MKS INC — Call Transcript 2025

I guess we can get started. Okay, great. I'm Shane Brett, a senior analyst from Morgan Stanley. Joining me today from MKS are Dr. John Lee, CEO, and Ram Mayampurath, CFO. We also have Paretosh Misra from Investor Relations in the audience. Before I start my questions, I'm going to hand it over to John for a quick introduction to MKS. Yeah, great. Thanks, Shane. So maybe I thought I'd start with a little introduction for some of you who may not know the MKS story as well. So MKS is a 65-year-old company. We started with one product. That product was an instrument that measured the pressure inside a vacuum chamber. And from that, we were able to move into the semiconductor industry. As you probably realize, semiconductors have a lot of vacuum chambers. And that one product has taken a very high market share. And after 55 years, it's still number one market share. But from that one product, we were able to organically and inorganically build a strategy of surrounding the chamber with all other types of critical subsystems, so valves, RF power, plasma, mass flow controls, et cetera. So that was the strategy up until 2015. At that point, we were semiconductor only in terms of a market, but only the vacuum equipment of semiconductor. In 2015, we bought a company called Newport Corporation. Newport had about 20 product lines: lasers, optics, motion. We had 20 product lines: vacuums, critical subsystems. Two things happened with the Newport acquisition. One is it brought to us the missing components of the rest of semiconductor equipment: lithography, metrology, and inspection. So with that acquisition, we now address 85% of every piece of equipment in every fab in the world with multiple subsystems. No one else is even close to that market share. And we can say that because the big five are Applied Materials, Lam, Tokyo Electron, ASML, and KLA. And together, they're about 85% market share. The second thing that Newport acquisition did was it brought to us new markets. One of those new markets was the application of lasers to manufacture precise things. One of those is drilling holes in PCBs. That led us to the acquisition of Electro Scientific Industries. That was the first time we actually bought a systems company. What that allowed us to do was to talk to another layer in the food chain. So not just the OEMs, but the customers of the OEMs. That allowed us to understand the infrastructure and the ecosystem much better. Then from that, we did the acquisition of Atotech, which is chemistry and chemistry equipment for PCB manufacturing. The strategy behind all of this is we want to be foundational to everything that makes advanced electronics advanced, not just the semiconductor, but the packaging of semiconductors together. In the past, if you wanted to be critical or foundational to advanced electronics, all you had to be was a great semiconductor equipment company. That was all that mattered. And that semi was the only thing that drove advanced electronics to be better. Over time, that was Moore's Law. And over time, Moore's Law wasn't as relevant anymore. It started slowing down. And so what did people do? Well, they started putting chips together and packaging them together such that they behave like one big chip. And because of that, we can actually continue extending that Moore's Law concept of everything is twice as good every two years for the same price. That's now true for 70 years in a row. That's why things like AI are possible. And a lot of folks think, oh, AI, that's going to change the world. And it might. But the way we look at AI is it's just a great thing in a list of other great things, such as the PC, such as the smartphones, such as data centers. This was all driven fundamentally by Moore's Law and now more than Moore's Law. And we want to be foundational to that. And from a shareholder standpoint, we think that foundational technology provider status is a sustainable long-term investment. It's not about the fad of the day. It's about an infrastructure builder that is critical. And it's an infrastructure that continues to grow over time. And you can argue is even more important now than it was even 10 years ago, let alone 50 years ago. So that's a quick introduction to MKS. Got it. Thanks, John. I'll kind of walk through the questions by segment, and I want to start with Electronics and Packaging, E&P, so your Q4 guide implies about 20% growth for the full year, which is pretty good. Just could you talk about what has drove this really strong growth this year? Yeah, two factors. So chemistry, we provide a lot of chemistry to the PCB industry. A lot of that is driven by AI. So AI, as I said, is about packaging chips together. And so a lot of the AI customers, the guys that are buying our chemistry to build AI boards, they're growing for sure. But in addition to that, we're seeing chemistry equipment. So we're the only provider of chemistry that also provides chemistry equipment in the PCB industry. We decided to do that strategically because we think that if you can bring more tools to the game, you can provide solutions to your customers faster. If you can bring chemistry tools, if you can bring equipment tools, you can actually come to an optimized solution faster. And so the last four quarters, we've seen strong equipment bookings and revenue for chemistry equipment. That's also been a significant driver of the year-over-year outgrowth in E&P. Got it. And with this equipment growth, so the flex PCB drilling has been a pretty good driver for you guys this year. Just can you talk about the trends you're seeing with kind of your customers for these flex PCB drilling tools? And also, you've kind of talked about you're adding some capacity to your equipment factories. Just could you kind of talk about how that sort of ties in with your growth outlook for this equipment portion? Yeah. So in our E&P market, we have equipment. And we have two types of equipment. There's chemistry equipment that I just talked about, driven a lot by AI, but also laser drilling equipment. So these are tools that are actually drilling holes, thousands of holes per second. So think about that. I'm going to drill a few thousand holes in one second. That's how fast these laser tools are. And we are the market share leader in flexible PCBs versus rigid PCBs. Flexible PCBs, what are they used for? Well, think about phones. A lot of the circuitry inside phones, connecting the camera to the microprocessor and other things, these are flexible circuits. They're actually quite complex. AirPods, so all of these wearables have tiny flexible circuits in them. And we're market share leader there. We also have laser drilling tools for rigid PCBs. There, it's an opportunity for us. We don't have the number one market share there, but we have some technology there that we think is unique. And we've already demonstrated some wins there. I guess if I just take a step back on this E&P segment, if I'm correct, it's two-thirds chemistry, one-third sort of equipment and tooling. How would you sort of characterize the growth profiles between the two-thirds chemistry business versus kind of the one-third of equipment? Yeah, so that's right. A third is equipment that includes chemistry equipment and laser equipment. And that can be lumpy because it's CapEx. The two-thirds is chemistry. And that's more it is a consumable kind of market. And so that's been growing probably about 10% year over year this year and likely about 10% year over year last year. And so this is driven by a lot of the volume of AI. So many of our customers are building more complex layers of PCBs for AI servers. And that chemistry is coming through to the growth that you're seeing in our chemistry revenue. So when I sort of think about your 20% growth this year, it's been kind of you have your two-thirds that's growing 10%. And then the equipment growth is sort of layering on top of that. Exactly. Exactly. When I think about kind of that durability of that equipment growth that's been going on for four quarters right now, sort of how do you kind of see an early setup into 2026 or kind of bit of visibility? Yeah. Yeah. So four quarters are great equipment orders for chemistry. We're booked through the first half of 2026. And we continue to have discussions with customers about beyond that. So, so far, so good. Equipment continues to be a strong part of our potential growth in 2026. It is a CapEx environment. So it will turn over at some point. But the most important part is when we sell equipment for chemistry, the chemistry is ours. And our chemistry gross margins are above 55%. Equipment is lower. And so if you think about that equipment revenue, it is going to drive annualized year-over-year chemistry revenue for decades. That's been the history of our equipment sales. So I was probably going to ask this a little bit later on the financials portion. But gross margin has been a little bit lighter, I would say, just given just so much equipment sales going on. But equipment may roll over at some point. But chemistry is more utilization-based. How would I kind of think about maybe the attach rate between equipment and chemistry and how better equipment, I mean, better chemistry may also feed into the financial model? Yeah, that's true. So after five years, the attach rate drops to about 85%. So we have very high attach rate when we get out of the gate. And you're right. The chemistry sales that follow the equipment sales are very high, higher than our corporate average gross margins. In the future, mix will be a big part of our gross margin play. If you look back into Q4, sorry, 2024 up to Q1 of this year, we were running gross margins well above 47%. We finished Q1 at 47.4%. Since then, we had two headwinds to deal with. One is the mix impact of equipment sales and the tariff impact that hit us in Q2 and Q3 in particular. Q2, we had 115 basis points from tariffs. Q3, we had 80 basis points. By Q4, we will offset the impact of that tariff dollar for dollar. However, from a gross margin point of view, we will still have a 50 basis points impact going forward because we are not marking up the pass-throughs. It's a dollar for dollar. So the math will be against us. In the long term, we are confident that we can offset that 50 basis points through just efficiency and manufacturing excellence programs. And as the mix gets back to more normalized levels, we will get back to the 47-plus% gross margin that we have targeted. Got it. Thank you, Rob. And before I move over to semi, I have to mention, so you were awarded the Optica i4 Individual Lifetime Achievement Award at the Global Photonics Economic Forum in October. Just could you remind us about MKS's sort of position, like what MKS's optical business is and kind of what part of the supply chain you guys play a part in there? Yeah, so that was a great honor. But it was really a reflection of MKS, actually. And it was a recognition that MKS is one of the leading players in the optics industry, the photonics industry. And the areas that we work in in photonics are not just lasers and industrial type of applications, but also in semi. And so when we thought about areas for growth, for outgrowth, semiconductor equipment for lithography, metrology, and inspection was something we were under-indexed to. And so five years ago, we decided to change that. We hired more people. We added more CapEx, developed new processes so that we can do more complex things, optical subsystems and optics for the lithography, metrology, inspection customers. So that revenue five years ago was $150 million. Now it's $300 million. And we're still in early innings of that area of the semiconductor WFE market. Got it. That kind of ties us into talking about semi. So you've seen a nice year in semi. Q4 guide implies about 10% growth for the full year. So your customers have talked about kind of a big second half 2026 ramp. Could you kind of talk about what your sort of early expectations are or kind of, I guess, what you're sort of expecting for your semi business in 2026? And also, it would be helpful if kind of what drove this sort of 10% growth this year as well. Yeah. Well, so this year, 10% growth, a lot of it is part of it was inventory being burned off, our inventory being burned off for NAND. And we saw some upgrade patterns there. So that was helpful. And it's also a lot of in-quarter turn because our lead times are very short, back to normal now. I would say pick your favorite WFE model for 2026. But people are saying it can go up 5%, 10%, 15% now, incrementally better as the year has gone on. And a lot of it is driven by logic, DRAM, and HBM, not so much NAND yet. And so, as I said earlier, we are addressing 85% of WFE. So when logic goes up, we go up. When DRAM goes up, we go up. When HBM goes up, we go up. NAND is potentially an upside to all that if there are more NAND upgrades there. I think the industry is worried about capacity in terms of cleanroom space for all the equipment. So that's a great problem to have. People are going to fix that as fast as they can. But right now, as we look at the industry view of equipment in 2026, it's very robust. Our lead times are short now, back to normal. Our inventory is. We're shipping to demand. So I think 2026, if that holds, will be a great year for MKS. Got it. We're at 11% growth for 2026, so pretty good setup for you guys. I guess just in terms of that lead time, so you guys are at four to eight weeks right now. I guess what does a more normalized lead time look like for MKS? And sort of what sort of visibility would you ideally like your customers to provide you? Yeah. Well, so I think four to eight weeks is kind of normalized. And there's ranges, right? There's some complex subsystems that might be a few months. But that's kind of normalized. Now, during a ramp, things extend. And that's normal. Our communications with our customers are very, very close. There's only five big customers in semi. So we talk to them all the time. We also talk to the end users, the chip companies as well, to try to get as much insight as possible. So I think no one wants to be supply chain constrained. And so our customers are going to tell us as soon as they know what is their needs for the next quarter or two. And I would say when I think about what's being said nowadays versus a quarter ago, it's incrementally more positive. Got it. Got it. And I just want to touch back on the NAND portion. So when I look back at 2021 and 2022, you guys did really well in NAND. NAND WFE kind of disappeared for two years. It started to come back this year. But how would this sort of a recovery in NAND WFE layer onto kind of your outperformance versus WFE if we think about 2026 and 2027 seeing hopefully a bit more better NAND WFE? Yeah. So NAND is pretty much in a historic low. So if upgrades happen, we participate in that because one of the components of that upgrade is RF power. And we're market share leader there. If new greenfield happens, we'll certainly get the RF power, but also the surround the chamber portfolio as well. So I think NAND upgrades as well as greenfields are going to be extra tailwinds to the 2026 WFE. I think it feels like it's going to be constrained by the amount of cleanroom space at this point because people are shifting even NAND cleanroom to HBM and DRAM because there's an even stronger pull there, even higher pricing there driven by AI. Got it. And even though that kind of NAND WFE dropped off in 2022, you guys had some nice kind of revenue ramps in the metrology and inspection side. You were talking about kind of your exposure to ALD to me a little bit earlier. Could you talk about kind of the more idiosyncratic sort of MKS initiatives that should lead to sort of WFE outperformance over the next two years? Yeah. The last earnings call, we talked about the concept of two nanometer and the Gate-All-Around that goes with it and a lot of the deposition processes that are new, like Atomic Layer Deposition, so we provide some key critical subsystems there that we're pretty unique in, but I think if I were to step back and think about how does MKS outgrow the WFE market over time, I think our strategy has been if we can manage a broad portfolio, we have a better chance of outgrowing the market because I can't tell you which inflection is going to cause which critical subsystem to be more critical, but I can guarantee you it will change, and if I have all the or most of the critical subsystems, I can actually do something about it, so the best example was NAND. NAND went vertical. Who would have thought of that? And then it required a lot of RF power. Well, I have RF power. So I just got to decide whether I want to invest in it more. If I was a single product category and I didn't have RF power, I'm kind of stuck. If I extrapolate that to a higher level, well, so in 2010, EUV wasn't ready. So what did the industry do? Well, we double patterned. And we triple patterned. Well, there's a lot of deposition and etch steps. Well, we enjoyed that overgrowth or our outgrowth of WFE. Then EUV happened. And litho became a little more important. That's why we did WCO, world-class optics, to increase our share in litho metrology inspection. So now we can do that. In the next five years, a lot of industry folks are thinking it's back to deposition and etch. The point is these things change all the time. Having a broad portfolio, if you can manage that well, allows you a better chance of outgrowing the industry sustainably over decades. I guess what also helps is just the scale of MKSI and the ability to do kind of R&D through cycle. And even the scale, I think you previously mentioned that metrology and inspection was, I think, 150 million five years ago, now closer to 300 million. But that growth is also driven by your customers kind of telling you that if you do more R&D, you can get more business. Right. Yeah, exactly. So many of our customers are looking for partners that can actually give them gifts of technology as we look to our suppliers. And that's how the ecosystem works. And so when you have scale, you have a better advantage of being able to satisfy some of these customers' ask of high technology that requires multiple years of investment. So in the 1990s, when I started, you could develop something and have it in production in 12 months. Now everything's a lot harder to do. Those easy things have been done. It takes years. RF power was developed over years before we saw a nickel. We put in a lot of investment for multiple years before we saw any revenue from that investment. But that's the way the game is played now. EUV in our industry is the biggest example. 20 years of investment finally is paying off for ASML, for sure. So I think size does matter in an industry where the technology becomes more complicated, more difficult to do, and the R&D investment requires a longer duration. Right. Ram, I want to pass it over to you for a few financials questions. But the first one, just on the near term, you kind of alluded, talked about it earlier, but gross margin has been weighed down by tariffs and sort of product mix. But could you kind of talk about how have these tariffs impacted your business and sneak peek into what gross margin could look like in 2026 and kind of what the puts and takes might be? Yeah. So the tariff had an impact on our gross margin. It did not have any impact on the top line. The highest impact was in Q2, and we had 115 basis points of impact. Our gross margin for the year after, including the tariffs, was 46.6%. It would have been well above, close to 48% if we didn't have that tariff impact. That dropped to 80 basis points in Q3. Our gross margin was 46.6%, including that. It would have been above 47% without that tariff impact. It's dropped to 50 basis points. Like I said, we have matched dollar for dollar. We are recovering 100% of our tariff cost. But since we are not marking up the tariffs, you'll continue to see a 50 basis points impact on the gross margin, which we are confident we will overcome with the operational excellence programs going on in just manufacturing excellence and procurement activity primarily. We'll also have more design savings coming in the future years that will help for the margins. With a normalized mix, we are very confident to get back to the 47-plus% in 2026. Got it. Got it. And I mean, when I kind of compare you guys to what you laid out back in 2022 for the analyst day, you're well ahead of where you guys kind of thought you would be in terms of gross margin. Yeah. Got it. So the cost control side on what we can control has been working well. And the next step change in margins will come with top line growth and the right kind of mix. Got it. I'll ask one more question, and then I want to open it up to the audience for a question or two. But just less interest expenses has been a pretty big driver of net income because you guys have been very proactive with paying down debt. I think exiting Q4, you'd be at 3.9 times net leverage. Where would you want to get to in the kind of next year or two? What's the sort of target net leverage that you guys are eyeing up? Yeah, so we're very happy with the progress we have made on managing our debt, and it's a combination of two things. One is the cash flow generation that we have had, and the second is the focus on our capital allocation strategy and prioritization of strengthening the balance sheet. Our cash flow, our free cash flow this year up to in three quarters was almost equal to all the free cash flow we generated last year, so we are well on our way to beat our free cash flow generation year over year, so we not only have strong cash flow generation, but it's growing, and with our current cost structures, that top line comes back to more normal levels, we can accelerate the debt repayment. With regard to capital allocation priorities, after we invest in ourselves for the CapEx expansion and a little bit of P&L design and R&D improvements, our focus is 100% to pay down our debt, and our goal is to get to two to two and a half times net leverage, which will get us more into a more balanced capital allocation strategy. Got it. I'd like to open it up to the audience if there's any questions. Gentleman in the back. Hi. I'm relatively new to the company. But over the last couple of years and going forward, what's the unit volumes versus price equation for you guys? Do you have a lot of pricing power? Yeah. I think we have. We work hard on that every year. It's not an event kind of a driven thing. You can see, as Ram said, our gross margin over the last couple of years improving. Remember, in 2022, we gave a five-year model that said when our revenue is $5.6 billion, we'd be at 47% plus gross margin. As Ram said, at $3.8 billion, we already hit 47% plus in 48 months. So that's an indication of the value and the pricing power we have. So we've held our own. I think there's more opportunity going forward. I think the time to get improvement in gross margin is the new design wins. It's harder to go back, I think, and change pricing. But for sure, for new stuff, if you're unique, then we're getting paid fairly for that. Any other questions? I guess then I'll ask a few more. So on the semi portion, so for ALD, I guess the kind of story there is your ozone generators, if I'm correct. Could you just kind of elaborate on that, sort of what makes MKS's solution there kind of differentiated versus competition? Yeah. So ozone is an oxygen, three oxygen atoms together. And that's needed for every cycle in an Atomic Layer Deposition cycle. And the uniqueness of our ozone generator is that it generates a much higher concentration that's much cleaner than a lot of folks in the industry. And there aren't a lot of left competitors. We talked about at our earnings call that at two nanometers and below, there's a lot more ALD, a lot more ozone generation that has to go on that's higher concentration and cleaner. And so that's been the unique features of how we've been winning that share. When I think about kind of your content per, I think, WFE dollar, it's kind of 1.8%-2.2%, if I'm correct. That's right. Deposition would be probably on the lighter end, but hopefully ALD kind of drives it up, or? Yeah. Yeah. So our revenue as a function of WFE varies between 1.8%-2.2%. Kind of depends on the cycle, et cetera. But I think on the lower end of it would be our lithography metrology inspection because we're just early innings there. I think on the higher end would be NAND because of our RF power there. And then a lot of other things in between. But I think the bigger picture is that whether it's DRAM building fast or NAND or logic or whether it's deposition and etch or litho, we kind of don't care because we're in 85% of it. So we're going to see most of it. And our job is to try to continue growing that share over time. Great. So kind of hopefully the customer is talking about a big second half 2026 comes true, and you guys see good '26 then. Yeah. As I said, it's incrementally more positive since 90 days ago, for sure. Great. That brings us up to time. Thank you, John. Thank you, Ram. Thank