萬機儀器 (MKSI) 2026 年第三季法說會：AI 需求帶動營收成長 43%

重點摘要

• 萬機儀器 (MKS Instruments) 公布 2026 年第三季營收為 14.1 億美元，季增 13%、年增 43%。淨利為 2.92 億美元，稀釋後每股盈餘 (EPS) 較去年同期翻倍以上，達到 4.18 美元。
• 營業利益率較去年同期擴張約 700 個基點至 27.8%，創下逾八年來單季新高。調整後 EBITDA 達到 4.34 億美元，利潤率為 30.7%。
• 半導體業務營收年增 54% 至 6.38 億美元，主要受惠於 DRAM、邏輯晶片及 NAND 升級需求。管理層預期在此輪投資週期中，萬機儀器的成長幅度將持續超越晶圓製造設備支出。
• 電子與封裝業務營收年增 43% 至 4.15 億美元。化學品設備銷售成長超過 75%，目前產能已售罄至 2027 年，訂單更已延伸至 2028 年。
• 萬機儀器預估第四季營收為 14.9 億美元（加減 4,000 萬美元），以預估中位數計算相當於年增 44%。稀釋後每股盈餘預期為 5.00 美元（加減 0.38 美元）。
• 自由現金流總計達 2.43 億美元。淨槓桿率降至 2.4 倍，董事會並核准了一項新的 5 億美元股票買回計畫。

核心財務數據

除另有說明外，損益表指標均為 non-GAAP；營收與毛利率則為法定列報指標。

業務與營運表現

半導體

半導體業務營收為 6.38 億美元，季增 15%、年增 54%。成長動能廣泛涵蓋電漿與反應氣體、真空、電源、壓力、微波、光學與光子學解決方案。

管理層指出，DRAM 與邏輯晶片需求持續強勁，且 NAND 升級活動加速。萬機儀器亦在一家領先晶圓代工廠的先進邏輯製程中贏得溶解氣體解決方案訂單，並在一項導體蝕刻應用中贏得脈衝直流電源設計導入，成功取代現有供應商。

該公司表示，客戶能見度目前已延伸至 2028 年，儘管確定訂單涵蓋的期間較短。萬機儀器正調整其製造網絡，以因應 2028 年接近 3,000 億美元的晶圓製造設備支出規模。其馬來西亞超級中心預計將在未來幾季拉升產能，並計劃在北美與歐洲擴增產能。

電子與封裝

電子與封裝業務營收達到 4.15 億美元，季增 9%、年增 43%。成長動力來自化學品、化學品設備與軟板鑽孔系統，但部分被軟板鑽孔的季節性疲軟所季減抵銷。

在排除匯率與鈀金轉嫁效應後，化學品營收年增 26%。化學品設備銷售成長超過 75%，管理層預期全年銷售額將突破 3 億美元，較先前的年度歷史高點高出 50% 以上。

萬機儀器表示，AI 相關銷售正朝先前預估之電子與封裝化學品營收 15% 至 20% 區間的高端邁進。若合計化學品設備、化學品與雷射系統，以財測中位數計算，AI 相關營收預計將占該部門全年營收約 25%，並占第四季營收約三分之一。

化學品設備產能至 2027 年已全數售罄，訂單能見度更大幅延伸至 2028 年。萬機儀器正擴建其中國廣州廠區，預計於 2027 年第三季完工後，整體化學品設備產能將翻倍。

龐大的裝機量同時支撐了化學品的經常性需求。萬機儀器表示，其專有化學品的搭售率超過 85%，且毛利率明顯高於公司整體平均。近期出貨設備所帶動的耗材營收已開始顯現，隨著客戶驗證與產能提升持續推進，預期耗材營收將進一步加速成長。

硬板雷射鑽孔代表另一項成長機會。管理層表示，新訂單涵蓋光模組應用的系統，預計出貨將在 2027 年顯著加速。

特殊工業

特殊工業業務營收為 3.6 億美元，季增 15%、年增 27%。資料通訊與一般工業需求帶動了這項成長，而車用領域在汽車產量疲軟的情況下仍維持穩定。

萬機儀器亦達成協議，將旗下 Ophir Optics 業務出售給訊達科技 (TTM Technologies)。管理層表示，此交易將為資產負債表帶來更大的彈性。

管理層財務指引

以預估中位數計算，第四季營收指引代表年增 44%。管理層預期半導體業務營收年增率將進一步加速，電子與封裝業務營收將成長逾 40%，而特殊工業業務營收將維持在接近第三季的水準。

全年資本支出預計將維持在萬機儀器設定之占營收 3% 至 5% 的目標區間內。管理層亦預期全年稅率將略高於 16%。

風險與關注焦點

• 部分半導體客戶在供應鏈的其他環節面臨限制。管理層坦言，其他供應商提供的關鍵零組件短缺，最終可能會影響客戶完成機台組裝的能力。
• 產業的快速擴張要求供應商以極快的速度擴大生產規模、庫存與人力。萬機儀器表示，自身的供應鏈目前在受限有限的情況下仍足以支撐財測指引，但整體狀況仍可能出現變化。
• 快速成長的化學品設備銷售利潤率低於化學品耗材。此外，製造擴建成本也對短期毛利率造成壓力。
• 第三季因 IEEPA 關稅退稅帶來的 30 個基點助益，預計不會在第四季重現。
• 管理層正持續觀察資料中心的建置進度、稼動率與獲利能力，以留意 AI 相關過度建設或週期轉折的潛在跡象。
• 軟板雷射鑽孔業務仍易受消費性產品的季節性週期影響，而智慧型手機市場需求依舊疲軟。

