MKS Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: MKS delivered $973 million in Q2 revenue, beating the high end of guidance, driven by strong semiconductor and electronics & packaging performance.
  • Positive Sentiment: Generated $136 million in free cash flow and made $200 million in term-loan prepayments, improving net leverage to four times EBITDA.
  • Positive Sentiment: Electronics & packaging revenue was boosted by AI-related advanced packaging and chemistry wins, with Q3 sales expected to rise sequentially and double digits year-over-year.
  • Negative Sentiment: Tariffs reduced Q2 gross margin by about 115 basis points, and while mitigation actions cut the hit to below 100 basis points in Q3, trade uncertainty remains a headwind.
  • Neutral Sentiment: Q3 guidance calls for $960 million ± $40 million in revenue, 46.5% ± 100 bps gross margin and $1.80 ± $0.29 earnings per share.
AI Generated. May Contain Errors.
Earnings Conference Call
MKS Q2 2025
00:00 / 00:00

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Operator

Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your first speaker today, Hertush Misra, Vice President of Investor Relations. Please go ahead.

Paretosh Misra
Paretosh Misra
VP - Investor Relations at MKS Instruments

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 Membroek, executive vice president and chief financial officer. Yesterday, after market closed, we released our financial results for the 2025, which are posted to our investor website at investor.mks.com. As a reminder, Reuters' remarks about 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, our most recent annual report on Form 10 ks, and our most recent quarterly report on Form 10 Q.

Paretosh Misra
Paretosh Misra
VP - Investor Relations at MKS Instruments

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 Investor Relations section of our website for information regarding our non GAAP financial results and the reconciliations to our GAAP measures. Our investor website also provides a detailed breakout of revenues by end market and division. Now I'll turn the call over to John.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Thanks, Paratosh, and good morning, everyone. MKS delivered excellent results in the second quarter, highlighted by strong revenue performance and solid profitability. We executed well in delivering for our customers in a dynamic environment while continuing to manage our costs. And since our last earnings call, we've made two additional prepayments on our term loan totaling $200,000,000 demonstrating our continued ability to use healthy free cash flow to delever the balance sheet. Second quarter revenue of $973,000,000 was above the high end of our guidance, driven by demand growth in our semiconductor and electronics and packaging end markets.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Net earnings per diluted share of a $1.77 were at the high end of our guidance. Our gross margins, while in line with our guidance, reflect higher cost absorption due to tariffs. However, we held the line well and remain confident in our mitigation strategies. Ron will share more in his remarks. I'll turn now to Q2 performance in our three end markets.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Starting with our semiconductor market. Revenue came in above the high end of our guidance. With customer inventories having largely normalized, we benefited from very strong NAND upgrade activity that drove continued sequential momentum in demand for our RF power solutions, and we saw sequential improvement in our vacuum products business as well. We continue to gain traction with our remote plasma and gas delivery solutions for advanced logic applications. We also continue to execute well in our services business, which is seeing strong growth as our customers increasingly rely on a higher value solutions for reliability and uptime.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Over the past couple of years, we have expanded our value added services capabilities. And this combined with our larger installed base is resulting in higher levels of growth. Services is a stable annuity like revenue stream that delivers margins above our corporate average. In the third quarter, we expect semiconductor revenue to moderate on a sequential basis, mainly due to anticipated lumpiness in NAND upgrade activity. We believe it is still relatively early in the upgrade cycle, but customer indications suggest that the pace of convergence will fluctuate from quarter to quarter.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Our semi outlook represents a mid to high single digits year over year growth rate for the quarter, putting us in a strong position to outperform WFE for the year based on available industry commentary and forecasts. Electronics and packaging revenue was well above the high end of our guidance. The better than expected result was driven by strength in both chemistry and chemistry equipment, which more than offset normalization of flexible PCB drilling equipment shipments following a strong Q1, as we noted on our last earnings call. Our products and technologies play a key role in enabling the manufacturing of increasingly complex devices, and that is validated by the momentum we are seeing in advanced packaging and AI related applications. This includes continued strong orders for our chemistry and chemistry equipment solutions for advanced multilayer boards and high density interconnect boards related to AI applications, as well as several advanced packaging and AI related chemistry design wins. The trends we're seeing demonstrate our unique capabilities and how we collaborate with customers to solve their most complex problems. We expect revenue from our electronics and packaging market to be up on a sequential basis and up double digits on a year over year basis in q three.

