loy: The Shape of the Revenue Opportunity During a New Transition. So, when it comes to consumable products... It's, you know, it starts with. early orders of filters to flush the lines. And we are actually seeing some of that in Q4 of this year. And we're going to see an acceleration of that in the beginning of next year. And then you will see actually the first orders for chemistries and materials. I expect to see some of that in the first quarter of next year. The levels of demand for both of those products will start normalizing after. You know, you go through the first phase of inefficiencies that are...
Speaker Change: The shape of the revenue opportunity doing a node transition.
Speaker Change: So when it comes to consumer products.
Speaker Change: It starts with.
Speaker Change: Early orders of filters to flush the lines and we are actually seeing some of that in Q4 of this year and we're going to see an acceleration of that.
Speaker Change: In the beginning of next year.
Speaker Change: And then.
Speaker Change: And then you will see actually the first orders for four Chemistries and materials. So I expect to see some of that.
Speaker Change: In the first quarter of next year.
Speaker Change: On.
Speaker Change: The levels of demand for both of those products would start normalizing.
Speaker Change: Two.
Speaker Change: You go through the first phase of inefficiencies that are.
Melissa Weathers: and the organization. Thank you. That kind of helps with my next question.
Speaker Change: Inherent to doorsteps of France, So it's it's always.
Speaker Change: Something that we discover with was the customers it's hard to to entirely forecast, but so that's the way to think about the evolution of the opportunity.
Speaker Change: In the early <unk>.
Speaker Change: Pages of a ramp.
Speaker Change: Thank you.
Speaker Change: That kind of helps with my next question, but.
Bertrand Loy: So now that you've re-segmented a couple of times, you've divested a few businesses, can you help us think about normal seasonality? And I don't want you to guide 2025 or anything, but are there any big quarters, especially with your consumables business and your materials business, any big quarters or lower quarters that we should appreciate? Well, I think the last few years have been anything but normal, so it's a little bit hard to talk about normal seasonality, but I would say in a normal year. You know, Q1 is usually a slower quarter, and that you see actually, you know, an acceleration in Q2, Q3.
Speaker Change: So now that you've re segmented a couple of times you've divested.
Speaker Change: Few businesses can you help us think about like normal seasonality and I don't want you to guide 2025 or anything but are there any big quarters, especially with your consumables business in your materials business any big quarters are lower quarters that we should appreciate.
Speaker Change: Well, let's say.
Speaker Change: Last few years.
Speaker Change: Anything, but normal so it's a little bit hard to them to talk about normal seasonality, but I would say in a normal year.
Speaker Change: Q1 is usually a strong quarter.
Speaker Change: You see actually.
Speaker Change: And exploration in Q2 Q3.
Operator: Thank you.
Operator: Sure. Thank you.
Speaker Change: Thank you.
Speaker Change: Sure.
Speaker Change: Thank you and we will take our next question from <unk> Malik with Citi. Please go ahead.
Atif Malik: And we will take our next question from Atif Malik with Citi. Please go ahead. Hi, thanks for taking my question.
Speaker Change: Hi, Thank you for taking my questions. My first one is for Linda Linda in your prepared remarks, you talked about.
Linda LaGorga: My first one is for Linda. Linda, in your prepared remarks, you talked about 3Q being a bit weaker because of discrete supply chain constraints. Can you expand on that comment? Yeah, I can, I can take that Atif, it's, you know, so there were two issues really impacting our MC division, one impacting our gas purification system. platform and then the other one impacting our liquid filtration platform. The first really had to do with getting access to a very specific valve. It's been an ongoing you know, we became a real issue in Q4. The second impacting our liquid filtration products was really a contaminated batch of HCL.
Speaker Change: Thank you.
Speaker Change: A bit weaker because of discrete supply chain constrained can you expand on that comment.
Linda Linda: Yes, I can I can take that out.
Linda Linda: So there were two issues really impacting our NC division, one impacting our gas purification system.
Speaker Change: Platform and the other one impacting our liquid filtration platform. The first really had to do with getting access to a specific valve it's been an ongoing problem but.