分析師問答重點

• 半導體業務超越產業成長：管理層表示，相較於晶圓製造設備支出約 30% 中段的成長幅度，萬機儀器 2026 年半導體業務營收年增率可望達到約 40%，且預期 2027 年將持續優於市場表現。
• 供應受限帶來的市占率提升：萬機儀器在受產業短缺影響的零組件領域看到了機會，包括硬板鑽孔。管理層表示，2026 年在半導體領域的市占率提升可能較為有限，但到 2027 年可能會更加顯著。
• NAND 支出狀況：NAND 升級正如火如荼地進行，預計將持續貫穿 2027 年的大部分時間。管理層預期新廠設備需求將於 2027 年下半年開始增加，並延續至 2028 年。
• 化學品營收認列時程：該公司指出，化學品設備從接單到製造、安裝、客戶驗證與產能提升，可能需要 20 至 30 個月。大約六至七季前出貨設備所產生的耗材營收，目前正開始貢獻營運。
• 毛利率展望：由於設備產品組合與產能投資，管理層預期短期內毛利率將維持在當前水準附近。長期而言，利潤率較高的化學品耗材、新產能的稼動率提升以及以價值為基礎的定價，預計將帶來正面助益。
• 資本配置：內部有機投資與債務管理仍是首要任務，但更強健的資產負債表使萬機儀器具備彈性，能運用其獲准的 5 億美元額度視市場時機進行股票買回。

完整電話會議逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Thank you for standing by. My name is Mae. I will be your conference operator today. And at this time, I would like to welcome everyone to MKS Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Thank you.

Paretosh Misra

Good morning, everyone. I'm Paretosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer; and Ram Mayampurath, Executive Vice President and Chief Financial Officer.

Yesterday, after market close, we released our financial results for the third quarter of 2026, which are posted to our investor website at investor.mks.com.

As a reminder, various remarks on future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q. These statements represent the company's expectations only as of today and should not be relied upon as representing the company's estimates or views as of any date subsequent to today, and the company disclaims any obligation to update these statements.

During the call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue and gross margin. Please refer to our press release and the presentation materials posted to the Investors section of our website for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Our investor website also provides a detailed breakout of revenues by end market and divisions.

Now I'll turn the call over to John.

John Lee

Thanks, Paretosh, and good morning, everyone. MKS' strong business momentum continued in the third quarter driving revenue and EPS above the high end of our guidance. We also expanded operating margins by approximately 700 basis points year-over-year, demonstrating the leverage in our business as revenue scale. Each of our end markets performed at or above the high end of our guidance, and we continue to see strong order flow, providing us greater visibility into future demand.

Our guidance today points to a very strong finish to the year with continued robust year-over-year revenue growth driven by unprecedented demand across our key end markets. As AI-related investments accelerate across the semiconductor manufacturing and Electronics & Packaging, we are capitalizing on our broad capabilities, long-term relationships with customers and our ability to develop solutions that address the fundamental trends of scaling, stacking and new materials.

These same trends are driving complex requirements for memory and logic devices as well as the advanced circuit boards and substrates that integrate them. We are uniquely foundational to enabling customer road maps across both markets. This position is also translating into new design wins that create opportunities to gain share and further extend our visibility into the AI supercycle. At our upcoming Investor Day in December, we look forward to sharing more about how and where we innovate and win.

I'll turn now to our Q3 end market performance and Q4 outlook. Starting with our semiconductor market. Revenue was at high end of our guidance range, up 15% sequentially to 54% year-over-year. Growth was broad-based across our Vacuum and Photonics Solutions, including power, pressure, microwave, and plasma and reactive gas solutions.

We also secured a major customer win with a leading foundry selecting our dissolved gas solutions for advanced logic. NAND upgrades continued at a healthy pace and greenfield capacity planned for 2028 our power outlook is robust. Design win activity remains solid, including an important pulsed DC power win for a significant productive etch application.

Overall, order activity remains very strong, providing rapid revenue growth and excellent visibility well into the new year. Our semi outlook for Q4 points to accelerating year-over-year growth with continued strength across our product portfolio. Customer conversations we are having give us confidence in our ability to continue outgrowing WFE during this period of elevated investment. Against this backdrop, some customers have noticed certain constraints elsewhere in their supply chain. We plan several years ahead so that we and our suppliers are positioned to meet customer demand.

From a manufacturing perspective, we are prepared for WFE approaching $300 billion in 2028. Our Malaysia Supercenter will ramp over the coming quarters with growth of further expansion. We also plan to expand supercenter capacity in other key regions such as North America and Europe. MKS has depth, scale and financial strength to expand capacity across our own operations and supply chain, while maintaining CapEx intensity within our targeted 3% to 5% range.

Turning now to Electronics & Packaging. The business continues to deliver outstanding growth. Revenue was well above our guidance range, increasing 9% sequentially on top of a strong Q2 and up 43% year-over-year. Our chemistry equipment business continued to see record order volumes as customers expand capacity largely to support AI-related applications. Chemistry revenues grew 26% year-over-year, excluding the impact of FX and palladium pass-through, the strongest growth in the history of the company. That performance reflects strong AI-driven demand as well as increasing consumables revenue as the equipment we have installed over the past several quarters is qualified and moves into production.

As a reminder, our proprietary chemistries have an attach rate of greater than 85% to our equipment installed base, generating years of steady revenue at gross margins well above the corporate average. AI-related chemistry revenue represented 10% of our Electronics & Packaging chemistry revenue last year and is now tracking towards the high end of the 15% to 20% range we had talked about for 2026, including all of our E&P capabilities, chemistry equipment, chemistry, and laser systems, AI exposure is expected to represent approximately 25% of total E&P revenue for the full year and approximately 180% annual increase in dollar terms.

And as we've reported through the year, our momentum is accelerating. At the midpoint of our guidance, we expect approximately 1/3 of our E&P revenue to come from AI in Q4 and we will expect this to continue to increase as we help customers meet growing demand for AI applications. Chemistry equipment sales were up more than 75% year-over-year in the third quarter and we expect full year sales of more than $300 million, over 50% above our historic annual peak.