John Lee
John Lee
President, CEO & Director at MKS Instruments

This is particularly noteworthy in an environment where many analysts see fairly muted smartphone and PC growth, validating MKS's position in a market where complex electronics applications like AI are driving growth. We believe revenue from our chemistry solutions will increase sequentially, consistent with prior years, and we anticipate continued strength in our chemistry equipment business, where we've already seen four consecutive quarters of strong orders in what has historically been a lumpy business. We view equipment sales as a good leading indicator of future chemistry revenue given our high attach rates. Our specialty industrial market revenue was slightly above the midpoint of our guidance in q two. Within this market, the life and health sciences and research and defense end markets showed modest sequential improvement and industrial remains steady.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Notable orders in this business include dissolved gas delivery systems used in flat panel display manufacturing, highlighting how we are successfully leveraging our R and D for semiconductor and electronics and packaging end markets into other areas of high technology. We also secured multiple design wins for applications in areas including research and defense and life and health sciences. Looking ahead to q three, we expect revenue in our specialty industrial market to be flattish. Overall, we executed well and delivered strong financial results in q two. Our integrated portfolio of power, vacuum, chemistries, and photonics remains well positioned to capitalize on the advanced applications driving growth in our semiconductor and electronics and packaging end markets.

John Lee
John Lee
President, CEO & Director at MKS Instruments

I'd to thank our global teams for their hard work in driving these results in our forward momentum in a dynamic market environment. An important pillar of our success is the culture we have built at MKS, and I'm happy to see the broader recognition we have received. Recently, US News and World Report named us the best company to work for, and Time included us among America's best mid sized companies. With that, let me turn it over to Ram to run through the financial results and third quarter guidance in more detail. Ram?

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

Thank you, John, and good morning, everyone. We delivered strong results in the second quarter driven by healthy demand in our semiconductor and electronics and packaging end markets, continued stability in our specialty industrial end market, and disciplined execution. Second quarter revenue was $973,000,000 up 4% sequentially and up 10% year over year.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

The result was above the high end of our guidance and reflected better than expected trends in key end markets. Second quarter semiconductor revenue was $432,000,000 up 5% sequentially and 17% year over year. This result exceeded the high end of our expectations. Sequential growth was driven by healthier demand in our vacuum solutions business, while year over year growth reflected continued demand in our broad portfolio of technologies enabling deposition and etch applications. Results also benefited from normalization of customer inventories and FX tailwinds.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

Second quarter electronics and packaging revenue was $266,000,000 up 5% sequentially and above the high end of our guidance. This was driven by growth in our chemistry and chemistry equipment business, partially offset by lower demand for flexible PCB drilling equipment, which, as we communicated on our last call, was lower after a strong growth in Q1. We believe a small portion of the sequential improvement in electronics packaging revenue reflects tariff related pull in demand. However, underlying demand trends remain favorable, especially as we gain traction in AI and more complex applications, as John noted. On a year over year basis, sales were up 16% driven by growth in chemistry, chemistry equipment, and flexible PCB drilling equipment sales.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

Chemistry revenue was up 10% year over year, excluding the impact of FX and Palladium pass through, continuing the strong growth trend from last year. Chemistry is a large portion of our consumables and service revenue stream, which adds stability to our business and accounts for roughly 40% of our revenue. In our specialty industrial business, second quarter revenue was $275,000,000 an increase of 2% sequentially and above the high end of our guidance midpoint. Revenue was down 5% on a year over year basis, primarily due to continued softness in the industrial market, partially offset by modest improvement in research and defense. Moving down the P and L, second quarter gross margin was 46.6%, just above the midpoint of our guidance.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

The sequential decline was largely driven by incremental costs related to tariffs. We estimate that incremental tariffs negatively impacted our gross margin by 115 basis points, which was slightly higher than expected, reflecting the volatility in the tariff landscape at the time of our projection in May. While the situation remains dynamic, we have implemented a range of mitigation strategies over the past few months that we anticipate will be effective in limiting the tariff impact moving forward. Second quarter operating expenses were $251,000,000 slightly favorable to our guidance, demonstrating our continued focus on managing our OpEx as we balance investing for growth with driving profitability. Second quarter operating income was $2.00 $2,000,000 with an operating margin of 20.8%.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

This reflects the strong revenue performance and OpEx discipline that I highlighted. Second quarter adjusted EBITDA was $240,000,000 and above the high end of our expectations, with adjusted EBITDA margin of 24.7%. Net interest expenses was $46,000,000 slightly favorable to our guidance. The second quarter effective tax rate was 18.2%, which is consistent with our guidance. Second quarter net earnings were 119,000,000 or $1.77 per diluted share and at the high end of our guidance, reflecting our strong financial performance.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

