Half Year 2024 VAT Group AG Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Olivia Honychurch - Jefferies - Analyst : Good morning. Thank you for taking the question. I've got a couple, if that's okay. The first is around quantifying the impact of the ERP in Q3. So you said that that led CHF8 million of advanced shipment in Q2. If we assume that was pulled into Q3 and therefore add by million back to your Q3 revenue, that would imply CHF253 million, which is broadly flat versus Q2. So I'm just wondering if you can talk about what might be behind that lower-than-expected growth in Q3 or is there also an ERP role to be had, i.e., you also think some customer delaying shipments into Q4? I guess I'm really asking what is the hit to security revenues of CHF8 million or is actually higher than that? Thank you.

Question: Olivia Honychurch - Jefferies - Analyst : Okay, that makes sense. Thank you. And my second one was around your order expectations. You've now explicitly said that you've seen inventory levels at your customers fully normalized. I noticed that you added a new wording in your release statement around customers now moving into order replenishment territory. So I'm wondering, is there scope for your order over the next couple of quarters to exceed your previous guidance

Question: Olivia Honychurch - Jefferies - Analyst : So just to clarify, no change in your outlook for like double-digit sequential growth going forward for sequential orders?

Question: Olivia Honychurch - Jefferies - Analyst : Just trying to clarify that you're not changing your expectations for the time being around order growth as being low-double-digit sequential growth over the next few quarters.

Question: Olivia Honychurch - Jefferies - Analyst : Okay, that's great. Thank you.

Question: J÷rn Iffert - UBS - Analyst : Thank you. Hopefully the first question only counts as half a question because of the follow-up with the CHF20 million orders portfolio mix due to the ERP shutdown. Is this part of your guidance? Have you really should take the CHF271 million and multiply it with low-double-digit growth for Q3 or should we adjust for the CHF20 million?

Question: J÷rn Iffert - UBS - Analyst : Okay, thanks. This is also half a question. Second question, please, if I may ask. Look, on the mix [etch] deposition lithography, how do you think this is developing in 2025 versus a mix in 2022 when we had the non-semi CapEx peak? Is that much more lithography in 2025 like the EUV, which is not so favorable for you, or is it relatively balanced versus 2022? If I may ask.

Question: J÷rn Iffert - UBS - Analyst : Okay, thanks. And then really the last half question. Just incrementally of assets is so often, but China [entity list]. Anything else incrementally you can add from the SEMICON for this industry view or your view?

Question: J÷rn Iffert - UBS - Analyst : Thank you very much -- without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 9:00AM, VACN.S - Half Year 2024 VAT Group AG Earnings Call

Question: J÷rn Iffert - UBS - Analyst : Thank you very much. Thanks, Urs.

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : Yeah. Hi, gentlemen. My first question is regarding the pricing level for consumer electronics. When I look at the retail price to [chip] used in memory, they're all trending down still. Could you give us a bit more indication of what you see in the lagging etch of the monitor, everything outside AI? And the second question is again on China. So you mentioned overstocking of equipment there. I think the first time that anyone mentioned, I think (inaudible) mentioned it, does that overstocking also applied to components, so vacuum components? And if so, I mean, I think China must now contribute about 45%, maybe 50% to your revenues, if you include the OEM exposure. What makes you so confident that Chinese demand can remain flat this year? This is the question. Thank you.

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : Understood. Follow-up on the Chinese (inaudible) because you write in your presentation that there's always talking about (inaudible) So you seem to have some -- without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 9:00AM, VACN.S - Half Year 2024 VAT Group AG Earnings Call

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : Yeah. In your presentation, you write that there's some overstocking of tools anticipated to be restricted in future. So you do seem to have (inaudible) of overstocking, right? It's on page 24.

Question: Sebastian Kuenne - RBC Capital Markets - Analyst : Okay. Thank you very much.

Question: Sandeep Deshpande - JPMorgan - Analyst : Yeah, hi. Good morning. My question is, you've talked about the adjustments because of the output ERP and other points in the third quarter. How you see the trajectory now because of that into the fourth quarter and full year?

Question: Sandeep Deshpande - JPMorgan - Analyst : And my second quick follow-up on that is, based on what you're hearing from your large semi-cap customers, they are preparing for a big '25. And so, do they already have inventory by the end of this year and perhaps that there's the need from you or you will continue -- you expect significant growth next year as well at the back of that?

Question: Sandeep Deshpande - JPMorgan - Analyst : Thank you.