you. Thanks, Ram. Thank you. I'm Shane Brett, analyst at Morgan Stanley. I'm joining you today with MKS' Dr. John Lee, CEO, and Ram Mayampurath, CFO. And we also have Paretosh Misra from Investor Relations in the audience. Before I start my questions, I'm going to hand it over to John for a quick introduction to MKS. Yeah, great. Thanks, Shane. So maybe I thought I'd start with a little introduction for some of you who may not know the MKS story as well. So MKS is a 65-year-old company. We started with one product. That product was an instrument that measured the pressure inside a vacuum chamber. And from that, we were able to move into the semiconductor industry. As you probably realize, semiconductors have a lot of vacuum chambers. And that one product has taken a very high market share. And after 55 years, it's still number one market share. But from that one product, we were able to organically and inorganically build a strategy of surrounding the chamber with all other types of critical subsystems, so valves, RF power, plasma, mass flow controls, et cetera. So that was the strategy up until 2015. At that point, we were semiconductor only in terms of a market, but only the vacuum equipment of semiconductor. In 2015, we bought a company called Newport Corporation. Newport had about 20 product lines: lasers, optics, motion. We had 20 product lines: vacuums, critical subsystems. Two things happened with the Newport acquisition. One is it brought to us the missing components of the rest of semiconductor equipment: lithography, metrology, and inspection. So with that acquisition, we now address 85% of every piece of equipment in every fab in the world with multiple subsystems. No one else is even close to that market share. And we can say that because the Big Five are Applied Materials, Lam, Tokyo Electron, ASML, and KLA. And together, they're about 85% market share. The second thing that Newport acquisition did was it brought to us new markets. One of those new markets was the application of lasers to manufacture precise things. One of those is drilling holes in PCBs. That led us to the acquisition of Electro Scientific Industries. That was the first time we actually bought a systems company. What that allowed us to do was to talk to another layer in the supply chain. Not just the OEMs, but the customers of the OEMs. That allowed us to understand the infrastructure and the ecosystem much better. Then from that, we did the acquisition of Atotech, which is chemistry and chemistry equipment for PCB manufacturing. The strategy behind all of this is we want to be foundational to everything that makes advanced electronics advanced, not just the semiconductor, but the packaging of semiconductors together. In the past, if you wanted to be critical or foundational to advanced electronics, all you had to be was a great semiconductor equipment company. That was all that mattered. And that was semi was the only thing that drove advanced electronics to be better. Over time, that was Moore's Law. Over time, Moore's Law wasn't as relevant anymore. It started slowing down. And so what did people do? Well, they started putting chips together and packaging them together such that they behave like one big chip. And because of that, we can actually continue extending that Moore's Law concept of everything is twice as good every two years for the same price. That's now true for 70 years in a row. That's why things like AI are possible. And a lot of folks think, oh, AI, that's going to change the world. And it might. But the way we look at AI is it's just a great thing in a list of other great things, such as the PC, such as the smartphones, such as data centers. This was all driven fundamentally by Moore's Law and now more than Moore's Law. And we want to be foundational to that. And from a shareholder standpoint, we think that foundational technology provider status is a sustainable long-term investment. It's not about the fad of the day. It's about an infrastructure builder that is critical. And it's an infrastructure that continues to grow over time. And you can argue is even more important now than it was even 10 years ago, let alone 50 years ago. So that's a quick introduction to MKS. Got it. Thanks, John. I'll kind of walk through the questions by segment, and I want to start with electronics and packaging, E&P, so your Q4 guide implies about 20% growth for the full year, which is pretty good. Just could you talk about what has drove this really strong growth this year? Yeah, two factors. So chemistry, we provide a lot of chemistry to the PCB industry. A lot of that is driven by AI. So AI, as I said, is about packaging chips together. And so a lot of the AI customers, the guys that are buying our chemistry to build AI boards, they're growing for sure. But in addition to that, we're seeing chemistry equipment. So we're the only provider of chemistry that also provides chemistry equipment in the PCB industry. We decided to do that strategically because we think that if you can bring more tools to the game, you can provide solutions to your customers faster. If you can bring chemistry tools, if you can bring equipment tools, you can actually come to an optimized solution faster. And so the last four quarters, we've seen strong equipment bookings and revenue for chemistry equipment. That's also been a significant driver of the year-over-year outgrowth in E&P. Got it. And with this equipment growth, so the flex PCB drilling has been a pretty good driver for you guys this year. Just can you talk about the trends you're seeing with kind of your customers for these flex PCB drilling tools? And also, you've kind of talked about you're adding some capacity to your equipment factories. Just could you kind of talk about how that sort of ties in with your growth outlook for this equipment portion? Yeah. So in our E&P market, we have equipment. And we have two types of equipment. There's chemistry equipment that I just talked about, driven a lot by AI, but also laser drilling equipment. So these are tools that are actually drilling holes, thousands of holes per second. So think about that. I'm going to drill a few thousand holes in one second. That's how fast these laser tools are. And we are the market share leader in flexible PCBs versus rigid PCBs. Flexible PCBs, what are they used for? Well, think about phones. A lot of the circuitry inside phones, connecting the camera to the microprocessor and other things, these are flexible circuits. They're actually quite complex. AirPods, so all of these wearables have tiny flexible circuits in them. And we're market share leader there. We also have laser drilling tools for rigid PCBs. There, it's an opportunity for us. We don't have the number one market share there, but we have some technology there that we think is unique, and we've already demonstrated some wins there. I guess if I just take a step back on this E&P segment, if I'm correct, it's two-thirds chemistry, one-third sort of equipment and tooling. How would you sort of characterize the growth profiles between the two-thirds chemistry business versus kind of the one-third of equipment? Yeah, so that's right. A third is equipment that includes chemistry equipment and laser equipment. And that can be lumpy, right, because it's CapEx. The two-thirds is chemistry. And that's more it is a consumable kind of market. And so that's been growing probably about 10% year over year this year and likely about 10% year over year last year. And so this is driven by a lot of the volume of AI. So many of our customers are building more complex layers of PCBs for AI servers. And that chemistry is coming through to the growth that you're seeing in our chemistry revenue. So when I sort of think about your 20% growth this year, it's been kind of you have your two-thirds that's growing 10%. And then the equipment growth is sort of layering on top of that. Exactly, exactly. When I think about kind of that durability of that equipment growth that's been going on for four quarters right now, sort of how do you kind of see an early setup into 2026 or kind of bit of visibility? Yeah, so it's been four quarters of great equipment orders for chemistry. We're booked through the first half of 2026. We continue to have discussions with customers about beyond that. So far, so good. Equipment continues to be a strong part of our potential growth in 2026. It is a CapEx environment. So it will turn over at some point. But the most important part is when we sell equipment for chemistry, the chemistry is ours. Our chemistry gross margins are above 55%. Equipment is lower, right? So if you think about that equipment revenue, it is going to drive annualized year-over-year chemistry revenue for decades. That's been the history of our equipment sales. So I was probably going to ask this a little bit later on the financials portion. But gross margin has been a little bit lighter, I would say, just given just so much equipment sales going on. But equipment may roll over at some point. But chemistry is more utilization-based. How would I kind of think about maybe the attach rate between equipment and chemistry and how better equipment, I mean, better chemistry may also feed into the financial model? Yeah, that's true. So after five years, the attach rate drops to about 85%. So we have very high attach rate when we get out of the gate. And you're right. The chemistry sales that follow the equipment sales are very high, higher than our corporate average gross margins. In the future, mix will be a big part of our gross margin play. If you look back into Q4, sorry, 2024 up to Q1 of this year, we were running gross margins well above 47%. We finished Q1 at 47.4%. Since then, we had two headwinds to deal with. One is the mix impact of equipment sales and the tariff impact that hit us in Q2 and Q3 in particular. Q2, we had 115 basis points from tariffs. Q3, we had 80 basis points. By Q4, we will offset the impact of that tariff dollar for dollar. However, from a gross margin point of view, we will still have a 50 basis points impact going forward because we are not marking up the pass-throughs. It's a dollar for dollar. So the math will be against us. In the long term, we are confident that we can offset that 50 basis points through just efficiency and manufacturing excellence programs. And as the mix gets back to more normalized levels, we will get back to the 47+% gross margin that we have targeted. Got it. Thank you, Ram, and before I move over to semi, I have to mention, so you were awarded the Optica i4 Individual Lifetime Achievement Award at the Global Photonics Economic Forum in October. Just could you remind us about MKS's sort of position, like what MKS's optical business is and how, kind of what part of the supply chain you guys play a part in there? Yeah, so that was a great honor. But it was really a reflection of MKS, actually. And it was a recognition that MKS is one of the leading players in the optics industry, the photonics industry. And the areas that we work in in photonics are not just lasers and industrial type of applications, but also in semi. And so when we thought about areas for growth, for outgrowth, semiconductor equipment for lithography, metrology, and inspection was something we were under-indexed to. And so five years ago, we decided to change that. We hired more people. We added more CapEx, developed new processes so that we can do more complex things, optical subsystems and optics for the lithography, metrology, and inspection customers. So that revenue five years ago was $150 million. Now it's $300 million. And we're still in early innings of that area of the semiconductor WFE market. Got it. That kind of ties us into talking about semi. So you've seen a nice year in semi. Q4 guide implies about 10% growth for the full year. So your customers have talked about kind of a big second half 2026, Ram. Could you kind of talk about what your sort of early expectations are or kind of, I guess, what you're sort of expecting for your semi business in 2026? And also, it would be helpful if kind of what drove this sort of 10% growth this year as well? Yeah. Well, so this year, 10% growth, a lot of it is part of it was inventory being burned off, our inventory being burned off for NAND. And we saw some upgrade patterns there. So that was helpful. And it's also a lot of in-quarter turn because our lead times are very short, back to normal now. I would say pick your favorite WFE model for 2026. But people are saying it can go up 5%, 10%, 15% now, incrementally better as the year has gone on. And a lot of it is driven by Logic, DRAM, and HBM, not so much NAND yet. And so, as I said earlier, we are addressing 85% of WFE. So when Logic goes up, we go up. When DRAM goes up, we go up. When HBM goes up, we go up. NAND is potentially an upside to all that if there are more NAND upgrades there. I think the industry is worried about capacity in terms of cleanroom space for all the equipment. So that's a great problem to have. People are going to fix that as fast as they can. But right now, as we look at the industry view of equipment in 2026, it's very robust. Our lead times are short now, back to normal. Our inventory is, we're shipping to demand. So I think 2026, if that holds, will be a great year for MKS. Got it. We're at 11% growth for 2026, so pretty good setup for you guys. I guess just in terms of that lead time, so you guys are at four to eight weeks right now. I guess what does a more normalized lead time look for MKS? And sort of what sort of visibility would you ideally like your customers to provide you? Yeah. Well, so I think four to eight weeks is kind of normalized. And there's ranges, right? There's some complex subsystems that might be a few months. But that's kind of normalized. Now, during a ramp, things extend. And that's normal. Our communications with our customers are very, very close. There's only five big customers in semi. So we talk to them all the time. We also talk to the end users, the chip companies as well, to try to get as much insight as possible. So I think no one wants to be supply chain constrained. And so our customers are going to tell us as soon as they know what is their needs for the next quarter or two. And I would say when I think about what's being said nowadays versus a quarter ago, it's incrementally more positive. Got it, got it. And I just want to touch back on the NAND portion. So when I look back at 2021 and 2022, you guys did really well in NAND. NAND WFE kind of disappeared for two years. It started to come back this year. But how would this sort of a recovery in NAND WFE layer onto kind of your outperformance versus WFE if we think about 2026 and 2027 seeing hopefully a bit more better NAND WFE? Yeah, so NAND is pretty much in a historic low. So if upgrades happen, we participate in that because one of the components of that upgrade is RF power. And we're market share leader there. If new greenfield happens, we'll certainly get the RF power, but also the surrounding the chamber portfolio as well. So I think NAND upgrades as well as greenfields are going to be extra tailwinds to the 2026 WFE. I think it feels like it's going to be constrained by the amount of cleanroom space at this point because people are shifting even NAND cleanroom to HBM and DRAM because there's an even stronger pull there, even higher pricing there driven by AI. Got it. And even though that kind of NAND WFE dropped off in 2022, you guys had some nice kind of revenue ramps in the metrology and inspection side. You were talking about kind of your exposure to ALD to me a little bit earlier. Could you talk about kind of the more idiosyncratic sort of MKS initiatives that should lead to sort of WFE outperformance over the next two years? Yeah, the last earnings call, we talked about the concept of 2-nanometer and the gate-all-around that goes with it and a lot of the deposition processes that are new, like Atomic Layer Deposition. So we provide some key critical subsystems there that we're pretty unique in. But I think if I were to step back and think about how does MKS outgrow the WFE market over time, I think our strategy has been if we can manage a broad portfolio, we have a better chance of outgrowing the market because I can't tell you which inflection is going to cause which critical subsystem to be more critical. But I can guarantee you it will change. And if I have all the or most of the critical subsystems, I can actually do something about it. So the best example was NAND, right? NAND went vertical. Who would have thought of that, and then it required a lot of RF power. Well, I have RF power. So I just got to decide whether I want to invest in it more. If I was a single product category and I didn't have RF power, I'm kind of stuck, right? If I extrapolate that to a higher level, well, so in 2010, EUV wasn't ready. So what did the industry do? Well, we double patterned. And we triple patterned. Well, that's a lot of deposition and etch steps. Well, we enjoyed that overgrowth or our outgrowth of WFE. Then EUV happened. And litho became a little more important. That's why we did WCO, world-class optics, to increase our share in litho metrology inspection. So now we can do that. In the next five years, a lot of industry folks are thinking it's back to deposition and etch. The point is these things change all the time. Having a broad portfolio, if you can manage that well, allows you a better chance of outgrowing the industry sustainably over decades. I guess what also helps is just the scale of MKSI and the ability to do kind of R&D through cycle. And even the scale, I think you previously mentioned that metrology and inspection was, I think, $150 million five years ago, now closer to $300 million. But that growth is also driven by your customers kind of telling you that if you do more R&D, you can get more business. Right. Yeah, exactly. So many of our customers are looking for partners that can actually give them kits of technology as we look to our suppliers. And that's how the ecosystem works. And so when you have scale, you have a better advantage of being able to satisfy some of these customers' ask of high technology that requires multiple years of investment. So in the 1990s, when I started, you could develop something and have it in production in 12 months. Now everything's a lot harder to do. Those easy things have been done. It takes years. RF power was developed over years before we saw a nickel. We put in a lot of investment for multiple years before we saw any revenue from that investment. But that's the way the game is played now. EUV in our industry is the biggest example. 20 years of investment finally is paying off for ASML, for sure, so I think size does matter in an industry where the technology becomes more complicated, more difficult to do, and the R&D investment requires a longer duration. Right. Ram, I want to pass it over to you for a few financials questions. But the first one, just on the near term, you kind of alluded, talked about it earlier, but gross margin has been weighed down by tariffs and sort of product mix. But could you kind of talk about how have these tariffs impacted your business and sneak peek into what gross margin could look like in 2026 and kind of what the puts and takes might be? Yeah. So the tariff had an impact on our gross margin. It did not have any impact on the top line. And the highest impact was in Q2 when we had 115 basis points of impact. Our gross margin for the year after, including the tariffs, was 46.6%, would have been well above, close to 48% if we didn't have that tariff impact. That dropped to 80 basis points in Q3. And our gross margin was 46.6%, including that, would have been above 47% without that tariff impact. And it's dropped to 50. And like I said, we have matched dollar for dollar. We are recovering 100% of our tariff cost. But since we are not marking up the tariffs, we will continue to see a 50 basis points impact on the gross margin, which we are confident we will overcome with the operational excellence programs going on in just manufacturing excellence and procurement activity primarily. We'll also have more design savings coming in the future years that will help for the margins. With a normalized mix, we are very confident to get back to the 47-plus% in 2026. Got it, got it. And I mean, when I kind of compare you guys to what you laid out back in 2022 for the analyst day, you're well ahead of where you guys kind of thought you would be in terms of gross margin. Yeah. Got it. So the cost control side on what we can control has been working well. And the next step change in margins will come with top line growth and the right kind of mix. Got it. I'll ask one more question, and then I want to open it up to the audience for a question or two. But just less interest expenses has been a pretty big driver of net income because you guys have been very proactive with paying down debt. I think exiting Q4, you'd be at 3.9 times net leverage. Where would you want to get to in the kind of next year or two? What's the sort of target net leverage that you guys are eyeing up? Yeah. No, so we're very happy with the progress we have made on managing our debt. And it's a combination of two things. One is the cash flow generation that we have had. And the second is the focus on our capital allocation strategy and prioritization of strengthening the balance sheet. Our cash flow, our free cash flow this year up to in three quarters was almost equal to all the free cash flow we generated last year. So we are well on our way to beat our free cash flow generation year over year. So we not only have strong cash flow generation, but it's growing. And with our current cost structures, that top line comes back to more normal levels. We can accelerate the debt repayment. With regard to capital allocation priorities, after we invest in ourselves for the CapEx expansion and a little bit of P&L design and R&D improvements, our focus is 100% to pay down our debt, and our goal is to get to two to two and a half times net leverage, which will get us more into a more balanced capital allocation strategy. Got it. I'd like to open it up to the audience if there's any questions. Gentlemen in the back. Hi. I'm relatively new to the company, but over the last couple of years and going forward, what's the unit volumes versus price equation for you guys? Would you have a lot of pricing power? Yeah, I think we have. We work hard on that every year. It's not an event kind of a driven thing. You can see, as Ram said, our gross margin over the last couple of years improving. Remember, in 2022, we gave a five-year model that said when our revenue is $5.6 billion, we'd be at 47% plus gross margin. As Ram said, at $3.8 billion, we already hit 47% plus in 48 months. So that's an indication of the value and the pricing power we have. So we've held our own. I think there's more opportunity going forward. I think the time to get an improvement in gross margin is the new design wins, right? It's harder to go back, I think, and change pricing. But for sure, for new stuff, if you're unique, then we're getting paid fairly for that. Any other questions? I guess then I'll ask a few more, so on the semi portion, so for ALD, I guess the kind of story there is your ozone generators, if I'm correct. Could you just kind of elaborate on that, sort of what makes MKS's solution there kind of differentiated versus competition? Yeah, so ozone is O3, three oxygen atoms together. And that's needed for every cycle in an Atomic Layer Deposition cycle. And the uniqueness of our ozone generator is that it generates a much higher concentration that's much cleaner than a lot of folks in the industry. And there aren't a lot of competitors left. We talked about it at our earnings call that at two nanometers and below, there's a lot more ALD, a lot more ozone generation that has to go on that's higher concentration and cleaner. And so that's been the unique features of how we've been winning that share. So when I think about kind of your content per, I think, WFE dollar, it's kind of 1.8%-2.2%, if I'm correct. That's right. Deposition would be probably on the lighter end, but hopefully ALD kind of drives it up, or? Yeah. Yeah, so our revenue as a function of WFE varies between 1.8%-2.2%. Kind of depends on the cycle, et cetera. But I think on the lower end of it would be our lithography metrology inspection because we're just early innings there. I think on the higher end would be NAND because of our RF power there. And then a lot of other things in between. But I think the bigger picture is that whether it's DRAM building fast or NAND or logic or whether it's deposition and etch or litho, we kind of don't care because we're in 85% of it. So we're going to see most of it. And our job is to try to continue growing that share over time. Great. So kind of hopefully the customer is talking about a big second half 2026 comes true and you guys see good 2026 then. Yeah. As I said, it's incrementally more positive since 90 days ago, for sure. Great. That brings us up to time. Thank you, Don. Thank you, John. Thank you, Ram. All right. Thanks, everyone.