Free cash flow, a defining strength of our company, was up sequentially and year over year to $136,000,000 representing over 100% of our net earnings and 14% of our revenue. We invested $29,000,000 in capital expenditures in the quarter. We continue to expect full year CapEx to fall within 4% to 5% of our revenue. We closed the quarter with approximately $1,300,000,000 of liquidity comprised of cash and cash equivalents of $674,000,000 and our undrawn revolving credit facility of $675,000,000 We made a voluntary principal prepayment of $100,000,000 in June and another $100,000,000 prepayment earlier this month. We remain focused on executing our long term capital allocation priorities of investing in organic growth opportunities while reducing our leverage through principal prepayment and working with our banking partners to reduce our interest expenses as market opportunities arise.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

We exited the quarter with gross debt of 4,500,000,000.0 and a net leverage ratio of four times, based on our trailing twelve month adjusted EBITDA of $945,000,000 Our net leverage ratio improved slightly from the end of the prior quarter, reflecting our strong free cash flow and higher year over year adjusted EBITDA results. Finally, during the second quarter, we paid a dividend of $0.22 per share or $15,000,000 Let me now turn to our third quarter outlook. The guidance we are providing represents our best estimate based on the dynamic trade environment in which we are operating. We expect revenue of $960,000,000 plus or minus $40,000,000 We believe our technology is integral to our customers' success, and we are designed into many of the advanced applications our product support. By end market, we expect semiconductor revenue to be $4.00 $5,000,000 plus or minus $15,000,000 Revenue from electronics and packaging market is expected to be $285,000,000 plus or minus 10,000,000 and revenue from our specialty industrial market is expected to be $270,000,000 plus or minus $15,000,000 We are guiding gross margin of 46.5% plus or minus 100 basis points.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

Our estimated tariff impact is expected to be below 100 basis points, marking an improvement from Q2. As I noted earlier, we have largely implemented our short term mitigation strategies based on the current trade environment. This environment has remained fluid, but we are committed to optimizing our performance and offsetting these costs. We expect third quarter operating expenses of $252,000,000 plus or minus 5,000,000 and adjusted EBITDA of $232,000,000 plus or minus $24,000,000 We expect a tax rate of approximately 18% in the third quarter. We expect our full year tax rate to be at the lower end of the 18% to 20% range we provided previously.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

The new U. S. Tax bill was passed subsequent to quarter end. We are currently evaluating the impact of this legislation, which is not reflected in our guidance. We expect third quarter net earnings per diluted share of 1.8 plus or minus $0.29 We are pleased with our performance in the first half of the year.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

Despite trade related challenges, our revenue, earnings per share, and free cash flow in the first half of the year are up significantly relative to the prior year. In the second half, we will continue to work on capitalizing on opportunities as we collaborate closely with our customers, maintain a disciplined cost structure, and keep our focus on strong cash generation that will allow us to make the investments necessary to support our long term growth and to continue to lower our leverage. With that, operator, please open the call for Q and A.

Operator

Thank you. At this time, we will conduct a question and answer session. Our first question comes from Krish Sankar from TD Cowen. The floor is yours.

Krish Sankar
Krish Sankar
Managing Director at TD Cowen

Yes. Hi, thanks for taking my question. John, I had a couple of them. Number one is when I look past the September quarter, even if I try to flat line semis in December, it looks like you might probably grow 10% year over year, which is better than WFE. I'm just kind of curious how to think about semi revenue trends beyond September. Are there anything that we need to keep in mind? Kind of like what you mentioned, there's some Q o Q volatility with NAND, etcetera?

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yeah, good morning, Krish. Thanks for the question. I think the way to think about it is that the basic WFE portfolio that we have is growing year over year, and we believe it's growing faster than the market, so that's good. And the way I think about it is that there's a NAND upgrade overlay over that. You saw that result in a really strong Q2, but it can be lumpy. And certainly our customers are going to tell us when they need it. But longer term, of course, the NAND upgrade cycle is great for MKS given our long history in providing high aspect ratio dielectric etch power for dielectric etch. So I think that's the way to think about it.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Krish, kind of the base is pretty strong, growing year over year for us. And then the NAND upgrades can be lumpy and can make a quarter much higher or flatter.