Current capacity is sold out through 2027 and to meet accelerated chemistry equipment demand, we are expanding capacity in Guangzhou, China, and this will double our overall capacity when completed, which we are targeting for Q3 2027.

Across the electronics ecosystem, AI demand is increasingly challenging semiconductor innovation as well as advanced packaging substrates and PCB technologies. As package sizes grow, layer counts increase and package architectures become more complex, we are leveraging our broad electronics and packaging portfolio to address these technological challenges.

Looking ahead to Q4, order activity remains extremely strong across the board, with chemistry equipment now booking for deliveries well into 2028. We've also seen considerable new order volume for our laser systems for rigid PCB applications including optical modules, with deliveries expected to accelerate significantly in 2027. These wins reflect years of coordinated go-to-market groundwork across our PCB laser drilling systems and chemistry businesses, which has positioned us well to meet the industry's needs for innovation at just the right time.

We expect Q4 Electronics & Packaging revenue to increase over 40% year-over-year, driven by strength in chemistry equipment, AI-related chemistry and rigid PCB laser drilling systems. On an annual basis, our E&P business is on track to grow nearly 40% in 2026 as AI continues to drive elevated capital investment across the PCB industry. As new equipment is qualified, and ramps in coming quarters, we expect our larger installed base will support steady growth in our higher-margin chemistry consumables over the long term.

Turning to our Specialty Industrial market. revenue grew 15% sequentially and 27% year-over-year, well above our guidance range, led by strength in datacom and improvement in general industrial markets. Automotive posted modest growth despite soft vehicle production, highlighting our value-add position in the market. The growth of these businesses in 2026 demonstrates our ability to extend our core capabilities into attractive markets. Looking ahead to Q4, we expect revenue to remain at this level, following the significant growth we delivered.

Last month, we announced that we entered into an agreement to sell Ophir Optics business to TTM Technologies. Ophir Optics develops high-precision infrared thermal imaging and laser optic solutions for defense, security and industrial applications. We grew this business organically, improve its profitability and have agreed to sell it at an attractive valuation to an industry leader. For MKS, the transaction gives us balance sheet flexibility and shows how our Specialty Industrial activities enhance shareholder value creation.

Wrapping up, MKS is poised to end 2026 on a strong note, and we're excited about what lies ahead. As the only company in our space broadly exposed to powerful trends driving innovation in both semiconductors and advanced PCBs, we're in a great position to significantly grow our business in the coming years. AI is not just driving investment. It's pulling forward customers' technology road maps across semi and electronic packaging landscapes, elevating the value of innovation for those who can deliver it. As a foundational enabler of that innovation, the future looks bright for MKS.

I want to thank our outstanding MKS team for their tireless efforts to deliver for our customers and at unprecedented demand and our suppliers and customers and industry partners across the electronics ecosystem for their continued support and collaboration.

Now here's Ram to run through the quarter and our financial outlook in more detail.

Ramakumar Mayampurath

Thank you, John, and good morning, everyone. We delivered another very strong quarter driven by broad-based demand across all our end markets. Our results demonstrate our ability to translate higher revenue growth into even better earnings growth through disciplined execution. We are driving strong operating leverage while continuing to invest in the multiple growth opportunities that we see ahead.

For the third quarter, MKS reported revenue of $1.41 billion, up 13% sequentially and 43% year-over-year. As our guidance indicates, we expect strong demand across all our end markets to continue in the fourth quarter.

Third quarter semiconductor revenue was $638 million, up 15% sequentially and 54% year-over-year. In addition to continued strength in DRAM and logic demand, we saw increased momentum in NAND upgrade activity. Collectively, this demand is driving continued strength across our key product categories led by plasma and reactive gas solutions and vacuum products as well as accelerating growth in power solutions, optics, and photonics.

Third quarter Electronics & Packaging revenue was $415 million, up 9% quarter-over-quarter and 43% year-over-year, continuing its record growth. The sequential improvement was driven by higher chemistry and chemistry equipment sales, partially offset by typical seasonal decline in flexible PCB drilling system sales. The strong year-over-year growth was driven by demand for chemistry equipment, chemistry solutions and flexible PCB drilling equipment, underscoring our strong market position despite smartphone market softness.

As John mentioned, our chemistry business continues to benefit from accelerating demand from AI-related applications, with sales up 26% year-over-year, excluding the impact of FX and palladium pass-through had a record year-over-year growth rate.

In our Specialty Industrial market, third quarter revenue was $360 million, an increase of 15% sequentially and 27% on a year-over-year basis. The year-over-year sequential growth was driven primarily by datacom and general industrial, while our automotive business remains stable.

We reported third quarter gross margin of 47.7%, supported by higher volumes and a 30 basis point benefit from IEEPA tariff refunds, which we do not expect to repeat in Q4. Our gross margin continues to expand, driven by the value of our solutions as well as higher volumes despite modest headwinds from growing sales of lower-margin chemistry equipment as well as costs incurred from the expansion of manufacturing capabilities. While we expect these headwinds continue into next year, both are expected to become margin tailwinds longer term as chemistry consumables grow with our newly installed chemistry equipment and new capacity reaches full utilization.

Third quarter operating income was $393 million with operating margin improving approximately 700 basis points year-over-year to 27.8%, well above our guidance and our highest quarterly operating margin in over 8 years.

Operating expenses of $281 million were in line with our guidance as we continue to drive operating leverage in the business.

Third quarter adjusted EBITDA was $434 million, yielding a 30.7% margin and above the high end of our guidance.

Net interest expenses was $33 million compared to $45 million in the third quarter of 2025, reflecting the benefits of our first quarter financing actions as well as continued proactive principal prepayment.

Our third quarter effective tax rate was 19.1%, slightly favorable relative to our guidance.