Question: Timm Schulze-Melander - Redburn Atlantic - Analyst : Hi, good morning. Thanks for taking my questions. Just very quick one, please. Just a clarification on ERP. I think you said it's a two-week implementation, but I think, Fabian, you also just said that you expect normal operations at the end of Q3. Maybe you could just let us know when do you expect to start and finish that implementation, please?

Question: Timm Schulze-Melander - Redburn Atlantic - Analyst : Okay, super clear. That's very helpful. Thank you. The second question is on China. I know it's a hot topic. I just want to focus very specifically on the aftermarket business. So in that China aftermarket business where you supply non-China OEMs, so is there anything that has changed in that part of your business? Or is the supply and the flow of spares, consumables, upgrades like everything that's aftermarket, is that still running normally with your non-China OEMs in China? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 9:00AM, VACN.S - Half Year 2024 VAT Group AG Earnings Call

Question: Timm Schulze-Melander - Redburn Atlantic - Analyst : Very clear. And maybe just one last quick one. In the risk factors, you talked about the sustainability of China government incentives. Is there anything you've seen or any news flow? Anything that's caused you to question rule or doubt the durability of those incentives? Thanks very much.

Question: Timm Schulze-Melander - Redburn Atlantic - Analyst : All right, super helpful. Thanks very much.

Question: Craig Abbott - Kepler Cheuvreux - Analyst : Yes. Good afternoon, everyone. Thank you. Yes, just one question. I realize there's very high-level generalized, but looking at the kind of revenue growth potential into '25, if we start as a base for '24, assuming whatever sales around that CHF1 billion level a little bit more. And looking at the midpoint of the WFE CapEx outlook you gave us for '25, say high-teen growth or so. I'm just wondering what your current thoughts are in terms of the sort of correlation potential for what kind of revenue growth VAT might be able to generate in if that all comes through as expected in '25 versus that underlying WFE CapEx that is expected? Thank you.

Question: Craig Abbott - Kepler Cheuvreux - Analyst : Okay, thank you. Very helpful.

Question: Robert Sanders - Deutsche Bank - Analyst : Yeah, thanks for taking my question. I just had a question regarding the Malaysian expansion. You've obviously got 1B opening at the end of this year. Are you going to ramp up at full health to get to the feasible capacity, and what kind of standard cost reduction could that give you per value or what could it do to the EBITDA margin by '27 for example? Thanks.

Question: Robert Sanders - Deutsche Bank - Analyst : And is there a particular standard cost reduction that you're targeting in Malaysia versus Switzerland?

Question: Robert Sanders - Deutsche Bank - Analyst : Thanks for that. Just one quick follow-up on adjacencies. How should we think about the ramps from below 100, I guess, this year, to 300 and above in '27? Is that going to be sort of linear growth? Is it more back-end loaded? Just so we understand. Thanks.

Question: Robert Sanders - Deutsche Bank - Analyst : Great, thanks a lot.

Question: Nejc Lavric - Octavian AG - Analyst : Yeah, hi. Thank you for taking my question. Maybe just as a follow-up on the adjacencies. You mentioned, I think, two or three times, you have substantial R&D investments, significant guaranteed investments. Could you provide more color on that? I mean, is it just the higher personnel cost and to use for the innovation lab? Or are you developing some new applications that are experiencing high demand? And of course, if you could quantify some of these movements would be great.

Question: Nejc Lavric - Octavian AG - Analyst : Maybe more specifically on the advanced modules and motion control, I mean, you did say last year that the sales was down with the market and it -- could you maybe say more to that to this year?

Question: Nejc Lavric - Octavian AG - Analyst : Okay. And then maybe, again, question on China. I was maybe a bit surprised because recently also read from the senior organization that the wafer fab equipment for next year could be down for China. So my question to you would be, we think that the wafer fab equipment projections reflect the risk that maybe China want to really grow? And why would it onto such a change? Because it's somehow contradictory that they have kind of the amount higher-than-expected subsidies to support the industry, and yet, now we are seeing that second company or you guys are also highlighting the China might be overstocking. So it almost appears there is a risk of overcapacity.

Question: Nejc Lavric - Octavian AG - Analyst : Okay. So the wafer fab equipment projection for next year assumes growth in China?

Question: Nejc Lavric - Octavian AG - Analyst : Okay. Thank you very much.