Speaker Change:
Speaker Change: He became a real issue in <unk>.
Speaker Change: In Q4.
Speaker Change: The second impacting our liquid filtration.
Speaker Change: Products was really.
Speaker Change: Contaminated batch of HCI so.
Linda LaGorga: hydrochloric acid that So, we are in the process of...
Speaker Change: Hydro hydro chloric.
Speaker Change: Yes it.
Speaker Change: Debt.
Speaker Change: So we are in the process of.
Speaker Change:
Atif Malik: Sorting through those two issues, I would expect to see some improvement in those cases in Q4, but it will largely take until the beginning of next year for us to totally out of those two supply chain issues impacted. Got it. Thank you, Bertrand.
Speaker Change: Sorting through those two issues I would expect to see some.
Speaker Change: Improvement in both cases in Q4.
Speaker Change: But it will largely take until the.
Speaker Change: The beginning of next year for us too.
Speaker Change: To be totally.
Speaker Change: Out of those two supply chain issues impacting M C.
Speaker Change: Got it thank you Bertrand and from Nixon Bertrand I remember in the June quarter earnings you guys saw stability in China can you talk about what you saw in domestic China. Our overall, China in September quarter, and what are you seeing into the December quarter.
Bertrand Loy: And from the next one, Bertrand, I remember in the June quarter earnings, you guys saw stability in China. Can you talk about what you saw in domestic China or overall China in September quarter and what are you seeing into the December quarter? Yeah, business in China continues to do to do well. You know, we should look at China as a region. China has been growing at about 16% on a compounded average growth rate for the last 4-5 years. China is about a 20% region for us, so it's meaningful, but we don't quite have the same level of exposure as some of the equipment makers.
Bertrand: Yeah, our business in China continues to do to do well.
Speaker Change: But if you look at China as a region.
Speaker Change: China has been growing at about 16% on a compounded average.
Speaker Change: Growth rates for the last four five years.
Speaker Change: Hum.
Speaker Change: It's about a 20% region for us so it's meaningful but we don't quite have the same level of exposure as some of the equipment makers.
Bertrand Loy: But I would expect that number to be in the 20% to 25% range simply because a lot of new fabs have been built in China, and we would expect those fabs to start ramping production in the months and quarters to come. So again, good, good, good steady business and demand from our Chinese customers.
Speaker Change: But I would expect that number to be in the 20% to 25% range simply because a lot of new fabs have been built.
Speaker Change: In China, and we would expect those fabs to start.
Speaker Change: Ramping.
Speaker Change: <unk>.
Speaker Change: In the months and quarters to come so again good good good steady.
Speaker Change: Business.
Speaker Change: Demand from our Chinese customers.
Speaker Change: Thank you.
Speaker Change: Thank you and we will take our next question from Charles <unk> with Needham. Please go ahead.
Charles Shee: And we will take our next question from Charles Shee with Needham. Please go ahead. Hi, good morning. I do want to have a follow-up question on the overall market environment here. I think 90 days ago, you were directionally correct on mainstream going lower into second half of the year, and you were right about NAND not quite seeing a recovery. But I think so far, the theme of this call looks like mainstream and NAND seems to be the main factors contributing to the weakness.
Charles: Hi, good morning.
Speaker Change: I don't want to.
Speaker Change: A follow up question on the overall market environment here.
Speaker Change: The 90 days ago, you were Directionally correct mainstream going lower into second half of the year and you are right about NAND not quite seeing a recovery.
Speaker Change: I think so far the theme of this call it looks like the mainstream and NAND seems to be the main factors contributing to that.
Bertrand Loy: One day versus 90 days ago, can you give us a little bit of color of what has changed more to the worse, especially for these two segments, especially combined with what you just said, that China seems to be continuing to do well. It looks like non-China, especially on the mainstream side, has done a lot worse. Mind if we provide some more color to that? Yes, Charles, I think you're right. I think mainstream has been... more troubled than we were we were expecting. We've seen steady reduction in fab utilization. We've seen customers being intensely focused on.