Speaker 4: I guess we can get started. I guess we can get started. i guess we can get started Okay, great. I'm Shane Brett, a senior analyst from Morgan Stanley. Joining me today from MKS are Dr. John Lee, CEO, and Ram Mayampurath, CFO. We also have Paretosh Misra from Investor Relations in the audience. Before I start my questions, I'm going to hand it over to John for a quick introduction to MKS. Okay, great. okay great I'm Shane Brett, a senior analyst from Morgan Stanley. i'm shane brett a senior analyst from morgan stanley Joining me today from MKS are Dr. John Lee, CEO, and Ram Mayampurath, CFO. joining me today from mks are dr john lee ceo and ram mayampurath cfo We also have Paretosh Misra from Investor Relations in the audience. we also have paretosh misra from investor relations in the audience Before I start my questions, I'm going to hand it over to John for a quick introduction to MKS. before i start my questions i'm going to hand it over to john for a quick introduction to mks

Speaker 2: Yeah, great. Thanks, Shane. So maybe I thought I'd start with a little introduction for some of you who may not know the MKS story as well. So MKS is a 65-year-old company. We started with one product. That product was an instrument that measured the pressure inside a vacuum chamber. And from that, we were able to move into the semiconductor industry. As you probably realize, semiconductors have a lot of vacuum chambers. And that one product has taken a very high market share. And after 55 years, it's still number one market share. But from that one product, we were able to organically and inorganically build a strategy of surrounding the chamber with all other types of critical subsystems, so valves, RF power, plasma, mass flow controls, et cetera. So that was the strategy up until 2015. Yeah, great. yeah great Thanks, Shane. thanks shane So maybe I thought I'd start with a little introduction for some of you who may not know the MKS story as well. so maybe i thought i'd start with a little introduction for some of you who may not know the mks story as well So MKS is a 65-year-old company. so mks is a 65-year-old company We started with one product. we started with one product That product was an instrument that measured the pressure inside a vacuum chamber. that product was an instrument that measured the pressure inside a vacuum chamber And from that, we were able to move into the semiconductor industry. and from that we were able to move into the semiconductor industry As you probably realize, semiconductors have a lot of vacuum chambers. as you probably realize semiconductors have a lot of vacuum chambers And that one product has taken a very high market share. and that one product has taken a very high market share And after 55 years, it's still number one market share. and after 55 years it's still number one market share But from that one product, we were able to organically and inorganically build a strategy of surrounding the chamber with all other types of critical subsystems, so valves, RF power, plasma, mass flow controls, et cetera. but from that one product we were able to organically and inorganically build a strategy of surrounding the chamber with all other types of critical subsystems so valves rf power plasma mass flow controls et cetera So that was the strategy up until 2015. so that was the strategy up until 2015 At that point, we were semiconductor only in terms of a market, but only the vacuum equipment of semiconductor. In 2015, we bought a company called Newport Corporation. Newport had about 20 product lines: lasers, optics, motion. We had 20 product lines: vacuums, critical subsystems. Two things happened with the Newport acquisition. One is it brought to us the missing components of the rest of semiconductor equipment: lithography, metrology, and inspection. So with that acquisition, we now address 85% of every piece of equipment in every fab in the world with multiple subsystems. No one else is even close to that market share. And we can say that because the big five are Applied Materials, Lam, Tokyo Electron, ASML, and KLA. And together, they're about 85% market share. The second thing that Newport acquisition did was it brought to us new markets. At that point, we were semiconductor only in terms of a market, but only the vacuum equipment of semiconductor. at that point we were semiconductor only in terms of a market but only the vacuum equipment of semiconductor In 2015, we bought a company called Newport Corporation. in 2015 we bought a company called newport corporation Newport had about 20 product lines: lasers, optics, motion. newport had about 20 product lines lasers optics motion We had 20 product lines: vacuums, critical subsystems. we had 20 product lines vacuums critical subsystems Two things happened with the Newport acquisition. two things happened with the newport acquisition One is it brought to us the missing components of the rest of semiconductor equipment: lithography, metrology, and inspection. one is it brought to us the missing components of the rest of semiconductor equipment lithography metrology and inspection So with that acquisition, we now address 85% of every piece of equipment in every fab in the world with multiple subsystems. so with that acquisition we now address 85% of every piece of equipment in every fab in the world with multiple subsystems No one else is even close to that market share. no one else is even close to that market share And we can say that because the big five are Applied Materials, Lam, Tokyo Electron, ASML, and KLA. and we can say that because the big five are applied materials lam tokyo electron asml and kla And together, they're about 85% market share. and together they're about 85% market share The second thing that Newport acquisition did was it brought to us new markets. the second thing that newport acquisition did was it brought to us new markets One of those new markets was the application of lasers to manufacture precise things. One of those is drilling holes in PCBs. That led us to the acquisition of Electro Scientific Industries. That was the first time we actually bought a systems company. What that allowed us to do was to talk to another layer in the food chain. So not just the OEMs, but the customers of the OEMs. That allowed us to understand the infrastructure and the ecosystem much better. Then from that, we did the acquisition of Atotech, which is chemistry and chemistry equipment for PCB manufacturing. The strategy behind all of this is we want to be foundational to everything that makes advanced electronics advanced, not just the semiconductor, but the packaging of semiconductors together. One of those new markets was the application of lasers to manufacture precise things. one of those new markets was the application of lasers to manufacture precise things One of those is drilling holes in PCBs. one of those is drilling holes in pcbs That led us to the acquisition of Electro Scientific Industries. that led us to the acquisition of electro scientific industries That was the first time we actually bought a systems company. that was the first time we actually bought a systems company What that allowed us to do was to talk to another layer in the food chain. what that allowed us to do was to talk to another layer in the food chain So not just the OEMs, but the customers of the OEMs. so not just the oems but the customers of the oems That allowed us to understand the infrastructure and the ecosystem much better. that allowed us to understand the infrastructure and the ecosystem much better Then from that, we did the acquisition of Atotech, which is chemistry and chemistry equipment for PCB manufacturing. then from that we did the acquisition of atotech which is chemistry and chemistry equipment for pcb manufacturing The strategy behind all of this is we want to be foundational to everything that makes advanced electronics advanced, not just the semiconductor, but the packaging of semiconductors together. the strategy behind all of this is we want to be foundational to everything that makes advanced electronics advanced not just the semiconductor but the packaging of semiconductors together In the past, if you wanted to be critical or foundational to advanced electronics, all you had to be was a great semiconductor equipment company. That was all that mattered. And that semi was the only thing that drove advanced electronics to be better. Over time, that was Moore's Law. And over time, Moore's Law wasn't as relevant anymore. It started slowing down. And so what did people do? Well, they started putting chips together and packaging them together such that they behave like one big chip. And because of that, we can actually continue extending that Moore's Law concept of everything is twice as good every two years for the same price. That's now true for 70 years in a row. That's why things like AI are possible. And a lot of folks think, oh, AI, that's going to change the world. And it might. In the past, if you wanted to be critical or foundational to advanced electronics, all you had to be was a great semiconductor equipment company. in the past if you wanted to be critical or foundational to advanced electronics all you had to be was a great semiconductor equipment company That was all that mattered. that was all that mattered And that semi was the only thing that drove advanced electronics to be better. and that semi was the only thing that drove advanced electronics to be better Over time, that was Moore's Law. over time that was moore's law And over time, Moore's Law wasn't as relevant anymore. and over time moore's law wasn't as relevant anymore It started slowing down. it started slowing down And so what did people do? and so what did people do Well, they started putting chips together and packaging them together such that they behave like one big chip. well they started putting chips together and packaging them together such that they behave like one big chip And because of that, we can actually continue extending that Moore's Law concept of everything is twice as good every two years for the same price. and because of that we can actually continue extending that moore's law concept of everything is twice as good every two years for the same price That's now true for 70 years in a row. that's now true for 70 years in a row That's why things like AI are possible. that's why things like ai are possible And a lot of folks think, oh, AI, that's going to change the world. and a lot of folks think oh ai that's going to change the world And it might. and it might But the way we look at AI is it's just a great thing in a list of other great things, such as the PC, such as the smartphones, such as data centers. This was all driven fundamentally by Moore's Law and now more than Moore's Law. And we want to be foundational to that. And from a shareholder standpoint, we think that foundational technology provider status is a sustainable long-term investment. It's not about the fad of the day. It's about an infrastructure builder that is critical. And it's an infrastructure that continues to grow over time. And you can argue is even more important now than it was even 10 years ago, let alone 50 years ago. So that's a quick introduction to MKS. But the way we look at AI is it's just a great thing in a list of other great things, such as the PC, such as the smartphones, such as data centers. but the way we look at ai is it's just a great thing in a list of other great things such as the pc such as the smartphones such as data centers This was all driven fundamentally by Moore's Law and now more than Moore's Law. this was all driven fundamentally by moore's law and now more than moore's law And we want to be foundational to that. and we want to be foundational to that And from a shareholder standpoint, we think that foundational technology provider status is a sustainable long-term investment. and from a shareholder standpoint we think that foundational technology provider status is a sustainable long-term investment It's not about the fad of the day. it's not about the fad of the day It's about an infrastructure builder that is critical. it's about an infrastructure builder that is critical And it's an infrastructure that continues to grow over time. and it's an infrastructure that continues to grow over time And you can argue is even more important now than it was even 10 years ago, let alone 50 years ago. and you can argue is even more important now than it was even 10 years ago let alone 50 years ago So that's a quick introduction to MKS. so that's a quick introduction to mks

Speaker 4: Got it. Thanks, John. I'll kind of walk through the questions by segment, and I want to start with Electronics and Packaging, E&P, so your Q4 guide implies about 20% growth for the full year, which is pretty good. Just could you talk about what has drove this really strong growth this year? Got it. got it Thanks, John. thanks john I'll kind of walk through the questions by segment, and I want to start with Electronics and Packaging, E&P, so your Q4 guide implies about 20% growth for the full year, which is pretty good. i'll kind of walk through the questions by segment and i want to start with electronics and packaging e&p so your q4 guide implies about 20% growth for the full year which is pretty good Just could you talk about what has drove this really strong growth this year? just could you talk about what has drove this really strong growth this year

Speaker 2: Yeah, two factors. So chemistry, we provide a lot of chemistry to the PCB industry. A lot of that is driven by AI. So AI, as I said, is about packaging chips together. And so a lot of the AI customers, the guys that are buying our chemistry to build AI boards, they're growing for sure. But in addition to that, we're seeing chemistry equipment. So we're the only provider of chemistry that also provides chemistry equipment in the PCB industry. We decided to do that strategically because we think that if you can bring more tools to the game, you can provide solutions to your customers faster. If you can bring chemistry tools, if you can bring equipment tools, you can actually come to an optimized solution faster. And so the last four quarters, we've seen strong equipment bookings and revenue for chemistry equipment. Yeah, two factors. yeah two factors So chemistry, we provide a lot of chemistry to the PCB industry. so chemistry we provide a lot of chemistry to the pcb industry A lot of that is driven by AI. a lot of that is driven by ai So AI, as I said, is about packaging chips together. so ai as i said is about packaging chips together And so a lot of the AI customers, the guys that are buying our chemistry to build AI boards, they're growing for sure. and so a lot of the ai customers the guys that are buying our chemistry to build ai boards they're growing for sure But in addition to that, we're seeing chemistry equipment. but in addition to that we're seeing chemistry equipment So we're the only provider of chemistry that also provides chemistry equipment in the PCB industry. so we're the only provider of chemistry that also provides chemistry equipment in the pcb industry We decided to do that strategically because we think that if you can bring more tools to the game, you can provide solutions to your customers faster. we decided to do that strategically because we think that if you can bring more tools to the game you can provide solutions to your customers faster If you can bring chemistry tools, if you can bring equipment tools, you can actually come to an optimized solution faster. if you can bring chemistry tools if you can bring equipment tools you can actually come to an optimized solution faster And so the last four quarters, we've seen strong equipment bookings and revenue for chemistry equipment. and so the last four quarters we've seen strong equipment bookings and revenue for chemistry equipment That's also been a significant driver of the year-over-year outgrowth in E&P. That's also been a significant driver of the year-over-year outgrowth in E&P. that's also been a significant driver of the year-over-year outgrowth in e&p

Speaker 4: Got it. And with this equipment growth, so the flex PCB drilling has been a pretty good driver for you guys this year. Just can you talk about the trends you're seeing with kind of your customers for these flex PCB drilling tools? And also, you've kind of talked about you're adding some capacity to your equipment factories. Just could you kind of talk about how that sort of ties in with your growth outlook for this equipment portion? Got it. got it And with this equipment growth, so the flex PCB drilling has been a pretty good driver for you guys this year. and with this equipment growth so the flex pcb drilling has been a pretty good driver for you guys this year Just can you talk about the trends you're seeing with kind of your customers for these flex PCB drilling tools? just can you talk about the trends you're seeing with kind of your customers for these flex pcb drilling tools And also, you've kind of talked about you're adding some capacity to your equipment factories. and also you've kind of talked about you're adding some capacity to your equipment factories Just could you kind of talk about how that sort of ties in with your growth outlook for this equipment portion? just could you kind of talk about how that sort of ties in with your growth outlook for this equipment portion

Speaker 2: Yeah. So in our E&P market, we have equipment. And we have two types of equipment. There's chemistry equipment that I just talked about, driven a lot by AI, but also laser drilling equipment. So these are tools that are actually drilling holes, thousands of holes per second. So think about that. I'm going to drill a few thousand holes in one second. That's how fast these laser tools are. And we are the market share leader in flexible PCBs versus rigid PCBs. Flexible PCBs, what are they used for? Well, think about phones. A lot of the circuitry inside phones, connecting the camera to the microprocessor and other things, these are flexible circuits. They're actually quite complex. AirPods, so all of these wearables have tiny flexible circuits in them. And we're market share leader there. We also have laser drilling tools for rigid PCBs. Yeah. yeah So in our E&P market, we have equipment. so in our e&p market we have equipment And we have two types of equipment. and we have two types of equipment There's chemistry equipment that I just talked about, driven a lot by AI, but also laser drilling equipment. there's chemistry equipment that i just talked about driven a lot by ai but also laser drilling equipment So these are tools that are actually drilling holes, thousands of holes per second. so these are tools that are actually drilling holes thousands of holes per second So think about that. so think about that I'm going to drill a few thousand holes in one second. i'm going to drill a few thousand holes in one second That's how fast these laser tools are. that's how fast these laser tools are And we are the market share leader in flexible PCBs versus rigid PCBs. and we are the market share leader in flexible pcbs versus rigid pcbs Flexible PCBs, what are they used for? flexible pcbs what are they used for Well, think about phones. well think about phones A lot of the circuitry inside phones, connecting the camera to the microprocessor and other things, these are flexible circuits. a lot of the circuitry inside phones connecting the camera to the microprocessor and other things these are flexible circuits They're actually quite complex. they're actually quite complex AirPods, so all of these wearables have tiny flexible circuits in them. airpods so all of these wearables have tiny flexible circuits in them And we're market share leader there. and we're market share leader there We also have laser drilling tools for rigid PCBs. we also have laser drilling tools for rigid pcbs There, it's an opportunity for us. We don't have the number one market share there, but we have some technology there that we think is unique. And we've already demonstrated some wins there. There, it's an opportunity for us. there it's an opportunity for us We don't have the number one market share there, but we have some technology there that we think is unique. we don't have the number one market share there but we have some technology there that we think is unique And we've already demonstrated some wins there. and we've already demonstrated some wins there

Speaker 4: I guess if I just take a step back on this E&P segment, if I'm correct, it's two-thirds chemistry, one-third sort of equipment and tooling. How would you sort of characterize the growth profiles between the two-thirds chemistry business versus kind of the one-third of equipment? I guess if I just take a step back on this E&P segment, if I'm correct, it's two-thirds chemistry, one-third sort of equipment and tooling. i guess if i just take a step back on this e&p segment if i'm correct it's two-thirds chemistry one-third sort of equipment and tooling How would you sort of characterize the growth profiles between the two-thirds chemistry business versus kind of the one-third of equipment? how would you sort of characterize the growth profiles between the two-thirds chemistry business versus kind of the one-third of equipment

Speaker 2: Yeah, so that's right. A third is equipment that includes chemistry equipment and laser equipment. And that can be lumpy because it's CapEx. The two-thirds is chemistry. And that's more it is a consumable kind of market. And so that's been growing probably about 10% year over year this year and likely about 10% year over year last year. And so this is driven by a lot of the volume of AI. So many of our customers are building more complex layers of PCBs for AI servers. And that chemistry is coming through to the growth that you're seeing in our chemistry revenue. Yeah, so that's right. yeah so that's right A third is equipment that includes chemistry equipment and laser equipment. a third is equipment that includes chemistry equipment and laser equipment And that can be lumpy because it's CapEx. and that can be lumpy because it's capex The two-thirds is chemistry. the two-thirds is chemistry And that's more it is a consumable kind of market. and that's more it is a consumable kind of market And so that's been growing probably about 10% year over year this year and likely about 10% year over year last year. and so that's been growing probably about 10% year over year this year and likely about 10% year over year last year And so this is driven by a lot of the volume of AI. and so this is driven by a lot of the volume of ai So many of our customers are building more complex layers of PCBs for AI servers. so many of our customers are building more complex layers of pcbs for ai servers And that chemistry is coming through to the growth that you're seeing in our chemistry revenue. and that chemistry is coming through to the growth that you're seeing in our chemistry revenue

Speaker 4: So when I sort of think about your 20% growth this year, it's been kind of you have your two-thirds that's growing 10%. And then the equipment growth is sort of layering on top of that. So when I sort of think about your 20% growth this year, it's been kind of you have your two-thirds that's growing 10%. so when i sort of think about your 20% growth this year it's been kind of you have your two-thirds that's growing 10% And then the equipment growth is sort of layering on top of that. and then the equipment growth is sort of layering on top of that

Speaker 2: Exactly. Exactly. Exactly. exactly Exactly. exactly

Speaker 4: When I think about kind of that durability of that equipment growth that's been going on for four quarters right now, sort of how do you kind of see an early setup into 2026 or kind of bit of visibility? When I think about kind of that durability of that equipment growth that's been going on for four quarters right now, sort of how do you kind of see an early setup into 2026 or kind of bit of visibility? when i think about kind of that durability of that equipment growth that's been going on for four quarters right now sort of how do you kind of see an early setup into 2026 or kind of bit of visibility

