MKS Instruments Inc Q2 2024 Earnings Call Transcript

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

Question: Joseph Moore - Morgan Stanley & Co. LLC - Analyst : Great. Thank you. It looks like gross margins in the quarter were stronger than at least we expected, and your Q3 guidance was pretty good. Can you talk about that?

Question: Joseph Moore - Morgan Stanley & Co. LLC - Analyst : Great. Thank you. And as a follow-up, separately, can I ask about -- on the semi side, are you seeing any indications of NAND spending picking up either second half this year or early next year?

Question: Joseph Moore - Morgan Stanley & Co. LLC - Analyst : Great. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 12:30PM, MKSI.OQ - Q2 2024 MKS Instruments Inc Earnings Call

Question: Michael Mani - BofA Securities, Inc. - Analyst : Hi. This is Michael Mani on for Vivek Arya. Thank you for taking a few of our questions. First off, I think some of your major customers in the semi market have reported so far -- indicated a relatively strong sequential growth into the second half. So I guess how can we reconcile this with some of the more muted trends you're seeing in Q3? And what signs should we look for at these customers before a more sustained upturn can occur? Is it largely a function of utilization, or are there other signs we should monitor? Thank you.

Question: Michael Mani - BofA Securities, Inc. - Analyst : Got it. Thank you. And next, could you share any more color on the strategic products within the quarter? Once this fully ramps over the coming quarters, how much could this potentially contribute to growth next year? And is there any way to frame the long-term opportunity in the optics and photonics market for MKS? Thank you.

Question: Michael Mani - BofA Securities, Inc. - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 12:30PM, MKSI.OQ - Q2 2024 MKS Instruments Inc Earnings Call

Question: Melissa Weathers - Deutsche Bank Securities Inc. - Analyst : Hi there. Thank you for letting me ask a question. I wanted to talk about the specialty industrial business. Can you summarize where you think we are cyclically in that business? I think it came in a little bit lighter than what I thought in the recent quarter. So how do we think about that business cyclically? I know there are a bunch of different moving parts within it.

Question: Melissa Weathers - Deutsche Bank Securities Inc. - Analyst : Got it. And then on the E&P side, I think last quarter you talked about an uptick in demand for high-density multi-layer PCBs related to AI servers. How is that business trending? Are you still seeing momentum from AI?

Question: Melissa Weathers - Deutsche Bank Securities Inc. - Analyst : Got it. Thank you.

Question: Jim Ricchiuti - Needham & Company Inc. - Analyst : Hi. Thanks. Good morning. Hey, John, I wanted to go back to the E&P performance in Q2, which was a little better than expected. It sounds like it was both equipment and chemistry related. I wonder if you can give a little bit more color on which was the bigger driver to that outperformance, and then I have a follow-up question on E&P. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 12:30PM, MKSI.OQ - Q2 2024 MKS Instruments Inc Earnings Call

Question: Jim Ricchiuti - Needham & Company Inc. - Analyst : Got it. That's helpful. And there are expectations, as you know, that we could see a better refresh cycle for smartphones next year. I'm not going to ask you if you agree with that, unless you want to offer some perspective. But if that's accurate, I'm curious, which parts of the business are you going to -- is going to lead that recovery from a booking standpoint? Is it going to be the PCB drilling business followed by the chemistry? Or is chemistry more -- it sounds like that's more book and ship. And when could you see a possible uptick in orders if we're in that kind of a scenario?

Question: Jim Ricchiuti - Needham & Company Inc. - Analyst : Okay. Thanks a lot.

Question: Krish Sankar - TD Cowen - Analyst : Hi. Thanks for taking my question. I told them, one, John, your kind of outlook on September quarter, I mean, it kind of jives with kind of what your customers have said also. But I'm kind of curious, the biggest delta between them and now is the fact that Intel cut CapEx. And I'm just wondering how much of that has had any impact, if any, in the second half of this year and more realistically in calendar '25.

Question: Krish Sankar - TD Cowen - Analyst : Got it. I mean, maybe let me ask the question in a different way, John. Intel also gave a calendar '25 CapEx number, which is down 17% year over year. Baking that in, are you still in the camp that WFE will be a strong growth year next year?

Question: Krish Sankar - TD Cowen - Analyst : Got it. And then a quick follow-up on the Atotech side, John. Obviously, the Atotech business does have some exposure to Intel, but you also have some exposure to some of these AI chips, which you're seeing some delays with cobalt. I'm kind of curious, has it really changed your perspective on Atotech's advanced packaging opportunity into next year?

Question: Krish Sankar - TD Cowen - Analyst : Got it. Thank you, John.

Question: Joe Quatrochi - Wells Fargo Securities, LLC - Analyst : Yeah. Thanks for taking the question. I just wanted to kind of understand the second half versus first half now expecting flat. As I think about the magnitude of the beat in 2Q and then kind of where the Street previously was modeling kind of a low single-digit increase half on half for second half, it seems like flat half on half is a bigger change in the magnitude of the beat in 2Q. So I'm just kind of trying to understand, is there anything else that changed aside from the upside that you put up in 2Q, particularly in semi? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 12:30PM, MKSI.OQ - Q2 2024 MKS Instruments Inc Earnings Call

Question: Joe Quatrochi - Wells Fargo Securities, LLC - Analyst : Got it. And as a follow-up, can you talk a little bit about the early synergistic plating and chemistry design win that you saw in the quarter? Does that include MKS laser drilling as well, or is it just on the Atotech side?

Question: Joe Quatrochi - Wells Fargo Securities, LLC - Analyst : That's helpful. Just to be clear, is that one of the first MKS-led wins then?

Question: Joe Quatrochi - Wells Fargo Securities, LLC - Analyst : Helpful. Thank you.

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Thanks. I know there's a lot of variables to this question, but in general, if you sell a new plating system and it gets the full run rate, how can we think about what that adds to consumables in terms of percentage to the base chemistry business? Or maybe you can talk about it in terms of dollars per system. I'm just trying to understand the relationship between new equipment installs and consumable uptake. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 12:30PM, MKSI.OQ - Q2 2024 MKS Instruments Inc Earnings Call

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Right. Yes, great. That's a good start. And a lot of industrial end markets are soft right now. But are you seeing opportunities outside of automotive and the other established end markets in specialty that could give you a little revenue leverage to the cycle when it does improve?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Understood. Thanks.