Third quarter net earnings were $292 million or $4.18 per diluted share, more than doubling year-over-year and above the high end of our guidance.

Let me now turn to our cash flow and balance sheet. We closed the quarter with over $1.6 billion of liquidity comprised of cash and cash equivalents of $676 million and our undrawn revolving credit facility of $1 billion. We generated strong free cash flow of $243 million, about 17% of revenue. We expect to continue to invest in CapEx and working capital through the year-end to support organic growth with full year capital spending remaining within our target range of 3% to 5%.

With excess cash, we made a EUR 50 million principal prepayment on our euro term loan in Q3. In addition, we made another $100 million prepayment on the USD term loan this month, bringing total year-to-date prepayments to over $450 million. Our net leverage ratio at the end of Q3 was 2.4x based on a trailing 12-month adjusted EBITDA of $1.3 billion, down 1.5 turns from a year ago and within our target net leverage of 2.5x.

With our stronger balance sheet and healthy business outlook, our Board recently approved a $500 million share repurchase program, providing flexibility to repurchase shares opportunistically.

Finally, we paid a dividend of $0.25 per share or $17 million.

Let me now turn to our fourth quarter outlook. We expect revenue of $1.49 billion, plus or minus $40 million, which represents a 44% growth over the prior year. Our fourth quarter outlook by end market is as follows: Revenue from our semiconductor market is expected to be $700 million plus or minus $15 million; revenue from our Electronics & Packaging markets is expected to be $430 million, plus or minus $15 million; and revenue from our Specialty Industrial market is expected to be $360 million, plus or minus $10 million.

Based on anticipated revenue levels and product mix, we estimate fourth quarter gross margin of 47.5%, plus or minus 100 basis points, similar to where we ended Q3, excluding IEEPA tariff refunds. We expect to continue to deliver strong operating leverage with fourth quarter operating expenses at $288 million, plus or minus $5 million and increasing at a much slower rate than revenue.

We expect fourth quarter operating income of $420 million, plus or minus $29 million with an operating margin of over 28%. We estimate fourth quarter adjusted EBITDA of $461 million, plus or minus $29 million. We expect our fourth quarter tax rate to be approximately 9% and full year tax rate to be just over 16%. Based on these assumptions, we expect fourth quarter net earnings per diluted share of $5, plus or minus $0.38.

Our strong Q3 performance and Q4 outlook position us for an outstanding second half of the year. Order volumes are healthy, visibility is improving and strong execution is driving higher profitability and cash generation while we invest in the business to address the strong growth cycle we see ahead on our semiconductor and electronics and packaging businesses.

With that, operator, please open the call for questions.

Operator

[Operator Instructions] Our first question comes from the line of Matthew Prisco, Cantor.

分析師問答

Matthew Prisco

First, starting on the semi side. Can you give a bit more color on that visibility that the customers are giving you today? Maybe how that splits between actual orders and forecasts? And maybe your latest thoughts on MKS' ability to outgrow WFE through 2027? What type of magnitude should we be thinking?

John Lee

Matt, it's John. So we are in, obviously, constant contact with all of the semi customers. And they are giving us much better visibility than the past. Extends out certainly into the '28 time frame. And those are guidance levels.

The bookings and actual orders, of course, are in a shorter period of time because you actually need the details of actually what they need. But the visibility is great, as you would expect.

During up cycles, MKS has always demonstrated that we outperform WFE and we see that happening now. I think early in '26, it was a little slower start. I think the critical subsystems folks were trying to rev the engine, if you will, in our supply chains. And now you're starting to see that acceleration. And I think with the guidance, we'll probably grow something like 40% year-over-year. And then I think WFE is kind of in that mid-30s percent range. And I think that will continue in '27.

Matthew Prisco

And then I guess sticking on semis, can you help us some more color on the constraints that you're seeing in today's market? Are there any share opportunities that you see arising from this? Any problem areas for you guys in securing supply?

John Lee

Yes. I think there's been reported shortfalls in certain commodities and some of those commodities are things that we make as well. And so those are share gain opportunities for us. I think if you look at our delivery, our operations team has been doing a great job. We talked about our factory expansions, and we're well on our way to supporting $300 billion WFE.

And I'd like to take a little time to also just remind everybody how much hard work this is for the entire supply chain. We have thousands of suppliers. They're all stepping up. We've asked them to double and we've asked them to double again. This is not a small feat, right? And so I think it shouldn't be lost that we're asking the entire supply chain to do something that's never been done before.

We may end this year as an industry, increasing WFE by $50 billion just in 1 year. And of course, that was a slower rate in the beginning of the year than the end of the year. So I think the accomplishments for the industry are really impressive.

Operator

Our second question comes from the line of Krish Sankar of TD Cowen.

Sreekrishnan Sankarnarayanan

I have 2 of them, John. If you look at some of the big well-known constraints out there, one is MLC, the other one is the rigid PCB drilling tools. You have a position in both of those and looks like the constraint is coming from one of your Japanese competitors. I'm wondering, is there a chance for you to gain market share in both the MLC side and also the rigid PCB side?

John Lee

Yes. I think for sure, those are opportunities, especially since we've been delivering pretty well. I would say that in our prepared remarks, we did call out a little bit of rigid PCB drilling business and how that has been very strong now and will continue to accelerate through 2027. And that is a lot of it driven by the fact that we've already been qualified, but there are constraints there. And that's an opportunity for us. So yes, these are share gain opportunities, one of which we're calling out already.

Sreekrishnan Sankarnarayanan

Got it. And then the other thing I just want to find out is that clearly, you've been selling quite a bit of these tools this year on the EPC side. And my understanding is that the chemistry follows later. So is it fair to assume 2027, the chemistry revenues could be higher than '26? And what is its implication to gross margin?