Speaker 2: Yeah. Yeah. So four quarters are great equipment orders for chemistry. We're booked through the first half of 2026. And we continue to have discussions with customers about beyond that. So, so far, so good. Equipment continues to be a strong part of our potential growth in 2026. It is a CapEx environment. So it will turn over at some point. But the most important part is when we sell equipment for chemistry, the chemistry is ours. And our chemistry gross margins are above 55%. Equipment is lower. And so if you think about that equipment revenue, it is going to drive annualized year-over-year chemistry revenue for decades. That's been the history of our equipment sales. Yeah. yeah yeah Yeah. yeah So four quarters are great equipment orders for chemistry. so four quarters are great equipment orders for chemistry We're booked through the first half of 2026. we're booked through the first half of 2026 And we continue to have discussions with customers about beyond that. and we continue to have discussions with customers about beyond that So, so far, so good. so so far so good Equipment continues to be a strong part of our potential growth in 2026. equipment continues to be a strong part of our potential growth in 2026 It is a CapEx environment. it is a capex environment So it will turn over at some point. so it will turn over at some point But the most important part is when we sell equipment for chemistry, the chemistry is ours. but the most important part is when we sell equipment for chemistry the chemistry is ours And our chemistry gross margins are above 55%. and our chemistry gross margins are above 55% Equipment is lower. equipment is lower And so if you think about that equipment revenue, it is going to drive annualized year-over-year chemistry revenue for decades. and so if you think about that equipment revenue it is going to drive annualized year-over-year chemistry revenue for decades That's been the history of our equipment sales. that's been the history of our equipment sales

Speaker 4: So I was probably going to ask this a little bit later on the financials portion. But gross margin has been a little bit lighter, I would say, just given just so much equipment sales going on. But equipment may roll over at some point. But chemistry is more utilization-based. How would I kind of think about maybe the attach rate between equipment and chemistry and how better equipment, I mean, better chemistry may also feed into the financial model? So I was probably going to ask this a little bit later on the financials portion. so i was probably going to ask this a little bit later on the financials portion But gross margin has been a little bit lighter, I would say, just given just so much equipment sales going on. but gross margin has been a little bit lighter i would say just given just so much equipment sales going on But equipment may roll over at some point. but equipment may roll over at some point But chemistry is more utilization-based. but chemistry is more utilization-based How would I kind of think about maybe the attach rate between equipment and chemistry and how better equipment, I mean, better chemistry may also feed into the financial model? how would i kind of think about maybe the attach rate between equipment and chemistry and how better equipment i mean better chemistry may also feed into the financial model

Speaker 3: Yeah, that's true. So after five years, the attach rate drops to about 85%. So we have very high attach rate when we get out of the gate. And you're right. The chemistry sales that follow the equipment sales are very high, higher than our corporate average gross margins. In the future, mix will be a big part of our gross margin play. If you look back into Q4, sorry, 2024 up to Q1 of this year, we were running gross margins well above 47%. We finished Q1 at 47.4%. Since then, we had two headwinds to deal with. One is the mix impact of equipment sales and the tariff impact that hit us in Q2 and Q3 in particular. Q2, we had 115 basis points from tariffs. Q3, we had 80 basis points. By Q4, we will offset the impact of that tariff dollar for dollar. Yeah, that's true. yeah that's true So after five years, the attach rate drops to about 85%. so after five years the attach rate drops to about 85% So we have very high attach rate when we get out of the gate. so we have very high attach rate when we get out of the gate And you're right. and you're right The chemistry sales that follow the equipment sales are very high, higher than our corporate average gross margins. the chemistry sales that follow the equipment sales are very high higher than our corporate average gross margins In the future, mix will be a big part of our gross margin play. in the future mix will be a big part of our gross margin play If you look back into Q4, sorry, 2024 up to Q1 of this year, we were running gross margins well above 47%. if you look back into q4 sorry 2024 up to q1 of this year we were running gross margins well above 47% We finished Q1 at 47.4%. we finished q1 at 47.4% Since then, we had two headwinds to deal with. since then we had two headwinds to deal with One is the mix impact of equipment sales and the tariff impact that hit us in Q2 and Q3 in particular. one is the mix impact of equipment sales and the tariff impact that hit us in q2 and q3 in particular Q2, we had 115 basis points from tariffs. q2 we had 115 basis points from tariffs Q3, we had 80 basis points. q3 we had 80 basis points By Q4, we will offset the impact of that tariff dollar for dollar. by q4 we will offset the impact of that tariff dollar for dollar However, from a gross margin point of view, we will still have a 50 basis points impact going forward because we are not marking up the pass-throughs. It's a dollar for dollar. So the math will be against us. In the long term, we are confident that we can offset that 50 basis points through just efficiency and manufacturing excellence programs. And as the mix gets back to more normalized levels, we will get back to the 47-plus% gross margin that we have targeted. However, from a gross margin point of view, we will still have a 50 basis points impact going forward because we are not marking up the pass-throughs. however from a gross margin point of view we will still have a 50 basis points impact going forward because we are not marking up the pass-throughs It's a dollar for dollar. it's a dollar for dollar So the math will be against us. so the math will be against us In the long term, we are confident that we can offset that 50 basis points through just efficiency and manufacturing excellence programs. in the long term we are confident that we can offset that 50 basis points through just efficiency and manufacturing excellence programs And as the mix gets back to more normalized levels, we will get back to the 47-plus% gross margin that we have targeted. and as the mix gets back to more normalized levels we will get back to the 47-plus% gross margin that we have targeted

Speaker 4: Got it. Thank you, Rob. And before I move over to semi, I have to mention, so you were awarded the Optica i4 Individual Lifetime Achievement Award at the Global Photonics Economic Forum in October. Just could you remind us about MKS's sort of position, like what MKS's optical business is and kind of what part of the supply chain you guys play a part in there? Got it. got it Thank you, Rob. thank you rob And before I move over to semi, I have to mention, so you were awarded the Optica i4 Individual Lifetime Achievement Award at the Global Photonics Economic Forum in October. and before i move over to semi i have to mention so you were awarded the optica i4 individual lifetime achievement award at the global photonics economic forum in october Just could you remind us about MKS's sort of position, like what MKS's optical business is and kind of what part of the supply chain you guys play a part in there? just could you remind us about mks's sort of position like what mks's optical business is and kind of what part of the supply chain you guys play a part in there

Speaker 2: Yeah, so that was a great honor. But it was really a reflection of MKS, actually. And it was a recognition that MKS is one of the leading players in the optics industry, the photonics industry. And the areas that we work in in photonics are not just lasers and industrial type of applications, but also in semi. And so when we thought about areas for growth, for outgrowth, semiconductor equipment for lithography, metrology, and inspection was something we were under-indexed to. And so five years ago, we decided to change that. We hired more people. We added more CapEx, developed new processes so that we can do more complex things, optical subsystems and optics for the lithography, metrology, inspection customers. So that revenue five years ago was $150 million. Now it's $300 million. And we're still in early innings of that area of the semiconductor WFE market. Yeah, so that was a great honor. yeah so that was a great honor But it was really a reflection of MKS, actually. but it was really a reflection of mks actually And it was a recognition that MKS is one of the leading players in the optics industry, the photonics industry. and it was a recognition that mks is one of the leading players in the optics industry the photonics industry And the areas that we work in in photonics are not just lasers and industrial type of applications, but also in semi. and the areas that we work in in photonics are not just lasers and industrial type of applications but also in semi And so when we thought about areas for growth, for outgrowth, semiconductor equipment for lithography, metrology, and inspection was something we were under-indexed to. and so when we thought about areas for growth for outgrowth semiconductor equipment for lithography metrology and inspection was something we were under-indexed to And so five years ago, we decided to change that. and so five years ago we decided to change that We hired more people. we hired more people We added more CapEx, developed new processes so that we can do more complex things, optical subsystems and optics for the lithography, metrology, inspection customers. we added more capex developed new processes so that we can do more complex things optical subsystems and optics for the lithography metrology inspection customers So that revenue five years ago was $150 million. so that revenue five years ago was $150 million Now it's $300 million. now it's $300 million And we're still in early innings of that area of the semiconductor WFE market. and we're still in early innings of that area of the semiconductor wfe market

Speaker 4: Got it. That kind of ties us into talking about semi. So you've seen a nice year in semi. Q4 guide implies about 10% growth for the full year. So your customers have talked about kind of a big second half 2026 ramp. Could you kind of talk about what your sort of early expectations are or kind of, I guess, what you're sort of expecting for your semi business in 2026? And also, it would be helpful if kind of what drove this sort of 10% growth this year as well. Got it. got it That kind of ties us into talking about semi. that kind of ties us into talking about semi So you've seen a nice year in semi. so you've seen a nice year in semi Q4 guide implies about 10% growth for the full year. q4 guide implies about 10% growth for the full year So your customers have talked about kind of a big second half 2026 ramp. so your customers have talked about kind of a big second half 2026 ramp Could you kind of talk about what your sort of early expectations are or kind of, I guess, what you're sort of expecting for your semi business in 2026? could you kind of talk about what your sort of early expectations are or kind of i guess what you're sort of expecting for your semi business in 2026 And also, it would be helpful if kind of what drove this sort of 10% growth this year as well. and also it would be helpful if kind of what drove this sort of 10% growth this year as well

Speaker 2: Yeah. Well, so this year, 10% growth, a lot of it is part of it was inventory being burned off, our inventory being burned off for NAND. And we saw some upgrade patterns there. So that was helpful. And it's also a lot of in-quarter turn because our lead times are very short, back to normal now. I would say pick your favorite WFE model for 2026. But people are saying it can go up 5%, 10%, 15% now, incrementally better as the year has gone on. And a lot of it is driven by logic, DRAM, and HBM, not so much NAND yet. And so, as I said earlier, we are addressing 85% of WFE. So when logic goes up, we go up. When DRAM goes up, we go up. When HBM goes up, we go up. Yeah. yeah Well, so this year, 10% growth, a lot of it is part of it was inventory being burned off, our inventory being burned off for NAND. well so this year 10% growth a lot of it is part of it was inventory being burned off our inventory being burned off for nand And we saw some upgrade patterns there. and we saw some upgrade patterns there So that was helpful. so that was helpful And it's also a lot of in-quarter turn because our lead times are very short, back to normal now. and it's also a lot of in-quarter turn because our lead times are very short back to normal now I would say pick your favorite WFE model for 2026. i would say pick your favorite wfe model for 2026 But people are saying it can go up 5%, 10%, 15% now, incrementally better as the year has gone on. but people are saying it can go up 5% 10% 15% now incrementally better as the year has gone on And a lot of it is driven by logic, DRAM, and HBM, not so much NAND yet. and a lot of it is driven by logic dram and hbm not so much nand yet And so, as I said earlier, we are addressing 85% of WFE. and so as i said earlier we are addressing 85% of wfe So when logic goes up, we go up. so when logic goes up we go up When DRAM goes up, we go up. when dram goes up we go up When HBM goes up, we go up. when hbm goes up we go up NAND is potentially an upside to all that if there are more NAND upgrades there. I think the industry is worried about capacity in terms of cleanroom space for all the equipment. So that's a great problem to have. People are going to fix that as fast as they can. But right now, as we look at the industry view of equipment in 2026, it's very robust. Our lead times are short now, back to normal. Our inventory is. We're shipping to demand. So I think 2026, if that holds, will be a great year for MKS. NAND is potentially an upside to all that if there are more NAND upgrades there. nand is potentially an upside to all that if there are more nand upgrades there I think the industry is worried about capacity in terms of cleanroom space for all the equipment. i think the industry is worried about capacity in terms of cleanroom space for all the equipment So that's a great problem to have. so that's a great problem to have People are going to fix that as fast as they can. people are going to fix that as fast as they can But right now, as we look at the industry view of equipment in 2026, it's very robust. but right now as we look at the industry view of equipment in 2026 it's very robust Our lead times are short now, back to normal. our lead times are short now back to normal Our inventory is. our inventory is We're shipping to demand. we're shipping to demand So I think 2026, if that holds, will be a great year for MKS. so i think 2026 if that holds will be a great year for mks

Speaker 4: Got it. We're at 11% growth for 2026, so pretty good setup for you guys. I guess just in terms of that lead time, so you guys are at four to eight weeks right now. I guess what does a more normalized lead time look like for MKS? And sort of what sort of visibility would you ideally like your customers to provide you? Got it. got it We're at 11% growth for 2026, so pretty good setup for you guys. we're at 11% growth for 2026 so pretty good setup for you guys I guess just in terms of that lead time, so you guys are at four to eight weeks right now. i guess just in terms of that lead time so you guys are at four to eight weeks right now I guess what does a more normalized lead time look like for MKS? i guess what does a more normalized lead time look like for mks And sort of what sort of visibility would you ideally like your customers to provide you? and sort of what sort of visibility would you ideally like your customers to provide you

Speaker 2: Yeah. Well, so I think four to eight weeks is kind of normalized. And there's ranges, right? There's some complex subsystems that might be a few months. But that's kind of normalized. Now, during a ramp, things extend. And that's normal. Our communications with our customers are very, very close. There's only five big customers in semi. So we talk to them all the time. We also talk to the end users, the chip companies as well, to try to get as much insight as possible. So I think no one wants to be supply chain constrained. And so our customers are going to tell us as soon as they know what is their needs for the next quarter or two. And I would say when I think about what's being said nowadays versus a quarter ago, it's incrementally more positive. Yeah. yeah Well, so I think four to eight weeks is kind of normalized. well so i think four to eight weeks is kind of normalized And there's ranges, right? and there's ranges right There's some complex subsystems that might be a few months. there's some complex subsystems that might be a few months But that's kind of normalized. but that's kind of normalized Now, during a ramp, things extend. now during a ramp things extend And that's normal. and that's normal Our communications with our customers are very, very close. our communications with our customers are very very close There's only five big customers in semi. there's only five big customers in semi So we talk to them all the time. so we talk to them all the time We also talk to the end users, the chip companies as well, to try to get as much insight as possible. we also talk to the end users the chip companies as well to try to get as much insight as possible So I think no one wants to be supply chain constrained. so i think no one wants to be supply chain constrained And so our customers are going to tell us as soon as they know what is their needs for the next quarter or two. and so our customers are going to tell us as soon as they know what is their needs for the next quarter or two And I would say when I think about what's being said nowadays versus a quarter ago, it's incrementally more positive. and i would say when i think about what's being said nowadays versus a quarter ago it's incrementally more positive

Speaker 4: Got it. Got it. And I just want to touch back on the NAND portion. So when I look back at 2021 and 2022, you guys did really well in NAND. NAND WFE kind of disappeared for two years. It started to come back this year. But how would this sort of a recovery in NAND WFE layer onto kind of your outperformance versus WFE if we think about 2026 and 2027 seeing hopefully a bit more better NAND WFE? Got it. got it Got it. got it And I just want to touch back on the NAND portion. and i just want to touch back on the nand portion So when I look back at 2021 and 2022, you guys did really well in NAND. so when i look back at 2021 and 2022 you guys did really well in nand NAND WFE kind of disappeared for two years. nand wfe kind of disappeared for two years It started to come back this year. it started to come back this year But how would this sort of a recovery in NAND WFE layer onto kind of your outperformance versus WFE if we think about 2026 and 2027 seeing hopefully a bit more better NAND WFE? but how would this sort of a recovery in nand wfe layer onto kind of your outperformance versus wfe if we think about 2026 and 2027 seeing hopefully a bit more better nand wfe

Speaker 2: Yeah. So NAND is pretty much in a historic low. So if upgrades happen, we participate in that because one of the components of that upgrade is RF power. And we're market share leader there. If new greenfield happens, we'll certainly get the RF power, but also the surround the chamber portfolio as well. So I think NAND upgrades as well as greenfields are going to be extra tailwinds to the 2026 WFE. I think it feels like it's going to be constrained by the amount of cleanroom space at this point because people are shifting even NAND cleanroom to HBM and DRAM because there's an even stronger pull there, even higher pricing there driven by AI. Yeah. yeah So NAND is pretty much in a historic low. so nand is pretty much in a historic low So if upgrades happen, we participate in that because one of the components of that upgrade is RF power. so if upgrades happen we participate in that because one of the components of that upgrade is rf power And we're market share leader there. and we're market share leader there If new greenfield happens, we'll certainly get the RF power, but also the surround the chamber portfolio as well. if new greenfield happens we'll certainly get the rf power but also the surround the chamber portfolio as well So I think NAND upgrades as well as greenfields are going to be extra tailwinds to the 2026 WFE. so i think nand upgrades as well as greenfields are going to be extra tailwinds to the 2026 wfe I think it feels like it's going to be constrained by the amount of cleanroom space at this point because people are shifting even NAND cleanroom to HBM and DRAM because there's an even stronger pull there, even higher pricing there driven by AI. i think it feels like it's going to be constrained by the amount of cleanroom space at this point because people are shifting even nand cleanroom to hbm and dram because there's an even stronger pull there even higher pricing there driven by ai

Speaker 4: Got it. And even though that kind of NAND WFE dropped off in 2022, you guys had some nice kind of revenue ramps in the metrology and inspection side. You were talking about kind of your exposure to ALD to me a little bit earlier. Could you talk about kind of the more idiosyncratic sort of MKS initiatives that should lead to sort of WFE outperformance over the next two years? Got it. got it And even though that kind of NAND WFE dropped off in 2022, you guys had some nice kind of revenue ramps in the metrology and inspection side. and even though that kind of nand wfe dropped off in 2022 you guys had some nice kind of revenue ramps in the metrology and inspection side You were talking about kind of your exposure to ALD to me a little bit earlier. you were talking about kind of your exposure to ald to me a little bit earlier Could you talk about kind of the more idiosyncratic sort of MKS initiatives that should lead to sort of WFE outperformance over the next two years? could you talk about kind of the more idiosyncratic sort of mks initiatives that should lead to sort of wfe outperformance over the next two years