Question: Didier Scemama Scemama - BofA Global Research - Analyst : Hey. Good morning, gentlemen. Thank you so much for taking my question. I've got a few. Just wanted to clarify a little bit the impact of the ERP implementation on your Q3 guide. Is that -- if you take CHF250 million is sort of the base assumption, is that sort of the two weeks disruption on that basis? Or is it just on the Switzerland portion of revenue? Related to that, also, you mentioned that you'll start the implementation in August. So should we expect additional disruption to Q4? And I've got a follow-up on China. Thank you. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 9:00AM, VACN.S - Half Year 2024 VAT Group AG Earnings Call

Question: Didier Scemama Scemama - BofA Global Research - Analyst : I'm sorry. I didn't quite get it. And I get quite a lot of questions from investors that didn't get it either.

Question: Didier Scemama Scemama - BofA Global Research - Analyst : How brilliant. Okay. Thank you so much for that clarification. On the China a bit, I know it's probably out of your hands, but -- and related to previous questions, what's your understanding of your China semi-cap customers benefit from the third big fund that was announced by China, I think, like many months or so ago? China talking about $48 billion investment. A, is that included in your assumption that in China, WFE next year will be flattish? And then B, I think the press reports suggest that your Chinese semi-cap customers are going to be the key recipients of that subsidy. So any comments or color on that would be great. Thank you.

Question: Didier Scemama Scemama - BofA Global Research - Analyst : Okay, fantastic. Thank you so much. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 9:00AM, VACN.S - Half Year 2024 VAT Group AG Earnings Call

Question: Jnrgen Wagner - Stifel - Analyst : Yeah, good afternoon. Thank you for taking my question. I'm afraid to follow up on China. You mentioned 25% -- 28% of revenues in Q2. What was the share in your order intake? And how much is within your order book? And the second question would be on the semi strong -- semi CapEx in '25 that the industry is currently expecting. As of today, what would be your best guess when you will see that in your order book? Thank you.

Question: Jnrgen Wagner - Stifel - Analyst : No. The strong semi CapEx '25 that currently everybody is expecting. When would you see it in your order book?

Question: Jnrgen Wagner - Stifel - Analyst : Okay, thank you.

Question: Michael Inauen - Znrcher Kantonalbank - Analyst : Thanks very much. Thanks for taking my question. Just two short ones. Maybe on the spec wins that you mentioned, Urs, about 20%/25%, if I got it correctly from adjacencies. Can you elaborate a little bit against whom are you winning, though? I mean, are you actually designing as someone else, or are you winning new projects from your -- from OEMs who were producing at these adjacencies themselves? So they're basically, let's say, outsourcing it to you, if I can use that term? That will be the first question. And the second one, you've mentioned NAND recovery would be after DRAM recovery. I was just wondering if you can -- if you have a little bit better feeling on the timeline on NAND? When is this recovery actually starting? And would you imagine that it could be more V-shaped than the recovery in the other areas that we will it see now stabilizing and basically jump in 2025? Or what's your view on that? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 18, 2024 / 9:00AM, VACN.S - Half Year 2024 VAT Group AG Earnings Call

Question: Michael Inauen - Znrcher Kantonalbank - Analyst : Thanks. That's clear. Thank you very much.

Question: Nigel van Putten - Morgan Stanley - Analyst : Hi. Good afternoon, guys. And I think you might have already covered this; might have missed this, but just on the map for the order intake. So instead of using -- so I got to reported first-half order intake of about CHF507 million, which is about a 26%/27% growth rate. But because there's a CHF20 million sort of pull in there, the base I should be using is lower than CHF507 million. Is that correct?

Question: Nigel van Putten - Morgan Stanley - Analyst : So that lowers the base, but also the growth rate. So if you then say in the press release, we expect sequential demand improvement to continue in the remaining two quarters, you had a similar run rate of H1, then the math I should do is take CHF507 million, deduct CHF20 million, apply a growth rate of about 22%, and then add back to CHF20 million. Is that sort of -- I mean, I know there's no actual numbers here, but you know, that's what we have given us. So 22% half-on-half growth on [CHF487 million] plus [CHF20 million] gives about [CHF1.1 billion]. Does that make sense?

Question: Nigel van Putten - Morgan Stanley - Analyst : Yes, of course. But I mean, we're tracking that, obviously. So I mean, it would come to about 10% growth? So that's like double digit, but like around rather than -- maybe at least -- I'm not entirely sure what the communication was, if you said at least low-double digit this deck where, again, I don't know -- (multiple speakers) this morning because I don't think the press release contains the CHF20 million, even though you put on the CHF8 million? So I'm just trying to get the math here correct.

Question: Nigel van Putten - Morgan Stanley - Analyst : Right. Okay. So CHF20 million. Okay, that's fine. Thank you. Thanks for the clarification.