John Lee

Yes. So as you know, our gross margin for chemistry is higher than corporate average significantly, and that remains the same. And so as that chemistry starts being put into the tools we have been delivering, we will get that tailwind and gross margin as the chemistry revenue increases.

And I would say, we are already seeing some of that chemistry revenue from the first tools that we have shipped several quarters ago. So that's starting. And obviously, the shipment of tools has continued since 3 or 4 or maybe 5, 6 quarters ago. And so we expect that to accelerate in '27 and that chemistry revenue to come with that.

Operator

Our third question comes from the line of Melissa Weathers from Deutsche.

Melissa Weathers

I guess following up on that gross margin point. Can you help walk us through the different puts and takes as we go through next year? You've got some mix headwinds, you've got some capacity headwinds, but then you do have that chemistry piece and volumes are clearly going higher. So can you just kind of hold our hands as we walk through next year and how you're thinking about gross margins?

Ramakumar Mayampurath

Yes. Sure. Melissa, this is Ram. We are improving our gross margins, as you noted, as we saw this quarter. We have improved it sequentially and year-over-year. We continue to execute very well, and we are translating that high revenue to higher gross margins, earnings and cash flow. So in the past, we've said we will be 47% plus, and we are there now with the 2 headwinds you noted. That's the investments we are making to improve capacity and capabilities and the mix impact from fast-growing equipment mix.

So those 2 are masking our true underlying performance, if you may, in the near term. However, you know that this will turn to tailwinds in the longer term. We do have a high -- path to a higher gross margin, and that will come -- the volume is certainly helping and ongoing improvement activities will help margins in '27. And -- in the near term, we expect the margins to stay at these levels, but we do have a path to higher gross margins, and we'll talk more about that in a month in our Investor Day.

Melissa Weathers

Perfect. Looking forward to that Investor Day. And then you called out in the prepared remarks the NAND upgrade spending and maybe it seems like you rose your outlook on greenfield NAND spending for 2027. So can you give a little more color on the signals that you're seeing in that market? And kind of what's changed and how you expect that to grow through the next couple of years?

John Lee

Yes. I think what we have seen is the NAND upgrade is in full swing. One of our biggest customers has mentioned, that's been pulled in. And so we're seeing that. We're seeing the RF power that goes with those upgrades. So we're really happy to see that.

And of course, this has no greenfields and the publicly announced greenfields are coming online kind of in the late '27, early '28 time frame. And so the equipment will go in, hopefully a little bit before that. So I think that upgrades will continue for the most part of '27. But then greenfields start taking off in the later half of '27 likely and into '28. And you hear every day another announcement about another NAND fab out in the future. So I think it's a multiyear tailwind in terms of NAND equipment building that has to happen to support this AI infrastructure.

Operator

And our fourth question comes from the line of Steve Barger from KeyBanc.

Steve Barger

You said chemistry equipment is sold out through '27. Bookings extend into '28. And then the Guangzhou capacity doesn't come on until the third quarter of next year. Can you help us frame the cadence of E&P growth next year? Like how much growth is constrained by available equipment capacity right now versus customer qualification timing? And just how should that larger consumable base allow chemistry revenue to grow faster than equipment revenue?

John Lee

Yes, Steve, thanks for the question. I think I'll give you a couple of pieces. So we are likely to grow equipment revenue -- chemistry equipment revenue to that $300 million range in 2026. And as we said in the prepared remarks, our historic peak has never exceeded $200 million. We hit that in '25 actually. And this year, we're at $300-plus million. And that's without new factories. So that is really just using the factories we have, working with our partners, supply chain partners to help us with their space, taking every bit of space we can while we prepare for the next set of capacity.

So -- and even though we've been able to increase our revenue by 50% without adding a factory, that is really why our bookings are booking out into '28. So there is obviously a constraint. And we'll try to pull in the Q3 2027 time frame, but when that comes online, that doubles our equipment capacity. And so we'll try to deliver that as fast as possible. And I think that will allow the revenue growth to accelerate towards the second half of '27 and on.

Then the chemistry revenue, to your point, we have said it's between 20 months to 30 months from the acceptance of a PO There's a 6- to 8-month time frame to build the thing. There's an installation period and there's a qualification period of the customers. And then there's a ramp. And as I said, some of that equipment that we shipped to 6 or 7 quarters ago is now seeing that chemistry revenue. And we expect that to accelerate as more of that equipment gets qualified. And that accelerates, especially if we continue putting more equipment in the second half of '27 and beyond.

Steve Barger

Yes. That is great details. And looking forward, do you expect stability or maybe even improvement in attach rates as layer counts and process complexity increases? And can you talk about trends in chemical consumption per machine. Meaning are more complex boards driving higher chemical consumption per machine?

John Lee

Yes, I'll answer the second question, a little easier. So each board is made one layer at a time. And so the consumption is pretty much consistent. It's just that there are more layers and therefore, more square inches of PCBs as layer count grows. So -- so it's really that.

Now at the same time, we're making more complex PCBs. So the chemistry is changing. We're making different kinds of chemistries that allow you to fill smaller features, allows you to bond 80 layers together instead of 20, much better. So all these technological innovations are occurring at the same time as we're increasing the number of layers and shrinking the device sizes.

And to your point, if you can provide that chemistry and that technology, it is much harder to displace that. There's very little motivation to change that because it's such a difficult process now. It's kind of the same story as semi. The copy exact idea in semi, which is -- it is so hard to make a chip work, and there's thousands of steps. You really don't want to change anything.

And I think we're in a great position because the thesis for buying Atotech was to have the chemistry and the equipment knobs. And when you have both knobs, you're optimizing both. And therefore, you're going to come up with a solution that I think is much better and faster and harder to displace. And so we're really happy with the position we're in with our E&P business.

Operator

Our fifth question comes from the line of Jim Ricchiuti, Needham & Company.