Speaker 2: Yeah. The last earnings call, we talked about the concept of two nanometer and the Gate-All-Around that goes with it and a lot of the deposition processes that are new, like Atomic Layer Deposition, so we provide some key critical subsystems there that we're pretty unique in, but I think if I were to step back and think about how does MKS outgrow the WFE market over time, I think our strategy has been if we can manage a broad portfolio, we have a better chance of outgrowing the market because I can't tell you which inflection is going to cause which critical subsystem to be more critical, but I can guarantee you it will change, and if I have all the or most of the critical subsystems, I can actually do something about it, so the best example was NAND. NAND went vertical. Yeah. yeah The last earnings call, we talked about the concept of two nanometer and the Gate-All-Around that goes with it and a lot of the deposition processes that are new, like Atomic Layer Deposition, so we provide some key critical subsystems there that we're pretty unique in, but I think if I were to step back and think about how does MKS outgrow the WFE market over time, I think our strategy has been if we can manage a broad portfolio, we have a better chance of outgrowing the market because I can't tell you which inflection is going to cause which critical subsystem to be more critical, but I can guarantee you it will change, and if I have all the or most of the critical subsystems, I can actually do something about it, so the best example was NAND. the last earnings call we talked about the concept of two nanometer and the gate-all-around that goes with it and a lot of the deposition processes that are new like atomic layer deposition so we provide some key critical subsystems there that we're pretty unique in but i think if i were to step back and think about how does mks outgrow the wfe market over time i think our strategy has been if we can manage a broad portfolio we have a better chance of outgrowing the market because i can't tell you which inflection is going to cause which critical subsystem to be more critical but i can guarantee you it will change and if i have all the or most of the critical subsystems i can actually do something about it so the best example was nand NAND went vertical. nand went vertical Who would have thought of that? And then it required a lot of RF power. Well, I have RF power. So I just got to decide whether I want to invest in it more. If I was a single product category and I didn't have RF power, I'm kind of stuck. If I extrapolate that to a higher level, well, so in 2010, EUV wasn't ready. So what did the industry do? Well, we double patterned. And we triple patterned. Well, there's a lot of deposition and etch steps. Well, we enjoyed that overgrowth or our outgrowth of WFE. Then EUV happened. And litho became a little more important. That's why we did WCO, world-class optics, to increase our share in litho metrology inspection. So now we can do that. In the next five years, a lot of industry folks are thinking it's back to deposition and etch. Who would have thought of that? who would have thought of that And then it required a lot of RF power. and then it required a lot of rf power Well, I have RF power. well i have rf power So I just got to decide whether I want to invest in it more. so i just got to decide whether i want to invest in it more If I was a single product category and I didn't have RF power, I'm kind of stuck. if i was a single product category and i didn't have rf power i'm kind of stuck If I extrapolate that to a higher level, well, so in 2010, EUV wasn't ready. if i extrapolate that to a higher level well so in 2010 euv wasn't ready So what did the industry do? so what did the industry do Well, we double patterned. well we double patterned And we triple patterned. and we triple patterned Well, there's a lot of deposition and etch steps. well there's a lot of deposition and etch steps Well, we enjoyed that overgrowth or our outgrowth of WFE. well we enjoyed that overgrowth or our outgrowth of wfe Then EUV happened. then euv happened And litho became a little more important. and litho became a little more important That's why we did WCO, world-class optics, to increase our share in litho metrology inspection. that's why we did wco world-class optics to increase our share in litho metrology inspection So now we can do that. so now we can do that In the next five years, a lot of industry folks are thinking it's back to deposition and etch. in the next five years a lot of industry folks are thinking it's back to deposition and etch The point is these things change all the time. Having a broad portfolio, if you can manage that well, allows you a better chance of outgrowing the industry sustainably over decades. The point is these things change all the time. the point is these things change all the time Having a broad portfolio, if you can manage that well, allows you a better chance of outgrowing the industry sustainably over decades. having a broad portfolio if you can manage that well allows you a better chance of outgrowing the industry sustainably over decades

Speaker 4: I guess what also helps is just the scale of MKSI and the ability to do kind of R&D through cycle. And even the scale, I think you previously mentioned that metrology and inspection was, I think, 150 million five years ago, now closer to 300 million. But that growth is also driven by your customers kind of telling you that if you do more R&D, you can get more business. I guess what also helps is just the scale of MKSI and the ability to do kind of R&D through cycle. i guess what also helps is just the scale of mksi and the ability to do kind of r&d through cycle And even the scale, I think you previously mentioned that metrology and inspection was, I think, 150 million five years ago, now closer to 300 million. and even the scale i think you previously mentioned that metrology and inspection was i think 150 million five years ago now closer to 300 million But that growth is also driven by your customers kind of telling you that if you do more R&D, you can get more business. but that growth is also driven by your customers kind of telling you that if you do more r&d you can get more business

Speaker 2: Right. Yeah, exactly. So many of our customers are looking for partners that can actually give them gifts of technology as we look to our suppliers. And that's how the ecosystem works. And so when you have scale, you have a better advantage of being able to satisfy some of these customers' ask of high technology that requires multiple years of investment. So in the 1990s, when I started, you could develop something and have it in production in 12 months. Now everything's a lot harder to do. Those easy things have been done. It takes years. RF power was developed over years before we saw a nickel. We put in a lot of investment for multiple years before we saw any revenue from that investment. But that's the way the game is played now. EUV in our industry is the biggest example. Right. right Yeah, exactly. yeah exactly So many of our customers are looking for partners that can actually give them gifts of technology as we look to our suppliers. so many of our customers are looking for partners that can actually give them gifts of technology as we look to our suppliers And that's how the ecosystem works. and that's how the ecosystem works And so when you have scale, you have a better advantage of being able to satisfy some of these customers' ask of high technology that requires multiple years of investment. and so when you have scale you have a better advantage of being able to satisfy some of these customers' ask of high technology that requires multiple years of investment So in the 1990s, when I started, you could develop something and have it in production in 12 months. so in the 1990s when i started you could develop something and have it in production in 12 months Now everything's a lot harder to do. now everything's a lot harder to do Those easy things have been done. those easy things have been done It takes years. it takes years RF power was developed over years before we saw a nickel. rf power was developed over years before we saw a nickel We put in a lot of investment for multiple years before we saw any revenue from that investment. we put in a lot of investment for multiple years before we saw any revenue from that investment But that's the way the game is played now. but that's the way the game is played now EUV in our industry is the biggest example. euv in our industry is the biggest example 20 years of investment finally is paying off for ASML, for sure. So I think size does matter in an industry where the technology becomes more complicated, more difficult to do, and the R&D investment requires a longer duration. 20 years of investment finally is paying off for ASML, for sure. 20 years of investment finally is paying off for asml for sure So I think size does matter in an industry where the technology becomes more complicated, more difficult to do, and the R&D investment requires a longer duration. so i think size does matter in an industry where the technology becomes more complicated more difficult to do and the r&d investment requires a longer duration

Speaker 4: Right. Ram, I want to pass it over to you for a few financials questions. But the first one, just on the near term, you kind of alluded, talked about it earlier, but gross margin has been weighed down by tariffs and sort of product mix. But could you kind of talk about how have these tariffs impacted your business and sneak peek into what gross margin could look like in 2026 and kind of what the puts and takes might be? Right. right Ram, I want to pass it over to you for a few financials questions. ram i want to pass it over to you for a few financials questions But the first one, just on the near term, you kind of alluded, talked about it earlier, but gross margin has been weighed down by tariffs and sort of product mix. but the first one just on the near term you kind of alluded talked about it earlier but gross margin has been weighed down by tariffs and sort of product mix But could you kind of talk about how have these tariffs impacted your business and sneak peek into what gross margin could look like in 2026 and kind of what the puts and takes might be? but could you kind of talk about how have these tariffs impacted your business and sneak peek into what gross margin could look like in 2026 and kind of what the puts and takes might be

Speaker 3: Yeah. So the tariff had an impact on our gross margin. It did not have any impact on the top line. The highest impact was in Q2, and we had 115 basis points of impact. Our gross margin for the year after, including the tariffs, was 46.6%. It would have been well above, close to 48% if we didn't have that tariff impact. That dropped to 80 basis points in Q3. Our gross margin was 46.6%, including that. It would have been above 47% without that tariff impact. It's dropped to 50 basis points. Like I said, we have matched dollar for dollar. We are recovering 100% of our tariff cost. Yeah. yeah So the tariff had an impact on our gross margin. so the tariff had an impact on our gross margin It did not have any impact on the top line. it did not have any impact on the top line The highest impact was in Q2, and we had 115 basis points of impact. the highest impact was in q2 and we had 115 basis points of impact Our gross margin for the year after, including the tariffs, was 46.6%. our gross margin for the year after including the tariffs was 46.6% It would have been well above, close to 48% if we didn't have that tariff impact. it would have been well above close to 48% if we didn't have that tariff impact That dropped to 80 basis points in Q3. that dropped to 80 basis points in q3 Our gross margin was 46.6%, including that. our gross margin was 46.6% including that It would have been above 47% without that tariff impact. it would have been above 47% without that tariff impact It's dropped to 50 basis points. it's dropped to 50 basis points Like I said, we have matched dollar for dollar. like i said we have matched dollar for dollar We are recovering 100% of our tariff cost. we are recovering 100% of our tariff cost But since we are not marking up the tariffs, you'll continue to see a 50 basis points impact on the gross margin, which we are confident we will overcome with the operational excellence programs going on in just manufacturing excellence and procurement activity primarily. We'll also have more design savings coming in the future years that will help for the margins. With a normalized mix, we are very confident to get back to the 47-plus% in 2026. But since we are not marking up the tariffs, you'll continue to see a 50 basis points impact on the gross margin, which we are confident we will overcome with the operational excellence programs going on in just manufacturing excellence and procurement activity primarily. but since we are not marking up the tariffs you'll continue to see a 50 basis points impact on the gross margin which we are confident we will overcome with the operational excellence programs going on in just manufacturing excellence and procurement activity primarily We'll also have more design savings coming in the future years that will help for the margins. we'll also have more design savings coming in the future years that will help for the margins With a normalized mix, we are very confident to get back to the 47-plus% in 2026. with a normalized mix we are very confident to get back to the 47-plus% in 2026

Speaker 4: Got it. Got it. And I mean, when I kind of compare you guys to what you laid out back in 2022 for the analyst day, you're well ahead of where you guys kind of thought you would be in terms of gross margin. Got it. got it Got it. got it And I mean, when I kind of compare you guys to what you laid out back in 2022 for the analyst day, you're well ahead of where you guys kind of thought you would be in terms of gross margin. and i mean when i kind of compare you guys to what you laid out back in 2022 for the analyst day you're well ahead of where you guys kind of thought you would be in terms of gross margin

Speaker 3: Yeah. Yeah. yeah

Speaker 4: Got it. Got it. got it

Speaker 3: So the cost control side on what we can control has been working well. And the next step change in margins will come with top line growth and the right kind of mix. So the cost control side on what we can control has been working well. so the cost control side on what we can control has been working well And the next step change in margins will come with top line growth and the right kind of mix. and the next step change in margins will come with top line growth and the right kind of mix

Speaker 4: Got it. I'll ask one more question, and then I want to open it up to the audience for a question or two. But just less interest expenses has been a pretty big driver of net income because you guys have been very proactive with paying down debt. I think exiting Q4, you'd be at 3.9 times net leverage. Where would you want to get to in the kind of next year or two? What's the sort of target net leverage that you guys are eyeing up? Got it. got it I'll ask one more question, and then I want to open it up to the audience for a question or two. i'll ask one more question and then i want to open it up to the audience for a question or two But just less interest expenses has been a pretty big driver of net income because you guys have been very proactive with paying down debt. but just less interest expenses has been a pretty big driver of net income because you guys have been very proactive with paying down debt I think exiting Q4, you'd be at 3.9 times net leverage. i think exiting q4 you'd be at 3.9 times net leverage Where would you want to get to in the kind of next year or two? where would you want to get to in the kind of next year or two What's the sort of target net leverage that you guys are eyeing up? what's the sort of target net leverage that you guys are eyeing up

Speaker 3: Yeah, so we're very happy with the progress we have made on managing our debt, and it's a combination of two things. One is the cash flow generation that we have had, and the second is the focus on our capital allocation strategy and prioritization of strengthening the balance sheet. Our cash flow, our free cash flow this year up to in three quarters was almost equal to all the free cash flow we generated last year, so we are well on our way to beat our free cash flow generation year over year, so we not only have strong cash flow generation, but it's growing, and with our current cost structures, that top line comes back to more normal levels, we can accelerate the debt repayment. Yeah, so we're very happy with the progress we have made on managing our debt, and it's a combination of two things. yeah so we're very happy with the progress we have made on managing our debt and it's a combination of two things One is the cash flow generation that we have had, and the second is the focus on our capital allocation strategy and prioritization of strengthening the balance sheet. one is the cash flow generation that we have had and the second is the focus on our capital allocation strategy and prioritization of strengthening the balance sheet Our cash flow, our free cash flow this year up to in three quarters was almost equal to all the free cash flow we generated last year, so we are well on our way to beat our free cash flow generation year over year, so we not only have strong cash flow generation, but it's growing, and with our current cost structures, that top line comes back to more normal levels, we can accelerate the debt repayment. our cash flow our free cash flow this year up to in three quarters was almost equal to all the free cash flow we generated last year so we are well on our way to beat our free cash flow generation year over year so we not only have strong cash flow generation but it's growing and with our current cost structures that top line comes back to more normal levels we can accelerate the debt repayment With regard to capital allocation priorities, after we invest in ourselves for the CapEx expansion and a little bit of P&L design and R&D improvements, our focus is 100% to pay down our debt, and our goal is to get to two to two and a half times net leverage, which will get us more into a more balanced capital allocation strategy. With regard to capital allocation priorities, after we invest in ourselves for the CapEx expansion and a little bit of P&L design and R&D improvements, our focus is 100% to pay down our debt, and our goal is to get to two to two and a half times net leverage, which will get us more into a more balanced capital allocation strategy. with regard to capital allocation priorities after we invest in ourselves for the capex expansion and a little bit of p&l design and r&d improvements our focus is 100% to pay down our debt and our goal is to get to two to two and a half times net leverage which will get us more into a more balanced capital allocation strategy

Speaker 4: Got it. I'd like to open it up to the audience if there's any questions. Gentleman in the back. Got it. got it I'd like to open it up to the audience if there's any questions. i'd like to open it up to the audience if there's any questions Gentleman in the back. gentleman in the back Hi. I'm relatively new to the company. But over the last couple of years and going forward, what's the unit volumes versus price equation for you guys? Do you have a lot of pricing power? Hi. hi I'm relatively new to the company. i'm relatively new to the company But over the last couple of years and going forward, what's the unit volumes versus price equation for you guys? but over the last couple of years and going forward what's the unit volumes versus price equation for you guys Do you have a lot of pricing power? do you have a lot of pricing power

Speaker 2: Yeah. I think we have. We work hard on that every year. It's not an event kind of a driven thing. You can see, as Ram said, our gross margin over the last couple of years improving. Remember, in 2022, we gave a five-year model that said when our revenue is $5.6 billion, we'd be at 47% plus gross margin. As Ram said, at $3.8 billion, we already hit 47% plus in 48 months. So that's an indication of the value and the pricing power we have. So we've held our own. I think there's more opportunity going forward. I think the time to get improvement in gross margin is the new design wins. It's harder to go back, I think, and change pricing. But for sure, for new stuff, if you're unique, then we're getting paid fairly for that. Yeah. yeah I think we have. i think we have We work hard on that every year. we work hard on that every year It's not an event kind of a driven thing. it's not an event kind of a driven thing You can see, as Ram said, our gross margin over the last couple of years improving. you can see as ram said our gross margin over the last couple of years improving Remember, in 2022, we gave a five-year model that said when our revenue is $5.6 billion, we'd be at 47% plus gross margin. remember in 2022 we gave a five-year model that said when our revenue is $5.6 billion we'd be at 47% plus gross margin As Ram said, at $3.8 billion, we already hit 47% plus in 48 months. as ram said at $3.8 billion we already hit 47% plus in 48 months So that's an indication of the value and the pricing power we have. so that's an indication of the value and the pricing power we have So we've held our own. so we've held our own I think there's more opportunity going forward. i think there's more opportunity going forward I think the time to get improvement in gross margin is the new design wins. i think the time to get improvement in gross margin is the new design wins It's harder to go back, I think, and change pricing. it's harder to go back i think and change pricing But for sure, for new stuff, if you're unique, then we're getting paid fairly for that. but for sure for new stuff if you're unique then we're getting paid fairly for that

Speaker 4: Any other questions? I guess then I'll ask a few more. So on the semi portion, so for ALD, I guess the kind of story there is your ozone generators, if I'm correct. Could you just kind of elaborate on that, sort of what makes MKS's solution there kind of differentiated versus competition? Any other questions? any other questions I guess then I'll ask a few more. i guess then i'll ask a few more So on the semi portion, so for ALD, I guess the kind of story there is your ozone generators, if I'm correct. so on the semi portion so for ald i guess the kind of story there is your ozone generators if i'm correct Could you just kind of elaborate on that, sort of what makes MKS's solution there kind of differentiated versus competition? could you just kind of elaborate on that sort of what makes mks's solution there kind of differentiated versus competition

Speaker 2: Yeah. So ozone is an oxygen, three oxygen atoms together. And that's needed for every cycle in an Atomic Layer Deposition cycle. And the uniqueness of our ozone generator is that it generates a much higher concentration that's much cleaner than a lot of folks in the industry. And there aren't a lot of left competitors. We talked about at our earnings call that at two nanometers and below, there's a lot more ALD, a lot more ozone generation that has to go on that's higher concentration and cleaner. And so that's been the unique features of how we've been winning that share. Yeah. yeah So ozone is an oxygen, three oxygen atoms together. so ozone is an oxygen three oxygen atoms together And that's needed for every cycle in an Atomic Layer Deposition cycle. and that's needed for every cycle in an atomic layer deposition cycle And the uniqueness of our ozone generator is that it generates a much higher concentration that's much cleaner than a lot of folks in the industry. and the uniqueness of our ozone generator is that it generates a much higher concentration that's much cleaner than a lot of folks in the industry And there aren't a lot of left competitors. and there aren't a lot of left competitors We talked about at our earnings call that at two nanometers and below, there's a lot more ALD, a lot more ozone generation that has to go on that's higher concentration and cleaner. we talked about at our earnings call that at two nanometers and below there's a lot more ald a lot more ozone generation that has to go on that's higher concentration and cleaner And so that's been the unique features of how we've been winning that share. and so that's been the unique features of how we've been winning that share

Speaker 4: When I think about kind of your content per, I think, WFE dollar, it's kind of 1.8%-2.2%, if I'm correct. When I think about kind of your content per, I think, WFE dollar, it's kind of 1.8%-2.2%, if I'm correct. when i think about kind of your content per i think wfe dollar it's kind of 1.8%-2.2% if i'm correct

Speaker 2: That's right. That's right. that's right

Speaker 4: Deposition would be probably on the lighter end, but hopefully ALD kind of drives it up, or? Deposition would be probably on the lighter end, but hopefully ALD kind of drives it up, or? deposition would be probably on the lighter end but hopefully ald kind of drives it up or

Speaker 2: Yeah. Yeah. So our revenue as a function of WFE varies between 1.8%-2.2%. Kind of depends on the cycle, et cetera. But I think on the lower end of it would be our lithography metrology inspection because we're just early innings there. I think on the higher end would be NAND because of our RF power there. And then a lot of other things in between. But I think the bigger picture is that whether it's DRAM building fast or NAND or logic or whether it's deposition and etch or litho, we kind of don't care because we're in 85% of it. So we're going to see most of it. And our job is to try to continue growing that share over time. Yeah. yeah Yeah. yeah So our revenue as a function of WFE varies between 1.8%-2.2%. so our revenue as a function of wfe varies between 1.8%-2.2% Kind of depends on the cycle, et cetera. kind of depends on the cycle et cetera But I think on the lower end of it would be our lithography metrology inspection because we're just early innings there. but i think on the lower end of it would be our lithography metrology inspection because we're just early innings there I think on the higher end would be NAND because of our RF power there. i think on the higher end would be nand because of our rf power there And then a lot of other things in between. and then a lot of other things in between But I think the bigger picture is that whether it's DRAM building fast or NAND or logic or whether it's deposition and etch or litho, we kind of don't care because we're in 85% of it. but i think the bigger picture is that whether it's dram building fast or nand or logic or whether it's deposition and etch or litho we kind of don't care because we're in 85% of it So we're going to see most of it. so we're going to see most of it And our job is to try to continue growing that share over time. and our job is to try to continue growing that share over time

Speaker 4: Great. So kind of hopefully the customer is talking about a big second half 2026 comes true, and you guys see good '26 then. Great. great So kind of hopefully the customer is talking about a big second half 2026 comes true, and you guys see good '26 then. so kind of hopefully the customer is talking about a big second half 2026 comes true and you guys see good '26 then

Speaker 2: Yeah. As I said, it's incrementally more positive since 90 days ago, for sure. Yeah. yeah As I said, it's incrementally more positive since 90 days ago, for sure. as i said it's incrementally more positive since 90 days ago for sure