Speaker Change: The witness.
Speaker Change: One day versus 90 days ago can you give us a little bit color whats what has changed more to the worse, especially for these two segments, especially combined with the way you just said that China seems to be continued to do well it looks like a non China, especially on the mainstream side has done a lot worse.
Speaker Change: And if you could provide some more color to that thank you.
Speaker Change: Yeah.
Speaker Change: Yes, sure so I think.
Speaker Change: Youre right I think mainstream has been.
Speaker Change: More troubled than we were we were expecting.
Speaker Change: We've seen steady reduction in fab utilization, we've seen customers.
Speaker Change: Being intensely focus on.
Bertrand Loy: And that extends even to SIC, you know, SIC remains a bright spot for mainstream customers, but our views... for more information. It's down in in the high single digit in terms of and and that's I think consistent with the level of MS side that we have. So the other question about China sounds like, you know, I look at historical numbers that China was roughly in the low to mid-teens. This year it looks like it's going to be 20%-ish or maybe plus. What's the long-term projection here? I think I heard you saying only 25%. I just want to clarify.
Speaker Change: Reducing inventory levels of products, you think risk products.
Speaker Change: And that extends even to SAIC FSIC remains a bright spot for mainstream customers, but all of us.
Speaker Change: For FSIC related demand has come down and has continued to come down and we started the year thinking that.
Speaker Change: As I see it would be up for us about in excess of 50%. We review, we've revised that to up around 30% based on customer forecast at the end of Q3 at the end of Q2.
Speaker Change: And right now we believe that SAIC will only be up 10%. So its up it remains.
Speaker Change: Right spot for mainstream fab, but overall, our mainstream fab activity is down quite a bit if we look at it.
Speaker Change: As an entire segment for us.
Speaker Change: It's down into high single digit in terms of and.
Speaker Change: And that's I think consistent with the.
Speaker Change: The level of Emmis sided we estimate.
Speaker Change: For mainstream Fabs in 2024.
Speaker Change: So the other question about China.
Speaker Change: It sounds like that.
Speaker Change: I looked at historical numbers that China was roughly in the low to mid teens yeah.
Speaker Change: This year it looks like it's going to be plenty of sand.
Speaker Change: Yes, so it might be a plus.
Speaker Change: What's the long term.
Speaker Change: What's the projections I think I heard you, saying on the 5% just wanted to clarify is that that long term projection on China contribution or.
Bertrand Loy: Is that a long-term projection of China contribution or maybe I misheard? Thank you. Yes, this is exactly true. So you're right that, you know, about four or five years ago China was representing about 15%, 17% of our revenue. Today it's tracking at about 20%. We expect longer term that number to be between 20% and 25%. Mostly consumable products going into mainstream cloud. Is that a reflection of maybe China taking more share in the mainstream production or something else? I think it's just the volume of activity in China. I think the jury is still out in terms of market share from Chinese players versus non-Chinese players.
Speaker Change: Maybe I misheard. Thank you yes.
Speaker Change: Yes. This is exactly true so you ride that.
Speaker Change: About four or five years ago, China was representing about 15, 17% of all revenue today, it's tracking at about 20%, we expect longer term that number to be between 20 and 25%.
Speaker Change: Mostly consumable products going into mainstream fabs.
Speaker Change: Does that is that a reflection of maybe China, taking more share in the mainstream production or something else.
Speaker Change: I think it's just the volume of activity in China, I think the jury's still out in terms of market share.
Speaker Change: From Chinese players versus non Chinese players I don't think you have enough visibility to comment on that.
Bertrand Loy: I don't think I have enough visibility to comment on.
Operator: Thanks.
Speaker Change: Thanks Vishal.
Speaker Change: Sure.
Operator: Thank you.
Speaker Change: Thank you and we will take our next question from Tim Arcuri with UBS.