James Ricchiuti

You alluded a couple of times, I think, to this, but the growth that you're seeing in chemistry, which I think you said was 75%, if I heard you correctly in Q3. Are you able to actually parse out how much of that is coming from legacy? Because you are beginning to see some initial revenues, I think you said from the equipment that was installed over the last, call it, 6 quarters or so. But any color on how much of that is coming from, if you will, the legacy hardware in the field?

John Lee

Yes. Jim. So I think what we said in the prepared remarks is that in Q3, chemistry revenue organically grew about 26% year-over-year. And of that, so very little of it is this chemistry from new equipment. That is just starting. So the vast majority of that chemistry growth is from installed equipment that's already out there.

And I think that our year-over-year growth will be strong as well. And I think as the equipment chemistry does come in with our equipment, and you'll see that percentage grow over time for sure. And our growth rates for chemistry, we think, will also follow that.

James Ricchiuti

Thanks for clarifying the growth in chemistry, that makes it a lot clearer. With respect to the fact that you're essentially added capacity on the hardware side, even though you're expanding. Have there been other options for customers that need capacity earlier? Or is this -- do you think more of an industry-wide phenomenon?

John Lee

Yes, I think we talked to obviously the whole ecosystem of customers. And I would just say that there are some that are much more aggressive in their expansion and some that are a little more measured, as you would expect with a large fast array. But I would think -- I would say that all of them are starting to accelerate. Whatever their original plan was, they are all starting to accelerate their pace. So there are some customers, though, that are making some really big investments. And you probably follow them. And those are the customers that we certainly saw start earlier -- and now we see everybody kind of jumping in now.

James Ricchiuti

John, any concerns that you see -- and the question we get a lot is at what point do we get into an overbuild situation. And clearly, the AI demand is driving this. But as you think about what you're seeing in the market, do you have any concerns -- what signs are you looking for that potentially things are as you look out into 2027, potentially could get overheated on this side of the business since it is easier to add this kind of capacity.

John Lee

Yes. Yes, you're right, Jim, it's a little faster to add capacity on the E&P side and the semi side. But I would say this, the things I look at are when data centers are built and they're turned on. So far, the answer is absolutely, yes. And then certainly, if the people building those data centers are making money. And certainly, they are. So I think those are kind of signs we see. Now we see the same thing, we hear the same things about pushback on data centers, et cetera.

But the demand for the data centers and the ability to make money building those data centers is still very much intact. And so those are the things we watch for, Jim, because we've been in a semi a long time, you and us both. And we know the cycles change, and they change fast. We've had a long history of being able to react very quickly because we've had to, having lived in semi for 65 or 75 years.

And just a final point, our CapEx intensity is still very low, Jim. We're not paying -- we're doing 3% to 5% is our CapEx intensity. While we're building a semi fab as well as a chemistry equipment fab, factories. So in terms of the financial strength we have, it's still a relatively small risk for us.

Operator

Our sixth question comes from the line of Vijay Rakesh of Mizuho.

Vijay Rakesh

Congratulations on a good quarter and guide here. Just on the -- as you look at your semis and E&P. It looks like you're growing a lot -- much faster than WFE, looks like growing almost 40% year-on-year. Given the visibility that you have out to 2027, 2028, you mentioned $300 billion WFE. Would you expect the growth to kind of track in those same ranges as you go out? Just wanted to get some more visibility on those 2 big markets. And a quick follow-up.

John Lee

Yes. Thanks for the question, Vijay. I think I would comment on this. When you look at our growth rates in semi for the first 4 quarters of '26 relative to WFE, you'll see that it took a couple of quarters to rev up. And Q3 was the quarter where we started kind of starting materially exceed WFE. And that's just because it takes time to rev up the entire supply chain.

So we're kind of in that phase where for MKS, the engine is humming, and we're ready to continue accelerating that build. And for the next several quarters, if not a year or 2, we see that we'll continue to have to accelerate this. This is the feedback our customers are giving us.

And as we've said in the past, that's usually the time when we overperform and exceed WFE by a large factor. So I think that's kind of our expectations. And then to your point, at some point, the thing flattens and thing comes down. So I think that's still far away, at least that's the customer conversations we're having. So I think we'll start -- you'll start seeing us continue to accelerate our performance -- overperformance relative to WFE in the coming quarters.

Vijay Rakesh

Got it. And just a quick one for Ram. When you look at the gross margin side, just wondering are you seeing any ASP tailwinds on the equipment side or the material chemistries side given how tight things are or given how some of the chemistry costs have gone up, I guess. Are you contemplating price increases, ASP increases into like '27, '28.

Ramakumar Mayampurath

Can you hear me?

Vijay Rakesh

Yes.

Ramakumar Mayampurath

So there are pockets of inflation that we are seeing. It's not widespread so far. And we always try and balance our cost and price. Cost is always a reference point for our pricing decisions. So it could increase in the second half and into '27, but right now, we are seeing certain pockets of inflation.

John Lee

Vijay, it's John. I would say, too, that we are -- we've always try to get value pricing for the technology we bring. And this is an environment where there's a lot more need for that technology. And so we are continuing to do that and to accelerate that value-based pricing.

Operator

And our next question comes from the line of Elizabeth Sun of Citigroup.

Yiling Sun

I guess, my first question is on the -- if we look into next year, the base year semis and E&P are going like similar rates both around 40%. And next year, semis clearly outperforming the WFE again. And just if I think about the growth in E&P, are you seeing -- it's like, again, similar growth with the semi side? Or can you outperform or grow a little bit slower than the semi side?

John Lee

Elizabeth, I would say this, the difference between the semi side and the E&P side is that the E&P side has a consumables component to it which does not grow as fast as a CapEx component, and I think that's just normal. And whereas the semi side, it is all CapEx.