Speaker 4: Great. That brings us up to time. Thank you, John. Thank you, Ram. Great. great That brings us up to time. that brings us up to time Thank you, John. thank you john thank you Thank you, Ram. thank you ram

Speaker 3: Thank you. Thank you. thank you

Speaker 4: Thanks, Ram. Thanks, Ram. thanks ram Thank you. I'm Shane Brett, analyst at Morgan Stanley. I'm joining you today with MKS' Dr. John Lee, CEO, and Ram Mayampurath, CFO. And we also have Paretosh Misra from Investor Relations in the audience. Before I start my questions, I'm going to hand it over to John for a quick introduction to MKS. Thank you. thank you I'm Shane Brett, analyst at Morgan Stanley. i'm shane brett analyst at morgan stanley I'm joining you today with MKS' Dr. John Lee, CEO, and Ram Mayampurath, CFO. i'm joining you today with mks' dr john lee ceo and ram mayampurath cfo And we also have Paretosh Misra from Investor Relations in the audience. and we also have paretosh misra from investor relations in the audience Before I start my questions, I'm going to hand it over to John for a quick introduction to MKS. before i start my questions i'm going to hand it over to john for a quick introduction to mks

Speaker 2: Yeah, great. Thanks, Shane. So maybe I thought I'd start with a little introduction for some of you who may not know the MKS story as well. So MKS is a 65-year-old company. We started with one product. That product was an instrument that measured the pressure inside a vacuum chamber. And from that, we were able to move into the semiconductor industry. As you probably realize, semiconductors have a lot of vacuum chambers. And that one product has taken a very high market share. And after 55 years, it's still number one market share. But from that one product, we were able to organically and inorganically build a strategy of surrounding the chamber with all other types of critical subsystems, so valves, RF power, plasma, mass flow controls, et cetera. So that was the strategy up until 2015. Yeah, great. yeah great Thanks, Shane. thanks shane So maybe I thought I'd start with a little introduction for some of you who may not know the MKS story as well. so maybe i thought i'd start with a little introduction for some of you who may not know the mks story as well So MKS is a 65-year-old company. so mks is a 65-year-old company We started with one product. we started with one product That product was an instrument that measured the pressure inside a vacuum chamber. that product was an instrument that measured the pressure inside a vacuum chamber And from that, we were able to move into the semiconductor industry. and from that we were able to move into the semiconductor industry As you probably realize, semiconductors have a lot of vacuum chambers. as you probably realize semiconductors have a lot of vacuum chambers And that one product has taken a very high market share. and that one product has taken a very high market share And after 55 years, it's still number one market share. and after 55 years it's still number one market share But from that one product, we were able to organically and inorganically build a strategy of surrounding the chamber with all other types of critical subsystems, so valves, RF power, plasma, mass flow controls, et cetera. but from that one product we were able to organically and inorganically build a strategy of surrounding the chamber with all other types of critical subsystems so valves rf power plasma mass flow controls et cetera So that was the strategy up until 2015. so that was the strategy up until 2015 At that point, we were semiconductor only in terms of a market, but only the vacuum equipment of semiconductor. In 2015, we bought a company called Newport Corporation. Newport had about 20 product lines: lasers, optics, motion. We had 20 product lines: vacuums, critical subsystems. Two things happened with the Newport acquisition. One is it brought to us the missing components of the rest of semiconductor equipment: lithography, metrology, and inspection. So with that acquisition, we now address 85% of every piece of equipment in every fab in the world with multiple subsystems. No one else is even close to that market share. And we can say that because the Big Five are Applied Materials, Lam, Tokyo Electron, ASML, and KLA. And together, they're about 85% market share. The second thing that Newport acquisition did was it brought to us new markets. At that point, we were semiconductor only in terms of a market, but only the vacuum equipment of semiconductor. at that point we were semiconductor only in terms of a market but only the vacuum equipment of semiconductor In 2015, we bought a company called Newport Corporation. in 2015 we bought a company called newport corporation Newport had about 20 product lines: lasers, optics, motion. newport had about 20 product lines lasers optics motion We had 20 product lines: vacuums, critical subsystems. we had 20 product lines vacuums critical subsystems Two things happened with the Newport acquisition. two things happened with the newport acquisition One is it brought to us the missing components of the rest of semiconductor equipment: lithography, metrology, and inspection. one is it brought to us the missing components of the rest of semiconductor equipment lithography metrology and inspection So with that acquisition, we now address 85% of every piece of equipment in every fab in the world with multiple subsystems. so with that acquisition we now address 85% of every piece of equipment in every fab in the world with multiple subsystems No one else is even close to that market share. no one else is even close to that market share And we can say that because the Big Five are Applied Materials, Lam, Tokyo Electron, ASML, and KLA. and we can say that because the big five are applied materials lam tokyo electron asml and kla And together, they're about 85% market share. and together they're about 85% market share The second thing that Newport acquisition did was it brought to us new markets. the second thing that newport acquisition did was it brought to us new markets One of those new markets was the application of lasers to manufacture precise things. One of those is drilling holes in PCBs. That led us to the acquisition of Electro Scientific Industries. That was the first time we actually bought a systems company. What that allowed us to do was to talk to another layer in the supply chain. Not just the OEMs, but the customers of the OEMs. That allowed us to understand the infrastructure and the ecosystem much better. Then from that, we did the acquisition of Atotech, which is chemistry and chemistry equipment for PCB manufacturing. The strategy behind all of this is we want to be foundational to everything that makes advanced electronics advanced, not just the semiconductor, but the packaging of semiconductors together. One of those new markets was the application of lasers to manufacture precise things. one of those new markets was the application of lasers to manufacture precise things One of those is drilling holes in PCBs. one of those is drilling holes in pcbs That led us to the acquisition of Electro Scientific Industries. that led us to the acquisition of electro scientific industries That was the first time we actually bought a systems company. that was the first time we actually bought a systems company What that allowed us to do was to talk to another layer in the supply chain. what that allowed us to do was to talk to another layer in the supply chain Not just the OEMs, but the customers of the OEMs. not just the oems but the customers of the oems That allowed us to understand the infrastructure and the ecosystem much better. that allowed us to understand the infrastructure and the ecosystem much better Then from that, we did the acquisition of Atotech, which is chemistry and chemistry equipment for PCB manufacturing. then from that we did the acquisition of atotech which is chemistry and chemistry equipment for pcb manufacturing The strategy behind all of this is we want to be foundational to everything that makes advanced electronics advanced, not just the semiconductor, but the packaging of semiconductors together. the strategy behind all of this is we want to be foundational to everything that makes advanced electronics advanced not just the semiconductor but the packaging of semiconductors together In the past, if you wanted to be critical or foundational to advanced electronics, all you had to be was a great semiconductor equipment company. That was all that mattered. And that was semi was the only thing that drove advanced electronics to be better. Over time, that was Moore's Law. Over time, Moore's Law wasn't as relevant anymore. It started slowing down. And so what did people do? Well, they started putting chips together and packaging them together such that they behave like one big chip. And because of that, we can actually continue extending that Moore's Law concept of everything is twice as good every two years for the same price. That's now true for 70 years in a row. That's why things like AI are possible. And a lot of folks think, oh, AI, that's going to change the world. And it might. In the past, if you wanted to be critical or foundational to advanced electronics, all you had to be was a great semiconductor equipment company. in the past if you wanted to be critical or foundational to advanced electronics all you had to be was a great semiconductor equipment company That was all that mattered. that was all that mattered And that was semi was the only thing that drove advanced electronics to be better. and that was semi was the only thing that drove advanced electronics to be better Over time, that was Moore's Law. over time that was moore's law Over time, Moore's Law wasn't as relevant anymore. over time moore's law wasn't as relevant anymore It started slowing down. it started slowing down And so what did people do? and so what did people do Well, they started putting chips together and packaging them together such that they behave like one big chip. well they started putting chips together and packaging them together such that they behave like one big chip And because of that, we can actually continue extending that Moore's Law concept of everything is twice as good every two years for the same price. and because of that we can actually continue extending that moore's law concept of everything is twice as good every two years for the same price That's now true for 70 years in a row. that's now true for 70 years in a row That's why things like AI are possible. that's why things like ai are possible And a lot of folks think, oh, AI, that's going to change the world. and a lot of folks think oh ai that's going to change the world And it might. and it might But the way we look at AI is it's just a great thing in a list of other great things, such as the PC, such as the smartphones, such as data centers. This was all driven fundamentally by Moore's Law and now more than Moore's Law. And we want to be foundational to that. And from a shareholder standpoint, we think that foundational technology provider status is a sustainable long-term investment. It's not about the fad of the day. It's about an infrastructure builder that is critical. And it's an infrastructure that continues to grow over time. And you can argue is even more important now than it was even 10 years ago, let alone 50 years ago. So that's a quick introduction to MKS. But the way we look at AI is it's just a great thing in a list of other great things, such as the PC, such as the smartphones, such as data centers. but the way we look at ai is it's just a great thing in a list of other great things such as the pc such as the smartphones such as data centers This was all driven fundamentally by Moore's Law and now more than Moore's Law. this was all driven fundamentally by moore's law and now more than moore's law And we want to be foundational to that. and we want to be foundational to that And from a shareholder standpoint, we think that foundational technology provider status is a sustainable long-term investment. and from a shareholder standpoint we think that foundational technology provider status is a sustainable long-term investment It's not about the fad of the day. it's not about the fad of the day It's about an infrastructure builder that is critical. it's about an infrastructure builder that is critical And it's an infrastructure that continues to grow over time. and it's an infrastructure that continues to grow over time And you can argue is even more important now than it was even 10 years ago, let alone 50 years ago. and you can argue is even more important now than it was even 10 years ago let alone 50 years ago So that's a quick introduction to MKS. so that's a quick introduction to mks

Speaker 4: Got it. Thanks, John. I'll kind of walk through the questions by segment, and I want to start with electronics and packaging, E&P, so your Q4 guide implies about 20% growth for the full year, which is pretty good. Just could you talk about what has drove this really strong growth this year? Got it. got it Thanks, John. thanks john I'll kind of walk through the questions by segment, and I want to start with electronics and packaging, E&P, so your Q4 guide implies about 20% growth for the full year, which is pretty good. i'll kind of walk through the questions by segment and i want to start with electronics and packaging e&p so your q4 guide implies about 20% growth for the full year which is pretty good Just could you talk about what has drove this really strong growth this year? just could you talk about what has drove this really strong growth this year

Speaker 2: Yeah, two factors. So chemistry, we provide a lot of chemistry to the PCB industry. A lot of that is driven by AI. So AI, as I said, is about packaging chips together. And so a lot of the AI customers, the guys that are buying our chemistry to build AI boards, they're growing for sure. But in addition to that, we're seeing chemistry equipment. So we're the only provider of chemistry that also provides chemistry equipment in the PCB industry. We decided to do that strategically because we think that if you can bring more tools to the game, you can provide solutions to your customers faster. If you can bring chemistry tools, if you can bring equipment tools, you can actually come to an optimized solution faster. And so the last four quarters, we've seen strong equipment bookings and revenue for chemistry equipment. Yeah, two factors. yeah two factors So chemistry, we provide a lot of chemistry to the PCB industry. so chemistry we provide a lot of chemistry to the pcb industry A lot of that is driven by AI. a lot of that is driven by ai So AI, as I said, is about packaging chips together. so ai as i said is about packaging chips together And so a lot of the AI customers, the guys that are buying our chemistry to build AI boards, they're growing for sure. and so a lot of the ai customers the guys that are buying our chemistry to build ai boards they're growing for sure But in addition to that, we're seeing chemistry equipment. but in addition to that we're seeing chemistry equipment So we're the only provider of chemistry that also provides chemistry equipment in the PCB industry. so we're the only provider of chemistry that also provides chemistry equipment in the pcb industry We decided to do that strategically because we think that if you can bring more tools to the game, you can provide solutions to your customers faster. we decided to do that strategically because we think that if you can bring more tools to the game you can provide solutions to your customers faster If you can bring chemistry tools, if you can bring equipment tools, you can actually come to an optimized solution faster. if you can bring chemistry tools if you can bring equipment tools you can actually come to an optimized solution faster And so the last four quarters, we've seen strong equipment bookings and revenue for chemistry equipment. and so the last four quarters we've seen strong equipment bookings and revenue for chemistry equipment That's also been a significant driver of the year-over-year outgrowth in E&P. That's also been a significant driver of the year-over-year outgrowth in E&P. that's also been a significant driver of the year-over-year outgrowth in e&p

Speaker 4: Got it. And with this equipment growth, so the flex PCB drilling has been a pretty good driver for you guys this year. Just can you talk about the trends you're seeing with kind of your customers for these flex PCB drilling tools? And also, you've kind of talked about you're adding some capacity to your equipment factories. Just could you kind of talk about how that sort of ties in with your growth outlook for this equipment portion? Got it. got it And with this equipment growth, so the flex PCB drilling has been a pretty good driver for you guys this year. and with this equipment growth so the flex pcb drilling has been a pretty good driver for you guys this year Just can you talk about the trends you're seeing with kind of your customers for these flex PCB drilling tools? just can you talk about the trends you're seeing with kind of your customers for these flex pcb drilling tools And also, you've kind of talked about you're adding some capacity to your equipment factories. and also you've kind of talked about you're adding some capacity to your equipment factories Just could you kind of talk about how that sort of ties in with your growth outlook for this equipment portion? just could you kind of talk about how that sort of ties in with your growth outlook for this equipment portion

Speaker 2: Yeah. So in our E&P market, we have equipment. And we have two types of equipment. There's chemistry equipment that I just talked about, driven a lot by AI, but also laser drilling equipment. So these are tools that are actually drilling holes, thousands of holes per second. So think about that. I'm going to drill a few thousand holes in one second. That's how fast these laser tools are. And we are the market share leader in flexible PCBs versus rigid PCBs. Flexible PCBs, what are they used for? Well, think about phones. A lot of the circuitry inside phones, connecting the camera to the microprocessor and other things, these are flexible circuits. They're actually quite complex. AirPods, so all of these wearables have tiny flexible circuits in them. And we're market share leader there. We also have laser drilling tools for rigid PCBs. Yeah. yeah So in our E&P market, we have equipment. so in our e&p market we have equipment And we have two types of equipment. and we have two types of equipment There's chemistry equipment that I just talked about, driven a lot by AI, but also laser drilling equipment. there's chemistry equipment that i just talked about driven a lot by ai but also laser drilling equipment So these are tools that are actually drilling holes, thousands of holes per second. so these are tools that are actually drilling holes thousands of holes per second So think about that. so think about that I'm going to drill a few thousand holes in one second. i'm going to drill a few thousand holes in one second That's how fast these laser tools are. that's how fast these laser tools are And we are the market share leader in flexible PCBs versus rigid PCBs. and we are the market share leader in flexible pcbs versus rigid pcbs Flexible PCBs, what are they used for? flexible pcbs what are they used for Well, think about phones. well think about phones A lot of the circuitry inside phones, connecting the camera to the microprocessor and other things, these are flexible circuits. a lot of the circuitry inside phones connecting the camera to the microprocessor and other things these are flexible circuits They're actually quite complex. they're actually quite complex AirPods, so all of these wearables have tiny flexible circuits in them. airpods so all of these wearables have tiny flexible circuits in them And we're market share leader there. and we're market share leader there We also have laser drilling tools for rigid PCBs. we also have laser drilling tools for rigid pcbs There, it's an opportunity for us. We don't have the number one market share there, but we have some technology there that we think is unique, and we've already demonstrated some wins there. There, it's an opportunity for us. there it's an opportunity for us We don't have the number one market share there, but we have some technology there that we think is unique, and we've already demonstrated some wins there. we don't have the number one market share there but we have some technology there that we think is unique and we've already demonstrated some wins there

Speaker 4: I guess if I just take a step back on this E&P segment, if I'm correct, it's two-thirds chemistry, one-third sort of equipment and tooling. How would you sort of characterize the growth profiles between the two-thirds chemistry business versus kind of the one-third of equipment? I guess if I just take a step back on this E&P segment, if I'm correct, it's two-thirds chemistry, one-third sort of equipment and tooling. i guess if i just take a step back on this e&p segment if i'm correct it's two-thirds chemistry one-third sort of equipment and tooling How would you sort of characterize the growth profiles between the two-thirds chemistry business versus kind of the one-third of equipment? how would you sort of characterize the growth profiles between the two-thirds chemistry business versus kind of the one-third of equipment

Speaker 2: Yeah, so that's right. A third is equipment that includes chemistry equipment and laser equipment. And that can be lumpy, right, because it's CapEx. The two-thirds is chemistry. And that's more it is a consumable kind of market. And so that's been growing probably about 10% year over year this year and likely about 10% year over year last year. And so this is driven by a lot of the volume of AI. So many of our customers are building more complex layers of PCBs for AI servers. And that chemistry is coming through to the growth that you're seeing in our chemistry revenue. Yeah, so that's right. yeah so that's right A third is equipment that includes chemistry equipment and laser equipment. a third is equipment that includes chemistry equipment and laser equipment And that can be lumpy, right, because it's CapEx. and that can be lumpy right because it's capex The two-thirds is chemistry. the two-thirds is chemistry And that's more it is a consumable kind of market. and that's more it is a consumable kind of market And so that's been growing probably about 10% year over year this year and likely about 10% year over year last year. and so that's been growing probably about 10% year over year this year and likely about 10% year over year last year And so this is driven by a lot of the volume of AI. and so this is driven by a lot of the volume of ai So many of our customers are building more complex layers of PCBs for AI servers. so many of our customers are building more complex layers of pcbs for ai servers And that chemistry is coming through to the growth that you're seeing in our chemistry revenue. and that chemistry is coming through to the growth that you're seeing in our chemistry revenue

Speaker 4: So when I sort of think about your 20% growth this year, it's been kind of you have your two-thirds that's growing 10%. And then the equipment growth is sort of layering on top of that. So when I sort of think about your 20% growth this year, it's been kind of you have your two-thirds that's growing 10%. so when i sort of think about your 20% growth this year it's been kind of you have your two-thirds that's growing 10% And then the equipment growth is sort of layering on top of that. and then the equipment growth is sort of layering on top of that

Speaker 3: Exactly, exactly. Exactly, exactly. exactly exactly

Speaker 4: When I think about kind of that durability of that equipment growth that's been going on for four quarters right now, sort of how do you kind of see an early setup into 2026 or kind of bit of visibility? When I think about kind of that durability of that equipment growth that's been going on for four quarters right now, sort of how do you kind of see an early setup into 2026 or kind of bit of visibility? when i think about kind of that durability of that equipment growth that's been going on for four quarters right now sort of how do you kind of see an early setup into 2026 or kind of bit of visibility