Tim Arcuri: And we will take our next question from Tim Arcuri with UBS. Thanks a lot. Bertrand, can you talk about export? There was an article in the journal this morning about the U.S. cutting off the ability to buy Chinese components, and I suspect when this stuff comes out that it will also go the other way, that they're going to make it harder for the local Chinese companies to buy from the U.S.-based supply chain as well. And it seems like it's going deeper into the supply chain this time, so can you talk just about that? Is there any accommodation in the December guidance or in how you're thinking about next year for this?
Tim Arcuri: Thanks, a lot for trial and can you talk about export.
Speaker Change: Controls.
Speaker Change: There was an article in the journal this morning about.
Speaker Change: The U S kind.
Speaker Change: Kind of have the ability to buy Chinese <unk>.
Speaker Change: Components and I suspect when this stuff comes out that it will also go the other way that.
Speaker Change: We're going to make it harder for the local Chinese companies to buy from the U S. U S based supply chain as well so.
Speaker Change: And it seems like it's going deeper into the supply chain at this time. So can you talk just about that and is there any accommodation in the December guidance or like how you're thinking about next year for this.
Bertrand Loy: Yeah, Tim, I mean, I think you're right. I mean, this is a fast evolving. topic. Like you, we are keeping track of be hearing from regulators, but as of right now, we have nothing really new to report, right? Our focus is to comply on known regulations and... I don't think we are.
Speaker Change: Yeah, Tim I mean, I think you're right I mean, just this.
Speaker Change: Fast evolving.
Speaker Change: Topic.
Speaker Change: Like you we are keeping track of.
Speaker Change: What are you hearing from regulators, but as of right now we have nothing really new to report.
Speaker Change: Our focus is to comply on unknown regulations and.
Speaker Change: I don't think we are.
Bertrand Loy: © 2012 University of Georgia College of Agriculture and Furniture By the way, I would try to quantify any negative impact to potential future regulations to our outlook. You've not, okay.
Speaker Change: Prepare to try to speculate on potential future regulations and to your question about.
Speaker Change: We have we included any.
Speaker Change:
Speaker Change: I believe ever tried to quantify any negative impact to potential future regulations to outlook. The answer is no.
Speaker Change: Okay.
Bertrand Loy: Okay, and then maybe could you give us an idea between the segments for MS and this newly combined MC and AMH? Are they, is, is one of them any better in December than the other? Um, yeah, so I think, um, we expect NC to be the... The fastest-growing division in... in Q4. Again, there's a lot of work to be done to resolve or to partially resolve some of the supply chain issues, but I would expect MC to report a record quarter in Q4. Well, we won't report MC specifically, but that business, as you know, has been performing really well.
Speaker Change: Okay, and then maybe could you give us an idea between the segments for MFS in this newly combined.
Speaker Change: <unk> and <unk> are they is is one of them any better in December than the other.
Speaker Change: Yes, so I think.
Speaker Change: We expect <unk> to be the.
Speaker Change: The fastest growing division in.
Speaker Change: In.
Speaker Change: In Q4.
Speaker Change: Again, there's a lot of work to be done to resolve partially resolve some of the supply chain issues, but I would expect AMC to report a record quarter.
Speaker Change: In.
Speaker Change: While we won't report in <unk>, specifically, but that business as you know.
Speaker Change: <unk> has been performing really well that we would expect them to reach a new high.
Bertrand Loy: I would expect them to reach a new high level of revenue that is greater than what we were achieving during the pandemic level. So, again, that business is doing really well. I think the next fastest division would be MS, material services. But as Linda will remind me again, we'll report along the lines of two segments in Q4. Okay, okay.
Speaker Change:
Speaker Change: Level of revenue that is greater than what we were achieving during the pandemic level. So again that business is doing really well.
Speaker Change: I think the next fastest.
Speaker Change: Division would be.
Speaker Change: MFS some petroleum solution.
Speaker Change: But as Linda would remind me again, when we report along the lines of two segments in Q4 right.
Speaker Change: Okay. Okay. Thank you Peter.
Bertrand Loy: Thank you, Bertrand. Thank you.
Speaker Change: Sure.
Speaker Change: Thank you and we will take our next question from Christopher Parkinson with Wolfe Research. Please go ahead.