Krish Sankar
Krish Sankar
Managing Director at TD Cowen

Got it. Thanks for that, John. And as a quick follow-up, on the E and P side, I think your PCV business, three months ago, you said they might be a little slightly weaker in June because of pull ins of the tools in March, but then it looks like June came in better. I'm wondering if some of the PCB strength you're seeing has to do with more of downstream smartphone pull ins or how to think about the PCB business going forward?

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yeah, I think we saw a little bit of pull ins. It's hard to tell, but it's pretty minimal, Krish. I think Q2 was just strong because a lot of it was driven by AI, both the equipment and the chemistry. And our guidance in Q3 is higher, and as you know, typically Q3 is higher due to the consumer product cycle that we have in chemistry. And equipment for chemistry remains very strong.

John Lee
John Lee
President, CEO & Director at MKS Instruments

So I think there probably was a little bit of pull in EP. We don't think there was any pull in for semi. But Q3, we're still guiding higher.

Krish Sankar
Krish Sankar
Managing Director at TD Cowen

All right. Thanks a lot, John. Thank you.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Thanks, Krish.

Operator

Thank you for your question. Our next question comes from the line of Steve Barger from KeyBanc Capital Markets. The floor is yours.

Steve Barger
Steve Barger
MD - Equity Research at KeyBanc Capital Markets

Thanks. Good morning. Hey, John, I'm going to stick with the chemistry equipment orders and some of the momentum there. Does it feel like that's the beginning of a sustainable trend? And what are you hearing from substrate manufacturers in terms of capacity utilization and how they're viewing growth, whether it's from traditional products or AI related products?

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yeah, think I'll take the last one first, Steve. The substrate makers, they are seeing high utilization rates, and we're seeing that in our chemistry business. And it's fundamentally driven by AI, so no mystery there really, Steve. I think your question about equipment, traditionally, historically, it's been a pretty lumpy business. We've seen now four straight quarters of sustained relatively high bookings, and then the shipments have followed for chemistry equipment. And we believe most of that is related to demand for AI capacity, not necessarily in packaged substrates, but in HDI and MLB that support that AI need. And so having this really broad portfolio is really helpful for MKS. When E and P goes up, we benefit from that, especially given semi could be a little lumpy.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Also, having the broad portfolio of chemistry and chemistry equipment really helps us deliver solutions faster and more completely to our customers.

Steve Barger
Steve Barger
MD - Equity Research at KeyBanc Capital Markets

Yes. Thanks for that. That's good detail. And I suspect you all have been engaged in strategic planning for next year. And certainly, with things feeling maybe a little bit better than last year, any high level thoughts on where you want to point the company, what your operational priorities are or anything in the portfolio that we should be thinking about?

John Lee
John Lee
President, CEO & Director at MKS Instruments

Well, think some of the areas that we talked about that we're focused on to outgrow in semi, for instance, world class optics power for high aspect ratio etch, both in dielectric and conductor, those remain. And then certainly our efforts in electronics and packaging, giving that a complete solution of chemistry, chemistry equipment, as well as laser equipment. So I don't think those priorities really change. Those have been well thought out long term priorities, And you're starting to see some of that benefit as those markets come back.

Steve Barger
Steve Barger
MD - Equity Research at KeyBanc Capital Markets

Great. Thank you.

Operator

Thanks for your question. Our next question comes from Melissa Weathers from Deutsche Bank. The floor is yours.

Melissa Weathers
Melissa Weathers
Director - Equity Research at Deutsche Bank

Hi there. Thank you for taking my question. I wanted to go back to the NAND piece within the semis business and talk about that lumpiness. I totally understand we're in the early innings on that upgrade cycle, but I also know there was a pretty large inventory overhang in that business. So could we see some inventory replenishment on that side of the business?

Melissa Weathers
Melissa Weathers
Director - Equity Research at Deutsche Bank

Or is it really just that customers are just pulling what they need and nothing more than that, so it should move pretty closely in line with demand?

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yeah, I think I would characterize it as the latter, Melissa, just because inventory has burned, as we have said in the past. Also lead times are much better now in general, getting the chips to make our power supplies normalized lead times. And so given that, then I think it's probably going to be more tied together rather than a buildup of inventory. Of course, during a large ramp, a very large ramp, then of course you could see some buildup of inventory. But right now, it feels like because our lead times are relatively back to normal, we expect that we'd be shipping to demand.