Speaker 2: Yeah, so it's been four quarters of great equipment orders for chemistry. We're booked through the first half of 2026. We continue to have discussions with customers about beyond that. So far, so good. Equipment continues to be a strong part of our potential growth in 2026. It is a CapEx environment. So it will turn over at some point. But the most important part is when we sell equipment for chemistry, the chemistry is ours. Our chemistry gross margins are above 55%. Equipment is lower, right? So if you think about that equipment revenue, it is going to drive annualized year-over-year chemistry revenue for decades. That's been the history of our equipment sales. Yeah, so it's been four quarters of great equipment orders for chemistry. yeah so it's been four quarters of great equipment orders for chemistry We're booked through the first half of 2026. we're booked through the first half of 2026 We continue to have discussions with customers about beyond that. we continue to have discussions with customers about beyond that So far, so good. so far so good Equipment continues to be a strong part of our potential growth in 2026. equipment continues to be a strong part of our potential growth in 2026 It is a CapEx environment. it is a capex environment So it will turn over at some point. so it will turn over at some point But the most important part is when we sell equipment for chemistry, the chemistry is ours. but the most important part is when we sell equipment for chemistry the chemistry is ours Our chemistry gross margins are above 55%. our chemistry gross margins are above 55% Equipment is lower, right? equipment is lower right So if you think about that equipment revenue, it is going to drive annualized year-over-year chemistry revenue for decades. so if you think about that equipment revenue it is going to drive annualized year-over-year chemistry revenue for decades That's been the history of our equipment sales. that's been the history of our equipment sales

Speaker 4: So I was probably going to ask this a little bit later on the financials portion. But gross margin has been a little bit lighter, I would say, just given just so much equipment sales going on. But equipment may roll over at some point. But chemistry is more utilization-based. How would I kind of think about maybe the attach rate between equipment and chemistry and how better equipment, I mean, better chemistry may also feed into the financial model? So I was probably going to ask this a little bit later on the financials portion. so i was probably going to ask this a little bit later on the financials portion But gross margin has been a little bit lighter, I would say, just given just so much equipment sales going on. but gross margin has been a little bit lighter i would say just given just so much equipment sales going on But equipment may roll over at some point. but equipment may roll over at some point But chemistry is more utilization-based. but chemistry is more utilization-based How would I kind of think about maybe the attach rate between equipment and chemistry and how better equipment, I mean, better chemistry may also feed into the financial model? how would i kind of think about maybe the attach rate between equipment and chemistry and how better equipment i mean better chemistry may also feed into the financial model Yeah, that's true. So after five years, the attach rate drops to about 85%. So we have very high attach rate when we get out of the gate. And you're right. The chemistry sales that follow the equipment sales are very high, higher than our corporate average gross margins. In the future, mix will be a big part of our gross margin play. If you look back into Q4, sorry, 2024 up to Q1 of this year, we were running gross margins well above 47%. We finished Q1 at 47.4%. Since then, we had two headwinds to deal with. One is the mix impact of equipment sales and the tariff impact that hit us in Q2 and Q3 in particular. Q2, we had 115 basis points from tariffs. Q3, we had 80 basis points. By Q4, we will offset the impact of that tariff dollar for dollar. Yeah, that's true. yeah that's true So after five years, the attach rate drops to about 85%. so after five years the attach rate drops to about 85% So we have very high attach rate when we get out of the gate. so we have very high attach rate when we get out of the gate And you're right. and you're right The chemistry sales that follow the equipment sales are very high, higher than our corporate average gross margins. the chemistry sales that follow the equipment sales are very high higher than our corporate average gross margins In the future, mix will be a big part of our gross margin play. in the future mix will be a big part of our gross margin play If you look back into Q4, sorry, 2024 up to Q1 of this year, we were running gross margins well above 47%. if you look back into q4 sorry 2024 up to q1 of this year we were running gross margins well above 47% We finished Q1 at 47.4%. we finished q1 at 47.4% Since then, we had two headwinds to deal with. since then we had two headwinds to deal with One is the mix impact of equipment sales and the tariff impact that hit us in Q2 and Q3 in particular. one is the mix impact of equipment sales and the tariff impact that hit us in q2 and q3 in particular Q2, we had 115 basis points from tariffs. q2 we had 115 basis points from tariffs Q3, we had 80 basis points. q3 we had 80 basis points By Q4, we will offset the impact of that tariff dollar for dollar. by q4 we will offset the impact of that tariff dollar for dollar However, from a gross margin point of view, we will still have a 50 basis points impact going forward because we are not marking up the pass-throughs. It's a dollar for dollar. So the math will be against us. In the long term, we are confident that we can offset that 50 basis points through just efficiency and manufacturing excellence programs. And as the mix gets back to more normalized levels, we will get back to the 47+% gross margin that we have targeted. However, from a gross margin point of view, we will still have a 50 basis points impact going forward because we are not marking up the pass-throughs. however from a gross margin point of view we will still have a 50 basis points impact going forward because we are not marking up the pass-throughs It's a dollar for dollar. it's a dollar for dollar So the math will be against us. so the math will be against us In the long term, we are confident that we can offset that 50 basis points through just efficiency and manufacturing excellence programs. in the long term we are confident that we can offset that 50 basis points through just efficiency and manufacturing excellence programs And as the mix gets back to more normalized levels, we will get back to the 47+% gross margin that we have targeted. and as the mix gets back to more normalized levels we will get back to the 47+% gross margin that we have targeted Got it. Thank you, Ram, and before I move over to semi, I have to mention, so you were awarded the Optica i4 Individual Lifetime Achievement Award at the Global Photonics Economic Forum in October. Just could you remind us about MKS's sort of position, like what MKS's optical business is and how, kind of what part of the supply chain you guys play a part in there? Got it. got it Thank you, Ram, and before I move over to semi, I have to mention, so you were awarded the Optica i4 Individual Lifetime Achievement Award at the Global Photonics Economic Forum in October. thank you ram and before i move over to semi i have to mention so you were awarded the optica i4 individual lifetime achievement award at the global photonics economic forum in october Just could you remind us about MKS's sort of position, like what MKS's optical business is and how, kind of what part of the supply chain you guys play a part in there? just could you remind us about mks's sort of position like what mks's optical business is and how kind of what part of the supply chain you guys play a part in there

Speaker 2: Yeah, so that was a great honor. But it was really a reflection of MKS, actually. And it was a recognition that MKS is one of the leading players in the optics industry, the photonics industry. And the areas that we work in in photonics are not just lasers and industrial type of applications, but also in semi. And so when we thought about areas for growth, for outgrowth, semiconductor equipment for lithography, metrology, and inspection was something we were under-indexed to. And so five years ago, we decided to change that. We hired more people. We added more CapEx, developed new processes so that we can do more complex things, optical subsystems and optics for the lithography, metrology, and inspection customers. So that revenue five years ago was $150 million. Now it's $300 million. And we're still in early innings of that area of the semiconductor WFE market. Yeah, so that was a great honor. yeah so that was a great honor But it was really a reflection of MKS, actually. but it was really a reflection of mks actually And it was a recognition that MKS is one of the leading players in the optics industry, the photonics industry. and it was a recognition that mks is one of the leading players in the optics industry the photonics industry And the areas that we work in in photonics are not just lasers and industrial type of applications, but also in semi. and the areas that we work in in photonics are not just lasers and industrial type of applications but also in semi And so when we thought about areas for growth, for outgrowth, semiconductor equipment for lithography, metrology, and inspection was something we were under-indexed to. and so when we thought about areas for growth for outgrowth semiconductor equipment for lithography metrology and inspection was something we were under-indexed to And so five years ago, we decided to change that. and so five years ago we decided to change that We hired more people. we hired more people We added more CapEx, developed new processes so that we can do more complex things, optical subsystems and optics for the lithography, metrology, and inspection customers. we added more capex developed new processes so that we can do more complex things optical subsystems and optics for the lithography metrology and inspection customers So that revenue five years ago was $150 million. so that revenue five years ago was $150 million Now it's $300 million. now it's $300 million And we're still in early innings of that area of the semiconductor WFE market. and we're still in early innings of that area of the semiconductor wfe market

Speaker 4: Got it. That kind of ties us into talking about semi. So you've seen a nice year in semi. Q4 guide implies about 10% growth for the full year. So your customers have talked about kind of a big second half 2026, Ram. Could you kind of talk about what your sort of early expectations are or kind of, I guess, what you're sort of expecting for your semi business in 2026? And also, it would be helpful if kind of what drove this sort of 10% growth this year as well? Got it. got it That kind of ties us into talking about semi. that kind of ties us into talking about semi So you've seen a nice year in semi. so you've seen a nice year in semi Q4 guide implies about 10% growth for the full year. q4 guide implies about 10% growth for the full year So your customers have talked about kind of a big second half 2026, Ram. so your customers have talked about kind of a big second half 2026 ram Could you kind of talk about what your sort of early expectations are or kind of, I guess, what you're sort of expecting for your semi business in 2026? could you kind of talk about what your sort of early expectations are or kind of i guess what you're sort of expecting for your semi business in 2026 And also, it would be helpful if kind of what drove this sort of 10% growth this year as well? and also it would be helpful if kind of what drove this sort of 10% growth this year as well

Speaker 2: Yeah. Well, so this year, 10% growth, a lot of it is part of it was inventory being burned off, our inventory being burned off for NAND. And we saw some upgrade patterns there. So that was helpful. And it's also a lot of in-quarter turn because our lead times are very short, back to normal now. I would say pick your favorite WFE model for 2026. But people are saying it can go up 5%, 10%, 15% now, incrementally better as the year has gone on. And a lot of it is driven by Logic, DRAM, and HBM, not so much NAND yet. And so, as I said earlier, we are addressing 85% of WFE. So when Logic goes up, we go up. When DRAM goes up, we go up. When HBM goes up, we go up. Yeah. yeah Well, so this year, 10% growth, a lot of it is part of it was inventory being burned off, our inventory being burned off for NAND. well so this year 10% growth a lot of it is part of it was inventory being burned off our inventory being burned off for nand And we saw some upgrade patterns there. and we saw some upgrade patterns there So that was helpful. so that was helpful And it's also a lot of in-quarter turn because our lead times are very short, back to normal now. and it's also a lot of in-quarter turn because our lead times are very short back to normal now I would say pick your favorite WFE model for 2026. i would say pick your favorite wfe model for 2026 But people are saying it can go up 5%, 10%, 15% now, incrementally better as the year has gone on. but people are saying it can go up 5% 10% 15% now incrementally better as the year has gone on And a lot of it is driven by Logic, DRAM, and HBM, not so much NAND yet. and a lot of it is driven by logic dram and hbm not so much nand yet And so, as I said earlier, we are addressing 85% of WFE. and so as i said earlier we are addressing 85% of wfe So when Logic goes up, we go up. so when logic goes up we go up When DRAM goes up, we go up. when dram goes up we go up When HBM goes up, we go up. when hbm goes up we go up NAND is potentially an upside to all that if there are more NAND upgrades there. I think the industry is worried about capacity in terms of cleanroom space for all the equipment. So that's a great problem to have. People are going to fix that as fast as they can. But right now, as we look at the industry view of equipment in 2026, it's very robust. Our lead times are short now, back to normal. Our inventory is, we're shipping to demand. So I think 2026, if that holds, will be a great year for MKS. NAND is potentially an upside to all that if there are more NAND upgrades there. nand is potentially an upside to all that if there are more nand upgrades there I think the industry is worried about capacity in terms of cleanroom space for all the equipment. i think the industry is worried about capacity in terms of cleanroom space for all the equipment So that's a great problem to have. so that's a great problem to have People are going to fix that as fast as they can. people are going to fix that as fast as they can But right now, as we look at the industry view of equipment in 2026, it's very robust. but right now as we look at the industry view of equipment in 2026 it's very robust Our lead times are short now, back to normal. our lead times are short now back to normal Our inventory is, we're shipping to demand. our inventory is we're shipping to demand So I think 2026, if that holds, will be a great year for MKS. so i think 2026 if that holds will be a great year for mks

Speaker 4: Got it. We're at 11% growth for 2026, so pretty good setup for you guys. I guess just in terms of that lead time, so you guys are at four to eight weeks right now. I guess what does a more normalized lead time look for MKS? And sort of what sort of visibility would you ideally like your customers to provide you? Got it. got it We're at 11% growth for 2026, so pretty good setup for you guys. we're at 11% growth for 2026 so pretty good setup for you guys I guess just in terms of that lead time, so you guys are at four to eight weeks right now. i guess just in terms of that lead time so you guys are at four to eight weeks right now I guess what does a more normalized lead time look for MKS? i guess what does a more normalized lead time look for mks And sort of what sort of visibility would you ideally like your customers to provide you? and sort of what sort of visibility would you ideally like your customers to provide you

Speaker 2: Yeah. Well, so I think four to eight weeks is kind of normalized. And there's ranges, right? There's some complex subsystems that might be a few months. But that's kind of normalized. Now, during a ramp, things extend. And that's normal. Our communications with our customers are very, very close. There's only five big customers in semi. So we talk to them all the time. We also talk to the end users, the chip companies as well, to try to get as much insight as possible. So I think no one wants to be supply chain constrained. And so our customers are going to tell us as soon as they know what is their needs for the next quarter or two. And I would say when I think about what's being said nowadays versus a quarter ago, it's incrementally more positive. Yeah. yeah Well, so I think four to eight weeks is kind of normalized. well so i think four to eight weeks is kind of normalized And there's ranges, right? and there's ranges right There's some complex subsystems that might be a few months. there's some complex subsystems that might be a few months But that's kind of normalized. but that's kind of normalized Now, during a ramp, things extend. now during a ramp things extend And that's normal. and that's normal Our communications with our customers are very, very close. our communications with our customers are very very close There's only five big customers in semi. there's only five big customers in semi So we talk to them all the time. so we talk to them all the time We also talk to the end users, the chip companies as well, to try to get as much insight as possible. we also talk to the end users the chip companies as well to try to get as much insight as possible So I think no one wants to be supply chain constrained. so i think no one wants to be supply chain constrained And so our customers are going to tell us as soon as they know what is their needs for the next quarter or two. and so our customers are going to tell us as soon as they know what is their needs for the next quarter or two And I would say when I think about what's being said nowadays versus a quarter ago, it's incrementally more positive. and i would say when i think about what's being said nowadays versus a quarter ago it's incrementally more positive

Speaker 4: Got it, got it. And I just want to touch back on the NAND portion. So when I look back at 2021 and 2022, you guys did really well in NAND. NAND WFE kind of disappeared for two years. It started to come back this year. But how would this sort of a recovery in NAND WFE layer onto kind of your outperformance versus WFE if we think about 2026 and 2027 seeing hopefully a bit more better NAND WFE? Got it, got it. got it got it And I just want to touch back on the NAND portion. and i just want to touch back on the nand portion So when I look back at 2021 and 2022, you guys did really well in NAND. so when i look back at 2021 and 2022 you guys did really well in nand NAND WFE kind of disappeared for two years. nand wfe kind of disappeared for two years It started to come back this year. it started to come back this year But how would this sort of a recovery in NAND WFE layer onto kind of your outperformance versus WFE if we think about 2026 and 2027 seeing hopefully a bit more better NAND WFE? but how would this sort of a recovery in nand wfe layer onto kind of your outperformance versus wfe if we think about 2026 and 2027 seeing hopefully a bit more better nand wfe

Speaker 2: Yeah, so NAND is pretty much in a historic low. So if upgrades happen, we participate in that because one of the components of that upgrade is RF power. And we're market share leader there. If new greenfield happens, we'll certainly get the RF power, but also the surrounding the chamber portfolio as well. So I think NAND upgrades as well as greenfields are going to be extra tailwinds to the 2026 WFE. I think it feels like it's going to be constrained by the amount of cleanroom space at this point because people are shifting even NAND cleanroom to HBM and DRAM because there's an even stronger pull there, even higher pricing there driven by AI. Yeah, so NAND is pretty much in a historic low. yeah so nand is pretty much in a historic low So if upgrades happen, we participate in that because one of the components of that upgrade is RF power. so if upgrades happen we participate in that because one of the components of that upgrade is rf power And we're market share leader there. and we're market share leader there If new greenfield happens, we'll certainly get the RF power, but also the surrounding the chamber portfolio as well. if new greenfield happens we'll certainly get the rf power but also the surrounding the chamber portfolio as well So I think NAND upgrades as well as greenfields are going to be extra tailwinds to the 2026 WFE. so i think nand upgrades as well as greenfields are going to be extra tailwinds to the 2026 wfe I think it feels like it's going to be constrained by the amount of cleanroom space at this point because people are shifting even NAND cleanroom to HBM and DRAM because there's an even stronger pull there, even higher pricing there driven by AI. i think it feels like it's going to be constrained by the amount of cleanroom space at this point because people are shifting even nand cleanroom to hbm and dram because there's an even stronger pull there even higher pricing there driven by ai

Speaker 4: Got it. And even though that kind of NAND WFE dropped off in 2022, you guys had some nice kind of revenue ramps in the metrology and inspection side. You were talking about kind of your exposure to ALD to me a little bit earlier. Could you talk about kind of the more idiosyncratic sort of MKS initiatives that should lead to sort of WFE outperformance over the next two years? Got it. got it And even though that kind of NAND WFE dropped off in 2022, you guys had some nice kind of revenue ramps in the metrology and inspection side. and even though that kind of nand wfe dropped off in 2022 you guys had some nice kind of revenue ramps in the metrology and inspection side You were talking about kind of your exposure to ALD to me a little bit earlier. you were talking about kind of your exposure to ald to me a little bit earlier Could you talk about kind of the more idiosyncratic sort of MKS initiatives that should lead to sort of WFE outperformance over the next two years? could you talk about kind of the more idiosyncratic sort of mks initiatives that should lead to sort of wfe outperformance over the next two years

Speaker 2: Yeah, the last earnings call, we talked about the concept of 2-nanometer and the gate-all-around that goes with it and a lot of the deposition processes that are new, like Atomic Layer Deposition. So we provide some key critical subsystems there that we're pretty unique in. But I think if I were to step back and think about how does MKS outgrow the WFE market over time, I think our strategy has been if we can manage a broad portfolio, we have a better chance of outgrowing the market because I can't tell you which inflection is going to cause which critical subsystem to be more critical. But I can guarantee you it will change. And if I have all the or most of the critical subsystems, I can actually do something about it. So the best example was NAND, right? NAND went vertical. Yeah, the last earnings call, we talked about the concept of 2-nanometer and the gate-all-around that goes with it and a lot of the deposition processes that are new, like Atomic Layer Deposition. yeah the last earnings call we talked about the concept of 2-nanometer and the gate-all-around that goes with it and a lot of the deposition processes that are new like atomic layer deposition So we provide some key critical subsystems there that we're pretty unique in. so we provide some key critical subsystems there that we're pretty unique in But I think if I were to step back and think about how does MKS outgrow the WFE market over time, I think our strategy has been if we can manage a broad portfolio, we have a better chance of outgrowing the market because I can't tell you which inflection is going to cause which critical subsystem to be more critical. but i think if i were to step back and think about how does mks outgrow the wfe market over time i think our strategy has been if we can manage a broad portfolio we have a better chance of outgrowing the market because i can't tell you which inflection is going to cause which critical subsystem to be more critical But I can guarantee you it will change. but i can guarantee you it will change And if I have all the or most of the critical subsystems, I can actually do something about it. and if i have all the or most of the critical subsystems i can actually do something about it So the best example was NAND, right? so the best example was nand right NAND went vertical. nand went vertical Who would have thought of that, and then it required a lot of RF power. Well, I have RF power. So I just got to decide whether I want to invest in it more. If I was a single product category and I didn't have RF power, I'm kind of stuck, right? If I extrapolate that to a higher level, well, so in 2010, EUV wasn't ready. So what did the industry do? Well, we double patterned. And we triple patterned. Well, that's a lot of deposition and etch steps. Well, we enjoyed that overgrowth or our outgrowth of WFE. Then EUV happened. And litho became a little more important. That's why we did WCO, world-class optics, to increase our share in litho metrology inspection. So now we can do that. In the next five years, a lot of industry folks are thinking it's back to deposition and etch. Who would have thought of that, and then it required a lot of RF power. who would have thought of that and then it required a lot of rf power Well, I have RF power. well i have rf power So I just got to decide whether I want to invest in it more. so i just got to decide whether i want to invest in it more If I was a single product category and I didn't have RF power, I'm kind of stuck, right? if i was a single product category and i didn't have rf power i'm kind of stuck right If I extrapolate that to a higher level, well, so in 2010, EUV wasn't ready. if i extrapolate that to a higher level well so in 2010 euv wasn't ready So what did the industry do? so what did the industry do Well, we double patterned. well we double patterned And we triple patterned. and we triple patterned Well, that's a lot of deposition and etch steps. well that's a lot of deposition and etch steps Well, we enjoyed that overgrowth or our outgrowth of WFE. well we enjoyed that overgrowth or our outgrowth of wfe Then EUV happened. then euv happened And litho became a little more important. and litho became a little more important That's why we did WCO, world-class optics, to increase our share in litho metrology inspection. that's why we did wco world-class optics to increase our share in litho metrology inspection So now we can do that. so now we can do that In the next five years, a lot of industry folks are thinking it's back to deposition and etch. in the next five years a lot of industry folks are thinking it's back to deposition and etch The point is these things change all the time. Having a broad portfolio, if you can manage that well, allows you a better chance of outgrowing the industry sustainably over decades. The point is these things change all the time. the point is these things change all the time Having a broad portfolio, if you can manage that well, allows you a better chance of outgrowing the industry sustainably over decades. having a broad portfolio if you can manage that well allows you a better chance of outgrowing the industry sustainably over decades