Christopher Parkinson: And we will take our next question from Christopher Parkinson with Wolf Research. Please go ahead. Great, good morning.
Christopher Parkinson: Hey, good morning.
Bertrand Loy: Bertrand, can we just get your latest thoughts on how we should think about Entegris' opportunity as it relates to, you know, data centers and HPC in terms of just how that theme has progressed throughout the year? Thank you. Yeah, but I think, you know, the hyperscalers obviously have been driving a lot of the demand for AI chips and we've Like everybody else, we've benefited from the strong activity in Advanced Foundry. We believe that that trend is going to continue into 2025 and that's going to be another, hopefully, a positive driver for the semiconductor recovery in 2025.
Christopher Parkinson: Your latest thoughts on how we should think about Integra is this opportunity as it relates to data centers and HBC in terms of just how that theme has progressed throughout the year. Thank you.
Speaker Change: Yes.
Speaker Change: Did the Hyperscale, obviously have been driving a lot of the demand for AI chips and we've.
Speaker Change: Like everybody else we've benefited from.
Speaker Change: From the strong act.
Speaker Change: Activity in advanced foundry.
Speaker Change:
Speaker Change: We believe that that trend is going to continue into 2025, and that's going to be.
Speaker Change: No.
Speaker Change: Another hopefully a positive driver for the semiconductor recovery in 2025, but as I said I'm not I'm.
Bertrand Loy: But as I said, I'm not quite ready to quantify any of those statements on this call.
Speaker Change: I'm not quite ready to quantify any of those statements on this call today.
Bertrand Loy: And just maybe a quick comment on just how we should be thinking about the effect of the Taiwan ramp in the second half, and how we should think about that as it relates to progress into 2025, so not necessarily quantification.
Speaker Change: I'm sorry.
Speaker Change: Just maybe a quick comment on just how we should be thinking about the effect of the Taiwan ramp in the second half and how we should think about that as it relates to progress into 2025, so not necessarily quantification.
Bertrand Loy: And then also maybe just a quick comment or update on Colorado Springs would be very helpful. Thank you. Sure, so as we think about KSP and Colorado, you know, obviously we do have ramp inefficiencies. We do include that in our published target model that we publish in Analyst Day and we will continue to manage to the 40% EBITDA flow through. To give you a sense, in 2024, year over year, the Taiwan facility impact on gross margin is about 80 basis points year over year. And then as you move into 25, we're going to have more sales ramping up in the Taiwan facility that will help alleviate those pressures, but approximately mid-year, Colorado is going to be coming online and we're going to have some gross margin inefficiencies there.
Speaker Change: And then also maybe just a quick comment or update on Colorado Springs would be very helpful. Thank you.
Speaker Change: Sure. So as we think about KSP and Colorado.
Speaker Change: So we do have ramp inefficiencies.
Speaker Change: We do include that in our published target model that we published at Analyst day, and we will continue to manage to the 40% EBITDA flow through.
Speaker Change: But to give you a sense in 2024 year over year, the Taiwan facility impact on gross margin is about 80 basis points year over year.
Speaker Change: And then as you move into 'twenty five we're going to have more sales ramping up in the Taiwan facility that will help alleviate those pressures, but approximately mid year, Colorado is going to be coming online and we're going to have some gross margin inefficiencies there.
Bertrand Loy: So you move into 26, and it's sales ramped. That's when you're going to start to see those inefficiencies from the ramps alleviate. Thank you.
Speaker Change: So you move into 'twenty, six and as sales ramp thats, when youre going to start to see those.
Speaker Change: Inefficiencies from the ramps alleviate.
Speaker Change: Thank you.
Speaker Change: Thank you and we will take our next question from Alexia <unk> with Keybanc capital markets. Please go ahead.
Aleksey Yefremov: And we will take our next question from Aleksey Yefremov with KeyBank Capital Markets. Please go ahead. Thanks. Good morning.
Speaker Change: Thanks, Good morning.