Melissa Weathers
Melissa Weathers
Director - Equity Research at Deutsche Bank

Got it. Thank you. And then on the gross margin outlook, I don't know if this is for John or for Ram, but I know the chemistries piece does typically carry higher gross margins and the E and P business is supposed to grow pretty nicely. So the moving pieces on that gross margin outlook, why wouldn't you see more of an uplift just from that higher chemistries mix in the third quarter?

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

Hi, Melissa. This is Ram. I'll take that. So we did see we do see a seasonality pickup in better chemistry in Q3, and we are seeing the benefit of that from margin. However, we are also seeing higher equipment sales, which as you know comes with a lower gross margin, but we are very happy to have equipment business because it commits to future chemistry orders with high margins.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

So that equipment orders will sort of offset some of the mix advantage we get from chemistry. Tariffs are a bit better, as I noted, in Q3 compared to Q2, but then our volume is slightly lower than Q2. So we are guiding margins relatively at the same levels.

Melissa Weathers
Melissa Weathers
Director - Equity Research at Deutsche Bank

Got it. Thank you.

Operator

Thank you for your question. Our next question comes from Shane Brett from Morgan Stanley. The floor is yours.

Shane Brett
Shane Brett
Equity Research Analyst at Morgan Stanley

Thank you for letting me ask the questions. Firstly, on E and P, if I take your Q3 guide, you're tracking about 20% year over year growth through Q3, which is well ahead of the GDV plus 300 basis points you spoke about at your twenty twenty two Analyst Day. Just given the AI strength that you're seeing maybe in some revenue synergies with AdaTech, have your growth expectations for this business materially changed since the Analyst Day? Thank you.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yes, Shane, thanks for the question. I think it hasn't really changed. We're not updating our five year model yet, but I would say that we are seeing that advantage driven by AI. I think we're seeing unique advantage for MKS, which is that we're providing more complete solutions. So the chemistry revenue, organic chemistry revenue, we believe is also outgrowing some of our competitors quarter on quarter, year over year.

John Lee
John Lee
President, CEO & Director at MKS Instruments

But also in addition to that, we have equipment, in which most of our competitors, if not all, don't have that, and that equipment we're finding is incredibly crucial for our customers to be able to deliver the more complex HDI and MLB processes needed for AI. So we're benefiting from both of those right now, and then, so we're in a great position to hit our long term models.

Shane Brett
Shane Brett
Equity Research Analyst at Morgan Stanley

Got it, thank you. And as for my follow-up, so this might be a bit of a long shot question, but there has been talks that the big GPU customer may move from co ops to co op ops. But just including this inflection, how should sort of this inflection or are there any other inflections that may sort of significantly impact your business for the E and P side going forward? Thank you.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yes, so I think what you're talking about is COWAS moving potentially to COWAP, I guess. I don't know how you say this anymore, but that S used to be substrate, stands for substrate, and the P stands for PCB. So the idea of COWLP is that you remove and you skip the substrate, as I think you know, going right to the PCB, which is the HDI and the MLB. Traditionally, we've had a very strong position in HDI, not only in chemistry but in equipment, as you know, and we're seeing that as well driven by AI. So if the industry were to skip the substrate or some part of the industry were to skip the substrate, we believe that's actually a tailwind for us because of our historic position there and because our tools are uniquely enabling for that HDI layer.

John Lee
John Lee
President, CEO & Director at MKS Instruments

And this goes back to the longer thesis that we have for the acquisition of AdaTech. If that were to happen, the HDI boards would have to become much more sophisticated, smaller lines, smaller features, many more layers, and the whole idea there is in order to do that, you need that, we believe, combination of chemistry knobs and equipment knobs to get there. So the industry is very flexible. They will always look for the most economic solution, and this is certainly an area of interest for some companies.

Shane Brett
Shane Brett
Equity Research Analyst at Morgan Stanley

Got it. Thank you very much.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Thanks, Shane.

Operator

Thank you for your question. Our next question comes from Peter Pan from JPMorgan. The floor is yours.

Peter Peng
Equity Research at JP Morgan Chase & Co

Hey, guys. Thanks for taking my question. Within your semiconductors, can you kind of provide some color on how the lithography and inspection applications are doing? I think last you update us, you guys were in this $300,000,000 revenue run rate. Any color on that?

John Lee
John Lee
President, CEO & Director at MKS Instruments

I would say that we're not immune to cycles in world class optics either from lithography, metrology inspection. So as you know, it's been a little more muted than it has been in the past. I would say this, that the cycles there are a little more muted. So I would say that 300,000,000 range is still intact, and maybe it might be pushed out a little bit in terms of growing from that, but we're really happy with the design wins we continue to participate with our customers. We're designing, as you know, into the most advanced pieces of equipment in that market, And so when the market returns, we'll enjoy that growth.