Speaker 4: I guess what also helps is just the scale of MKSI and the ability to do kind of R&D through cycle. And even the scale, I think you previously mentioned that metrology and inspection was, I think, $150 million five years ago, now closer to $300 million. But that growth is also driven by your customers kind of telling you that if you do more R&D, you can get more business. I guess what also helps is just the scale of MKSI and the ability to do kind of R&D through cycle. i guess what also helps is just the scale of mksi and the ability to do kind of r&d through cycle And even the scale, I think you previously mentioned that metrology and inspection was, I think, $150 million five years ago, now closer to $300 million. and even the scale i think you previously mentioned that metrology and inspection was i think $150 million five years ago now closer to $300 million But that growth is also driven by your customers kind of telling you that if you do more R&D, you can get more business. but that growth is also driven by your customers kind of telling you that if you do more r&d you can get more business

Speaker 2: Right. Yeah, exactly. So many of our customers are looking for partners that can actually give them kits of technology as we look to our suppliers. And that's how the ecosystem works. And so when you have scale, you have a better advantage of being able to satisfy some of these customers' ask of high technology that requires multiple years of investment. So in the 1990s, when I started, you could develop something and have it in production in 12 months. Now everything's a lot harder to do. Those easy things have been done. It takes years. RF power was developed over years before we saw a nickel. We put in a lot of investment for multiple years before we saw any revenue from that investment. But that's the way the game is played now. EUV in our industry is the biggest example. Right. right Yeah, exactly. yeah exactly So many of our customers are looking for partners that can actually give them kits of technology as we look to our suppliers. so many of our customers are looking for partners that can actually give them kits of technology as we look to our suppliers And that's how the ecosystem works. and that's how the ecosystem works And so when you have scale, you have a better advantage of being able to satisfy some of these customers' ask of high technology that requires multiple years of investment. and so when you have scale you have a better advantage of being able to satisfy some of these customers' ask of high technology that requires multiple years of investment So in the 1990s, when I started, you could develop something and have it in production in 12 months. so in the 1990s when i started you could develop something and have it in production in 12 months Now everything's a lot harder to do. now everything's a lot harder to do Those easy things have been done. those easy things have been done It takes years. it takes years RF power was developed over years before we saw a nickel. rf power was developed over years before we saw a nickel We put in a lot of investment for multiple years before we saw any revenue from that investment. we put in a lot of investment for multiple years before we saw any revenue from that investment But that's the way the game is played now. but that's the way the game is played now EUV in our industry is the biggest example. euv in our industry is the biggest example 20 years of investment finally is paying off for ASML, for sure, so I think size does matter in an industry where the technology becomes more complicated, more difficult to do, and the R&D investment requires a longer duration. 20 years of investment finally is paying off for ASML, for sure, so I think size does matter in an industry where the technology becomes more complicated, more difficult to do, and the R&D investment requires a longer duration. 20 years of investment finally is paying off for asml for sure so i think size does matter in an industry where the technology becomes more complicated more difficult to do and the r&d investment requires a longer duration

Speaker 4: Right. Ram, I want to pass it over to you for a few financials questions. But the first one, just on the near term, you kind of alluded, talked about it earlier, but gross margin has been weighed down by tariffs and sort of product mix. But could you kind of talk about how have these tariffs impacted your business and sneak peek into what gross margin could look like in 2026 and kind of what the puts and takes might be? Right. right Ram, I want to pass it over to you for a few financials questions. ram i want to pass it over to you for a few financials questions But the first one, just on the near term, you kind of alluded, talked about it earlier, but gross margin has been weighed down by tariffs and sort of product mix. but the first one just on the near term you kind of alluded talked about it earlier but gross margin has been weighed down by tariffs and sort of product mix But could you kind of talk about how have these tariffs impacted your business and sneak peek into what gross margin could look like in 2026 and kind of what the puts and takes might be? but could you kind of talk about how have these tariffs impacted your business and sneak peek into what gross margin could look like in 2026 and kind of what the puts and takes might be

Speaker 3: Yeah. So the tariff had an impact on our gross margin. It did not have any impact on the top line. And the highest impact was in Q2 when we had 115 basis points of impact. Our gross margin for the year after, including the tariffs, was 46.6%, would have been well above, close to 48% if we didn't have that tariff impact. That dropped to 80 basis points in Q3. And our gross margin was 46.6%, including that, would have been above 47% without that tariff impact. And it's dropped to 50. And like I said, we have matched dollar for dollar. We are recovering 100% of our tariff cost. Yeah. yeah So the tariff had an impact on our gross margin. so the tariff had an impact on our gross margin It did not have any impact on the top line. it did not have any impact on the top line And the highest impact was in Q2 when we had 115 basis points of impact. and the highest impact was in q2 when we had 115 basis points of impact Our gross margin for the year after, including the tariffs, was 46.6%, would have been well above, close to 48% if we didn't have that tariff impact. our gross margin for the year after including the tariffs was 46.6% would have been well above close to 48% if we didn't have that tariff impact That dropped to 80 basis points in Q3. that dropped to 80 basis points in q3 And our gross margin was 46.6%, including that, would have been above 47% without that tariff impact. and our gross margin was 46.6% including that would have been above 47% without that tariff impact And it's dropped to 50. and it's dropped to 50 And like I said, we have matched dollar for dollar. and like i said we have matched dollar for dollar We are recovering 100% of our tariff cost. we are recovering 100% of our tariff cost But since we are not marking up the tariffs, we will continue to see a 50 basis points impact on the gross margin, which we are confident we will overcome with the operational excellence programs going on in just manufacturing excellence and procurement activity primarily. We'll also have more design savings coming in the future years that will help for the margins. With a normalized mix, we are very confident to get back to the 47-plus% in 2026. But since we are not marking up the tariffs, we will continue to see a 50 basis points impact on the gross margin, which we are confident we will overcome with the operational excellence programs going on in just manufacturing excellence and procurement activity primarily. but since we are not marking up the tariffs we will continue to see a 50 basis points impact on the gross margin which we are confident we will overcome with the operational excellence programs going on in just manufacturing excellence and procurement activity primarily We'll also have more design savings coming in the future years that will help for the margins. we'll also have more design savings coming in the future years that will help for the margins With a normalized mix, we are very confident to get back to the 47-plus% in 2026. with a normalized mix we are very confident to get back to the 47-plus% in 2026

Speaker 4: Got it, got it. And I mean, when I kind of compare you guys to what you laid out back in 2022 for the analyst day, you're well ahead of where you guys kind of thought you would be in terms of gross margin. Got it, got it. got it got it And I mean, when I kind of compare you guys to what you laid out back in 2022 for the analyst day, you're well ahead of where you guys kind of thought you would be in terms of gross margin. and i mean when i kind of compare you guys to what you laid out back in 2022 for the analyst day you're well ahead of where you guys kind of thought you would be in terms of gross margin

Speaker 3: Yeah. Yeah. yeah

Speaker 4: Got it. Got it. got it

Speaker 3: So the cost control side on what we can control has been working well. And the next step change in margins will come with top line growth and the right kind of mix. So the cost control side on what we can control has been working well. so the cost control side on what we can control has been working well And the next step change in margins will come with top line growth and the right kind of mix. and the next step change in margins will come with top line growth and the right kind of mix

Speaker 4: Got it. I'll ask one more question, and then I want to open it up to the audience for a question or two. But just less interest expenses has been a pretty big driver of net income because you guys have been very proactive with paying down debt. I think exiting Q4, you'd be at 3.9 times net leverage. Where would you want to get to in the kind of next year or two? What's the sort of target net leverage that you guys are eyeing up? Got it. got it I'll ask one more question, and then I want to open it up to the audience for a question or two. i'll ask one more question and then i want to open it up to the audience for a question or two But just less interest expenses has been a pretty big driver of net income because you guys have been very proactive with paying down debt. but just less interest expenses has been a pretty big driver of net income because you guys have been very proactive with paying down debt I think exiting Q4, you'd be at 3.9 times net leverage. i think exiting q4 you'd be at 3.9 times net leverage Where would you want to get to in the kind of next year or two? where would you want to get to in the kind of next year or two What's the sort of target net leverage that you guys are eyeing up? what's the sort of target net leverage that you guys are eyeing up

Speaker 3: Yeah. No, so we're very happy with the progress we have made on managing our debt. And it's a combination of two things. One is the cash flow generation that we have had. And the second is the focus on our capital allocation strategy and prioritization of strengthening the balance sheet. Our cash flow, our free cash flow this year up to in three quarters was almost equal to all the free cash flow we generated last year. So we are well on our way to beat our free cash flow generation year over year. So we not only have strong cash flow generation, but it's growing. And with our current cost structures, that top line comes back to more normal levels. We can accelerate the debt repayment. Yeah. yeah No, so we're very happy with the progress we have made on managing our debt. no so we're very happy with the progress we have made on managing our debt And it's a combination of two things. and it's a combination of two things One is the cash flow generation that we have had. one is the cash flow generation that we have had And the second is the focus on our capital allocation strategy and prioritization of strengthening the balance sheet. and the second is the focus on our capital allocation strategy and prioritization of strengthening the balance sheet Our cash flow, our free cash flow this year up to in three quarters was almost equal to all the free cash flow we generated last year. our cash flow our free cash flow this year up to in three quarters was almost equal to all the free cash flow we generated last year So we are well on our way to beat our free cash flow generation year over year. so we are well on our way to beat our free cash flow generation year over year So we not only have strong cash flow generation, but it's growing. so we not only have strong cash flow generation but it's growing And with our current cost structures, that top line comes back to more normal levels. and with our current cost structures that top line comes back to more normal levels We can accelerate the debt repayment. we can accelerate the debt repayment With regard to capital allocation priorities, after we invest in ourselves for the CapEx expansion and a little bit of P&L design and R&D improvements, our focus is 100% to pay down our debt, and our goal is to get to two to two and a half times net leverage, which will get us more into a more balanced capital allocation strategy. With regard to capital allocation priorities, after we invest in ourselves for the CapEx expansion and a little bit of P&L design and R&D improvements, our focus is 100% to pay down our debt, and our goal is to get to two to two and a half times net leverage, which will get us more into a more balanced capital allocation strategy. with regard to capital allocation priorities after we invest in ourselves for the capex expansion and a little bit of p&l design and r&d improvements our focus is 100% to pay down our debt and our goal is to get to two to two and a half times net leverage which will get us more into a more balanced capital allocation strategy

Speaker 4: Got it. I'd like to open it up to the audience if there's any questions. Gentlemen in the back. Got it. got it I'd like to open it up to the audience if there's any questions. i'd like to open it up to the audience if there's any questions Gentlemen in the back. gentlemen in the back Hi. I'm relatively new to the company, but over the last couple of years and going forward, what's the unit volumes versus price equation for you guys? Would you have a lot of pricing power? Hi. hi I'm relatively new to the company, but over the last couple of years and going forward, what's the unit volumes versus price equation for you guys? i'm relatively new to the company but over the last couple of years and going forward what's the unit volumes versus price equation for you guys Would you have a lot of pricing power? would you have a lot of pricing power

Speaker 2: Yeah, I think we have. We work hard on that every year. It's not an event kind of a driven thing. You can see, as Ram said, our gross margin over the last couple of years improving. Remember, in 2022, we gave a five-year model that said when our revenue is $5.6 billion, we'd be at 47% plus gross margin. As Ram said, at $3.8 billion, we already hit 47% plus in 48 months. So that's an indication of the value and the pricing power we have. So we've held our own. I think there's more opportunity going forward. I think the time to get an improvement in gross margin is the new design wins, right? It's harder to go back, I think, and change pricing. But for sure, for new stuff, if you're unique, then we're getting paid fairly for that. Yeah, I think we have. yeah i think we have We work hard on that every year. we work hard on that every year It's not an event kind of a driven thing. it's not an event kind of a driven thing You can see, as Ram said, our gross margin over the last couple of years improving. you can see as ram said our gross margin over the last couple of years improving Remember, in 2022, we gave a five-year model that said when our revenue is $5.6 billion, we'd be at 47% plus gross margin. remember in 2022 we gave a five-year model that said when our revenue is $5.6 billion we'd be at 47% plus gross margin As Ram said, at $3.8 billion, we already hit 47% plus in 48 months. as ram said at $3.8 billion we already hit 47% plus in 48 months So that's an indication of the value and the pricing power we have. so that's an indication of the value and the pricing power we have So we've held our own. so we've held our own I think there's more opportunity going forward. i think there's more opportunity going forward I think the time to get an improvement in gross margin is the new design wins, right? i think the time to get an improvement in gross margin is the new design wins right It's harder to go back, I think, and change pricing. it's harder to go back i think and change pricing But for sure, for new stuff, if you're unique, then we're getting paid fairly for that. but for sure for new stuff if you're unique then we're getting paid fairly for that

Speaker 4: Any other questions? I guess then I'll ask a few more, so on the semi portion, so for ALD, I guess the kind of story there is your ozone generators, if I'm correct. Could you just kind of elaborate on that, sort of what makes MKS's solution there kind of differentiated versus competition? Any other questions? any other questions I guess then I'll ask a few more, so on the semi portion, so for ALD, I guess the kind of story there is your ozone generators, if I'm correct. i guess then i'll ask a few more so on the semi portion so for ald i guess the kind of story there is your ozone generators if i'm correct Could you just kind of elaborate on that, sort of what makes MKS's solution there kind of differentiated versus competition? could you just kind of elaborate on that sort of what makes mks's solution there kind of differentiated versus competition

Speaker 2: Yeah, so ozone is O3, three oxygen atoms together. And that's needed for every cycle in an Atomic Layer Deposition cycle. And the uniqueness of our ozone generator is that it generates a much higher concentration that's much cleaner than a lot of folks in the industry. And there aren't a lot of competitors left. We talked about it at our earnings call that at two nanometers and below, there's a lot more ALD, a lot more ozone generation that has to go on that's higher concentration and cleaner. And so that's been the unique features of how we've been winning that share. Yeah, so ozone is O3, three oxygen atoms together. yeah so ozone is o3 three oxygen atoms together And that's needed for every cycle in an Atomic Layer Deposition cycle. and that's needed for every cycle in an atomic layer deposition cycle And the uniqueness of our ozone generator is that it generates a much higher concentration that's much cleaner than a lot of folks in the industry. and the uniqueness of our ozone generator is that it generates a much higher concentration that's much cleaner than a lot of folks in the industry And there aren't a lot of competitors left. and there aren't a lot of competitors left We talked about it at our earnings call that at two nanometers and below, there's a lot more ALD, a lot more ozone generation that has to go on that's higher concentration and cleaner. we talked about it at our earnings call that at two nanometers and below there's a lot more ald a lot more ozone generation that has to go on that's higher concentration and cleaner And so that's been the unique features of how we've been winning that share. and so that's been the unique features of how we've been winning that share

Speaker 4: So when I think about kind of your content per, I think, WFE dollar, it's kind of 1.8%-2.2%, if I'm correct. So when I think about kind of your content per, I think, WFE dollar, it's kind of 1.8%-2.2%, if I'm correct. so when i think about kind of your content per i think wfe dollar it's kind of 1.8%-2.2% if i'm correct

Speaker 2: That's right. That's right. that's right

Speaker 4: Deposition would be probably on the lighter end, but hopefully ALD kind of drives it up, or? Deposition would be probably on the lighter end, but hopefully ALD kind of drives it up, or? deposition would be probably on the lighter end but hopefully ald kind of drives it up or

Speaker 2: Yeah. Yeah, so our revenue as a function of WFE varies between 1.8%-2.2%. Kind of depends on the cycle, et cetera. But I think on the lower end of it would be our lithography metrology inspection because we're just early innings there. I think on the higher end would be NAND because of our RF power there. And then a lot of other things in between. But I think the bigger picture is that whether it's DRAM building fast or NAND or logic or whether it's deposition and etch or litho, we kind of don't care because we're in 85% of it. So we're going to see most of it. And our job is to try to continue growing that share over time. Yeah. yeah Yeah, so our revenue as a function of WFE varies between 1.8%-2.2%. yeah so our revenue as a function of wfe varies between 1.8%-2.2% Kind of depends on the cycle, et cetera. kind of depends on the cycle et cetera But I think on the lower end of it would be our lithography metrology inspection because we're just early innings there. but i think on the lower end of it would be our lithography metrology inspection because we're just early innings there I think on the higher end would be NAND because of our RF power there. i think on the higher end would be nand because of our rf power there And then a lot of other things in between. and then a lot of other things in between But I think the bigger picture is that whether it's DRAM building fast or NAND or logic or whether it's deposition and etch or litho, we kind of don't care because we're in 85% of it. but i think the bigger picture is that whether it's dram building fast or nand or logic or whether it's deposition and etch or litho we kind of don't care because we're in 85% of it So we're going to see most of it. so we're going to see most of it And our job is to try to continue growing that share over time. and our job is to try to continue growing that share over time

Speaker 4: Great. So kind of hopefully the customer is talking about a big second half 2026 comes true and you guys see good 2026 then. Great. great So kind of hopefully the customer is talking about a big second half 2026 comes true and you guys see good 2026 then. so kind of hopefully the customer is talking about a big second half 2026 comes true and you guys see good 2026 then

Speaker 2: Yeah. As I said, it's incrementally more positive since 90 days ago, for sure. Yeah. yeah As I said, it's incrementally more positive since 90 days ago, for sure. as i said it's incrementally more positive since 90 days ago for sure

Speaker 4: Great. That brings us up to time. Thank you, Don. Thank you, John. Thank you, Ram. Great. great That brings us up to time. that brings us up to time Thank you, Don. thank you don Thank you, John. thank you john Thank you, Ram. thank you ram

Speaker 2: All right. Thanks, everyone. All right. all right thanks everyone Thanks, everyone. all right thanks everyone