So the expectation would be that the semi side would as we start accelerating the supply chain revs up. That should grow faster than E&P. But not necessarily the equipment side of E&P. As we talked about, the equipment side of E&P is sold out through '27. And now we have lasers in it as well as chemistry equipment. So I think that's the only difference, Elizabeth that I would call out is a CapEx-only market semi and a consumables plus CapEx market in the E&P side. And so the growth rate should track those kinds of -- those kinds of businesses.

Yiling Sun

Understood. That's helpful. And then on the supply chain side, obviously, you are doing a much better job right now, like giving a lot of visibilities to your suppliers. But I'm just curious, are you seeing any supply chain constraint right now for your own? And is this kind of like a Q4 guide? And if you look into the next couple of quarters next year, are you -- is your growth kind of supply constrained? Obviously, it's very strong growth, but like if there is no supply constraints, can you do better?

John Lee

I would say this. Our supply chain is an incredible group of people that have really stepped up, met with -- we just had a supplier day, met with all the key CEOs. They are all behind us investing and hiring people. I would say this, there's always a bolt and screw. If something happens, the yield bust happens somewhere further down the supply chain that even our suppliers can't control.

That's happening, but still really relatively in control for us, at least in our supply chain. So I would say the revenue and the guidance we're giving is a very -- there's very little constraint from our supply chain. And that may change over time. But right now, we believe that our supply chain is quite strong, maybe unique in that they have been stepping up and helping us deliver to our customers.

Operator

Our next question comes from the line of Shane Brett of Morgan Stanley.

Shane Brett

On Krish's earlier question on rigid PCB. Would you be able to quantify how much of your E&P tools business comes from rigid PCB application at the moment? Is my assumption as the majority of our lasers are for flex. I'm asking this question because my understanding is that the TAM for rigid is multiples of flex. If we do have the capacity to deliver tools, just how big can this opportunity get for you in '27 and '28.

John Lee

Shane, good question. I think for flex, flex is pretty strong in Q3. But flex has that seasonality to it because of the consumer product cycle. So we expect it to come down in Q4 kind of the low point Q1 and then goes up in Q2, Q3. So we're seeing that. So the guidance for the future rigid drilling is -- or the laser drilling is really rigid. And you're right, the rigid drilling market is multiple times bigger than the flex market.

And so that's a huge opportunity for us. And as you know, we started this business many years ago and have had some success, but not as much as we wanted. And now the market is giving us this opportunity, and we're working extremely hard. You can imagine, to expand our capacity, expand the supply chain for that particular product line as well. So we'll report more on it going forward. And as we said, we expect that to accelerate through 2027.

Shane Brett

That's exciting to hear. And for my follow-up, I was going to ask about semi. If I look to prior cycles, share gains across subsystem players have been more about OEM or customer performance more than anything. But a lot of smaller suppliers haven't been able to keep with the OEMs here and may have difficulty next year, but you guys have executed, adding a lot of inventory in advance. Just beyond your end market exposure, do you think your scale and execution has led to share gains this year and can contribute to outgrowth next year as well, i.e., are your OEMs giving you a lot more responsibility given the performance this year?

John Lee

That's a good question. I would say this, yes, OEMs, our customers are certainly asking everybody, including us, if we can get more, if we can give more and deliver more. And I think in some of those opportunities, they are share gain opportunities. I would say quantifying it is a little difficult, but I would say it's pretty small in '26 because this is just kind of a recent phenomena. And we'll see in '27 if that becomes more material. The only thing we've talked about is laser drilling for sure. But in semi, I think that could be a more interesting number in '27.

I think size does matter now. I think even we, as well as our customers all think about our supply chains and their ability to scale. As I said earlier in the remarks, we never asked the industry to scale by $50 billion in 1 year. So in order to do that, you have to have companies that can actually make those kinds of investments in inventory and factories. And fortunately, MKS has the financial strength to do that, and we are doing that. You saw us taking a lot of inventory very quickly.

You've heard us building the -- talking about building the factories. So I think when you're trying to grow at this kind of scale, $50 billion a year, you have to be big. And so if you're not or not willing to spend on those investments, then I think you'll get left behind for sure.

Operator

Our next question comes from the line of Wells Fargo, Joe Quatrochi.

Joseph Quatrochi

Maybe on the gross margin side, can you quantify just the impact within the guidance that's related to the chemicals equipment mix and capacity investments that you're making? And then historically, you guys have been kind of incremental gross margin at around 50%. But given that chemicals continues to increase in mix, like why should we not think about that being potentially higher?

Ramakumar Mayampurath

Yes, Joe. Let me talk about near term versus longer term. In the near term, it is a mix between investments we need to make and the mix impact from the ramping chemistry equipment sales. And as we have said before, both these will turn to tailwinds. So in the longer term, to your second question, gross margin could be higher than 50% incremental -- on incremental sales, and we'll talk more about that again on the Investor Day.

But in the near term, we have ongoing programs to offset most of that. In 2027, there will be a meaningful impact, especially from accelerating chemistry equipment. Investments step-up happened in Q2, and now will stay at these levels -- there won't be much incremental investments for building manufacturing capabilities into '27. It will stay at these levels through most of '27, but you will see some incremental impact from chemistry equipment accelerating sales. And we have a path to higher gross margin beyond that. And let's -- we'll get to the puts and takes of that again in the Investor Day.

But to your question, in the short term, we will maintain that 50% incremental gross margin on sales. In the longer term, it can be higher than 50%. I'll also say that we are making great progress in our operating margin. Operating margin is well above the 40% we have talked about driving scale. And as that top line continues to grow, we'll drive more scale out of our OpEx.

Joseph Quatrochi

And then you guys announced a $500 million share repo authorization. Historically, MKS hasn't really been a big participant in share repurchase. So maybe can you talk about just the focus of excess cash flow for share repo versus debt reduction?

