MKS Instruments Inc at Wells Fargo TMT Summit Summary

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

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : <_ALACRA_META_ABSTRACT>Maybe has started a little bit of news this week already. And kind of some updated China export restrictions. So let's just dive right in like any, there's like 200 pages of reading. I'm sure you stay up last night and read it all.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah. Any initial kind of thoughts in terms of the restrictions.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. And that remind us of $200 million to $250 million that was the indirect and direct impact.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Just direct.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. That's perfect. Maybe let's kind of before we dive into some of the, just the parts of the business, if you take a step back and a lot has happened in the case over the last couple years. Talk us through like when you kind of approach the company, you think about the opportunities over the next few years. Like, what do you think investors are missing or what's an underappreciated? And, like, I guess where should we spend some time? Maybe doing some better on MKS story.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : I think like back when you guys acquired Atotech, one of the things you said was do you think that PCBs and semis are basically there's like a decade difference in time. Do you think that like that time difference is shrinking, like given what's kind of happening on the AI side and everything you're just kind of talked about in terms of packaging and the importance of packaging?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Maybe kind of shift gears a little bit, right, like more near-term cycles are still kind of cycling across both your end markets. Can you kind of talk about maybe each one and then we'll tie them a little bit more?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah. And I think like last quarter, you guys are, I guess, technically this quarter, you made the largest prepayment on your debt that you've done since increasing your leverage quite a bit post the acquisition. Talk about like the confidence in recovery of like forward demand and free cash flow as we look into the first half of the calendar '25? And like -- I mean, it seems like you're pretty confident that making that such a large payment. And I guess like how do we think about the cadence of those payments going forward, given the kind of step up there?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Maybe jump into -- let's talk a little bit about the semi business end market. Can you talk to your visibility recovery? It seems like, at least from an investor standpoint, like sentiment as we look into calendar '25 is kind of continue to maybe deteriorate a little bit. We kind of -- you go back to the middle of the year, people kind of were thinking maybe we could get a WFE of [120-plus] and now we're probably kind of skirting, I don't know, low 100s, maybe for next year. Like kind of talk about your visibility and how we think about like order lead times with your customers?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. And like the inter-quarter kind of demand that you talked about, I mean, what is driving that? Is that your customers that are just kind of trying to drive their working capital turns just a little bit harder? Or is it that they're seeing maybe pull in their order of equipment orders from their customers, okay? How do you kind of parse through that?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah. Okay. As you look at your customer kind of base, you said you think inventory is kind of largely normalized so maybe there's still some of the end kind of pockets of inventory. But I guess as you think about like looking into '25, like your ability to outperform your peers or WFE just given that you kind of have that digestion that's negatively impacted that relative performance in '24. Is that a fair statement we should think about that kind of return maybe what we normally expected outperformance of WFE next year?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. And maybe kind of sticking with NAND a little bit and talking about that vertical is kind of increase. And I think your main customers talked a lot about '25 being more driven by just upgrades of the existing systems or existing footprint, not necessarily increasing net new wafer starts. How -- like how does MKS participate in that? And then how do I think about like -- I think a piece of that is services maybe for them. But like how do we kind of -- how does it trickle down to MKS?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. That's helpful. So I mean, it's really about -- I mean, I think what Lam has talked about is two third, I think, of the wafer start capacity out there, still sub-200 layers. So moving above that threshold, I think, probably drives a fair amount of RF power requirements.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah, you mentioned cryo etch. Like can you just kind of maybe help us understand like the position there? I think there's maybe a couple of customers that are using cryo etch or shipping cryo etch or trying to?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : So pulse DC power will be replacing RF power? Is that --

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : It could.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Interesting. And that's not shipping today for anyone, everyone is still using RF power.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Okay. You talked about OpEx. I think that's been an area of focus for you guys. And last year, we were fortunate to tour the facility just down the road, which was very impressive. Can you talk about the size of that opportunity? Where do you see that going over the next few years?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah. No, that makes sense. And I think as we look into next year, right, like ASML kind of they've down ticked a little bit unlike their EUV expectations. So maybe to the extent you can talk about that. And then outside of EUV, like can you talk about the drivers of the optics revenue, too?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : One of the things that was interesting for me Analyst Day, it was last month, they talked about basically the kind of road map for EUV is like for moving some of the mirrors or trying to kind of reduce the optics. Is that something that you guys started like that you could help with? Or how do we think about it your position like for that?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Right. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 4:00PM, MKSI.OQ - MKS Instruments Inc at Wells Fargo TMT Summit

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Right. Right. Okay. Maybe let's just give a little bit of talk about the photonics and materials solutions. I think like the recovery of PCB market still kind of influx right as we look into next year, iPhone cycle was a little bit weaker than we had everyone had hoped. I mean, how do you think about like recovery utilization rates looking into next year?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah. I mean, I guess like one thing to think about, right, you still kind of sure is still well below like where you were at previously, like at the peak, right? And I think if you kind of think about some of the structural sizes of like the different end markets, I mean, is it fair to think about like some of those is basically kind of overbuilding capacity, and so therefore, like it might take a lot longer to get back to that kind of utilization rate? Or how do you think about like that dynamic?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. You guys -- one of the things you have talked about, right, you talked about the strength for high-density multilayer PCB applications, some of that related to AI. Like I guess how big is that. And like, how do you think of it like the sustainability demand? Like how much capacity is like the industry adding?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay? I guess, like as you think about within that, right, you talked about packaging as being a growth area, we talked about it a little bit earlier. But can you remind us how large is that business inside -- I think you said maybe third like how do we think about the size of the advanced packaging and then like the growth expectations of that business relative to maybe the overall packaging?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : So I guess like when I think about like breaking that down, right, like for this year, how do you think about like the growth, I guess, of those different segments or the overall packaging businesses is what this year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 4:00PM, MKSI.OQ - MKS Instruments Inc at Wells Fargo TMT Summit

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah. I mean like maybe go back to something you said earlier, like you're talking about like on some of these boards going from like four layers that's required for like a dishwasher something that's 40. How -- like what's the difference? And is it a 10x difference in terms of also like just the amount of like chemicals that are required like (inaudible)

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : So when you think about like that dynamic, right, like make analogy right, it's like think about the processing time and the complexity for like HBM and DRAM, right, like should we think about it as something like that? And the fact that like it's more processing time is the yield lower or you need more capacity. Is that fair?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah. Okay. One of the things when we first acquired Atotech, you talked about a lot of basic cross-selling opportunities. Is there anything you can kind of update us on that today, like where do we see in terms of some of those deals turning into revenue?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : So I guess it's fair like when we stay here again, you come next year, right, as we look into '26, we should start to be thinking about some of those kind of materials?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. And maybe like, can you help us like how many of those are MKS led versus like Atotech led? And how do you think about like some of those dynamics?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Perfect. I think we're out of time.