Bertrand Loy: Bertrand, in Mali, did you win other products than deposition materials? And what is the opportunity beyond deposition materials? What product categories are mostly benefiting from this? Yes, it's a great question. So when we talk about MOLI material, first in the deposition space, you have the ampoule, you have the delivery cabinets, and a number of Integris N-Series solutions around those two platforms. And then you have the recess chemistry. So for NAN, it's going to be a MOLI etch, and we are working very diligently to achieve that. get POR wins there as well. And then when MOLLE is then introduced in Logic, there will be a polishing step, which doesn't exist in the 3DNAN application.
Speaker Change: <unk> in Mali, when other products than deposition materials and.
Speaker Change: What is the opportunity beyond deposition materials, what product categories are mostly benefiting from this.
Speaker Change: Yes, that's a great question. So when we talk about money material first in the deposition space you have the <unk>.
Speaker Change: <unk> do you have the delivery cabinets.
Speaker Change: A number of.
Speaker Change: Integrity and series solution surround around those stores to those two platforms.
Speaker Change: And then you have the recess chemistries, so for now and it's gonna be Molly etch.
Speaker Change: We are working.
Speaker Change: Very diligently to two two to.
Speaker Change: Get.
Speaker Change: <unk> wins, there as well.
Speaker Change: And then when when money is then introduced in logic, there would be polishing step, which which doesn't exist in the three D. NAND application and we are working as you would expect on developing.
Bertrand Loy: And we are working, as you would expect, on developing a slurry solution for MOLLE polishing down the road.
Speaker Change: Larry solution for multi polishing down the road.
Aleksey Yefremov: Thanks.
Speaker Change: Thanks, and just a bigger picture question on node transitions again since the last call zero view on sort of the benefit or the magnitude of node transitions in 2025, Hasnt changed at all for better or worse.
Bertrand Loy: And just a bigger picture question on no transitions. Again, since the last call, has your view on sort of the benefit or the magnitude of no transitions in 2025, has it changed at all for better or worse? As of right now, the answer is no, our view remains unchanged. As I mentioned, we expect a fair amount of activity in advanced logic, and I cited, obviously, the all-important. Thank you.
Speaker Change: As of right now the answer is no.
Speaker Change: <unk> remains unchanged as I mentioned, we expect a fair amount of activity in advanced logic and Eisai TWC.
Speaker Change: All important.
Speaker Change: Tradition to 300 layers in <unk>, NAND and hopefully again, the inclusion of Mali as part of that of that transition, but as I said I think this is still fluid customers.
Speaker Change: Direct.
Speaker Change: The timing of those node transitions.
Speaker Change: I hope to be in a better position to them.
Speaker Change: To give a little more precision to all of that in our Q4 earnings call in late January early February.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Thank you and we will take our last question from Mike Harrison with Seaport Research partners. Please go ahead.
Mike Harrison: And we will take our last question from Mike Harrison with Seaport Research Partners. Please go ahead. Please go ahead, Mike Harris, and your line is open. Please double check the mute function on your device.
Speaker Change: Please go ahead, Mike Harrison your line is open.
Speaker Change: Please double check the mute function on your device.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Operator: And it appears that we have no further questions at this time.
Speaker Change: And it appears that we have no further questions at this time I will now turn the floor back over to Bill Seymour for closing remarks.
Bill Seymour: I will now turn the floor back over to Bill Seymour for closing remarks. Thank you, and thank you for joining our call today. Please reach out to me directly if you have any follow-ups. Thank you again, and have a good day.
Bill Seymour: Thank you and thank you for joining our call today. Please reach out to me directly if you have any follow ups.
Speaker Change: You again and have a good day this concludes our call.
Operator: This concludes our call. Thank you.
Speaker Change: Thank you this.
Operator: This concludes today's Integris third quarter 2024 earnings conference call.
Speaker Change: This concludes today's Integra <unk> third quarter 2024 earnings conference call. Please disconnect your lines at this time and have a wonderful day.
Operator: Please disconnect your line at this time and have a wonderful day.
Speaker Change: Yeah.
Speaker Change: Okay.
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