Ramakumar Mayampurath

Sure. So we welcome that $500 million authorization, the $500 million authorization. This gives us more optionality and flexibility. And as you noted, we are moving to a new phase now. The balance sheet is strong, and that has happened mostly because of the cash flow we are generating and the disciplined approach to managing debt.

So we have stayed focused on that for several quarters now, and we are moving to a phase where our balance sheet is now strong. And the growth we see ahead will further strengthen our cash position. So making investments necessary to support organic growth and managing our debt will remain top priorities, but we'll actively look at opportunistic buyback going forward.

Operator

And our next question comes from Jim Schneider from Goldman Sachs.

James Schneider

I was wondering if you could maybe just comment on the outlook for 2027 for WFE up 35% or so. Do you see -- clearly, you're not supply constrained, but I'm wondering if some of your peers are to a point where you see any problems with the industry actually achieving that from a supply perspective. I guess, so the question is, do you think there's a point in time where your own shipments could get impacted because of supply constraints from others that are also selling into your customers?

John Lee

Jim, it's John. I'll take a crack at that. I think that's logical. I think what you say is logical. I think for our customers to build a whole tool, they need all the parts, right? And if someone else can't deliver a very critical part that we don't make, let's say, that will certainly constrain us for sure. And that's really an industry commentary, right?

I think when -- just as an anecdote, for sure, you know as well as we do, when we came into '26, we thought $135 billion was going to be awesome, right, from $115 billion WFE and then that went to $145 billion and $155 billion and now people are talking about $160 billion.

And so what that says is everybody in the industry, everybody making all the parts was able to come through. So I think we'll see what happens, but certainly increasing another $40 billion or $50 billion will be a challenge. But I think we are certainly going to be ahead of that. And I think many of our peers will try to do the same.

James Schneider

And then maybe on the gross margin side. I know this may be something you cover at the Investor Day in a month or so. But can you maybe kind of comment on your ability to drive any kind of like-for-like pricing resets as we head into the calendar year 2027? And will that actually contribute to some gross margin uplift beyond the factors you already talked about?

John Lee

Yes. I think, as I said, we are continuously looking at getting value pricing for what we deliver. In those discussions, I would just comment, it's an environment where it's a little more conducive to those discussions just because everybody understands constraints, everybody understands that inflation is happening. And everybody understands that those suppliers that can deliver, that's another leg of value beyond the technology, right? So if a supplier can deliver that is very valuable to our customers. And so that gives us another leg up in terms of being able to have those pricing discussions.

Operator

And our last question comes from the line of Michael from Bank of America.

Michael Mani

My first question is just on the competitive landscape, particularly in China, are you seeing any meaningful domestic competitors from China, whether in chemistry equipment or laser drilling systems? I know in some cases, these are probably customers as well, but are you seeing these customers more when you attempt to qualify it with some of your local customers there?

And also on the chemistry side, too, is there any sort of -- has there been any sort of change in the competitive dynamics related to the chemistry consumable landscape within China as well?

John Lee

Yes, Mike, I would say that for chemistry equipment, we provide the industry-leading equipment that enables HDI and MLB processing. And so -- there are always competitors in China and other countries as well. But I would say when you're pushing technology, you kind of need the most advanced tools. So I think our position in chemistry equipment is very strong.

With laser drilling, as we talked about, our market share have been very little, very small in the past. And now while the technology has been qualified, the volume wasn't there until now. And again, this was an industry constraint challenge that we are benefiting from. And we're going to try to take as much share as we can. So that's really more a commentary on the industry rather than a China-specific competitor or a non-China specific competitor.

And then in terms of chemistry, I would say -- the same thing is happening. The chemistry needs to be better. It needs to be more innovation in it. And those competitors are usually in other countries. U.S. competitors, Japanese competitors, et cetera, the highly technological competitors.

Many of our competitors in China in the past have been more on cost, competing on cost. And so as technology evolves, and that's our strategy, right, which is to be in markets where technology continuously evolves. Therefore, we are always concerned about competitors, but really, it's about innovation competitors at this point.

Michael Mani

Great. And I think you mentioned important pulse DC power design win for a pretty significant conductive etch application. Could you talk about more just a share gain on an existing customer or new customer? And how do we think about the content on a dollar per tool basis, maybe relative to something like your standard RF power product?

John Lee

Yes, thanks for the question. So there's an inflection going on in conductor etch using something called pulse DC. And that's an opportunity -- any time technology changes and inflections occur. And we've been using and doing pulse DC in dielectric etch, which has been our strength. And so we usually don't talk about design wins until after we've won. And that's why we're calling this one out. This is where, obviously, there are not a lot of potential customers there. It's a customer of ours for other products.

But this particular application is something we were not in and is displacing the incumbent. And I'm not going to get into dollar terms, but I would say this. We called it out because we believe it will be significant in the future. But hopefully, it's just the beginning of the use of our technology, our pulse DC technology, in the conductive application. So -- and that's probably all I'd add to it, Michael.

Operator

There are no further questions at this time. I will now hand the call back over to John Lee for any closing remarks. Go ahead, please.

John Lee

Yes. Thank you. So thank you all for joining the call. As you can see from our results and Q4 outlook, MKS continues to gain momentum. The strength of our business model is driving profitable growth at scale. The midpoint of our Q4 guidance suggests more than 85% growth in EPS this year. And looking out further, our order growth and future design wins point to new opportunities across our semiconductor and electronics and packaging businesses.

We believe we have a unique position across both markets and this positions us to play a foundational role in enabling Advanced Electronics in the AI era. Our balance sheet and cash generation are strong, and we just announced a new $500 million share repurchase program. Suffice to say, we're excited for the future and look forward to sharing much more with you at our Investor Day in New York City on December 14th. Thanks, everyone, for joining today. Operator, you may now close the call.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.