Peter Peng
Equity Research at JP Morgan Chase & Co

Got it. And then my follow-up is on in your trends and packages, if I look at from an absolute dollar, year over year, you guys have been almost growing, like, 40 to $50,000,000 in terms of absolute year over year. And and you mentioned that, you know, the smartphone and PC market are relatively can I can I kind of correlate that this is all driven by AI applications, this forty, fifty, or is there any other stuff in there that's driving that kind of year over year growth?

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yeah, Peter, I think that's the right way to look at it. We're happy with the year over year growth despite the fact that it's well known that certainly PCs and smartphones are still muted, and we saw that a year ago, and AI was a part of our growth but not as important or not as big as you see it now. So PCs, smartphones remain muted, but we're outgrowing due to the fact that more and more of our business is targeted to AI. And as I mentioned before, we not only have the chemistry, but we have the equipment that's enabling AI.

Peter Peng
Equity Research at JP Morgan Chase & Co

Perfect. Thank you.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Thanks, Peter.

Operator

Thank you for your question. Our next question comes from Joe Kunochi from Wells Fargo. The floor is yours.

Joe Quatrochi
Joe Quatrochi
Director & Equity Research Analyst at Wells Fargo

Hey, thanks for taking the questions. Maybe just to follow-up on that. I guess as I think about the expectations for chemistry growth in 3Q, it sounds like relatively seasonal. So do we assume that to get to seasonal it's because you're seeing outperformance at AI and your kind of traditional applications would be otherwise below seasonal growth?

John Lee
John Lee
President, CEO & Director at MKS Instruments

I think the way to think about it, Joe, is that the seasonal growth is driven by consumer products. So that's kind of a PC smartphone market. And so that really hasn't changed too much. We said a little earlier to an earlier question, it might be a little polar, but we're still seeing an uptick Q3 versus Q2. And then overlaid on top of all that is just the growth in AI.

John Lee
John Lee
President, CEO & Director at MKS Instruments

So the seasonality is still driven by those consumer products, Joe.

Joe Quatrochi
Joe Quatrochi
Director & Equity Research Analyst at Wells Fargo

Okay, but I guess the rate of growth is, I mean, is it better than normal seasonality given that there's added AI applications that are seeing incremental demand?

John Lee
John Lee
President, CEO & Director at MKS Instruments

Well, I think that's true. The base, the foundation is much higher because there's an AI additive to it. So yes, I think that's the way to think about it. And as a reminder, as you know, Joe, because of seasonality Q4 for the consumer product cycle for chemistry is usually one of the lower quarters as well.

Joe Quatrochi
Joe Quatrochi
Director & Equity Research Analyst at Wells Fargo

Yep, that's helpful. And maybe as a follow-up in the semi business, just outside of the NAND lumpiness, I mean, are you seeing customers we've heard customers kind of focusing more on inventory optimization versus buying incremental new components or keeping inventory flat, just given kind of the tariff dynamics and trying to avoid some of those? You seeing that in your business as well?

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yeah, no, I think we saw some peers say that. We haven't really seen any of that, Joe, because our lead times are very low. We believe our customers are buying to need rather than trying to optimize inventory. So we didn't see any of that.

Joe Quatrochi
Joe Quatrochi
Director & Equity Research Analyst at Wells Fargo

Thank you.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Thanks, Joe.

Operator

Thank you for your question. Our next question comes from M. Miller. The floor is yours. The next question comes from Mark Miller. The floor is yours.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

Thank you for your question. Some of the laser firms are reporting that after many sluggish quarters I'm just wondering what you're seeing in your laser segment.

John Lee
John Lee
President, CEO & Director at MKS Instruments

I think our laser segment, we continue to gain some design wins in some of the key markets. I think we talked about HBM dicing in the past, but in general, industrial lasers, that remains relatively muted, Mark. There has really no change from the several quarters before. I think some of it is just customers being a little more cautious, as well as you can see from PMIs around the globe that it's still relatively balanced between growth and contraction. No, we haven't really seen a lot of pickup there for lasers for industrial applications.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

In terms of your key component suppliers, are you seeing any price increases from them due to tariffs?

John Lee
John Lee
President, CEO & Director at MKS Instruments

We partner with our suppliers as well as our customers, especially with tariffs. And so we're trying to find ways that both of us can reduce the impact of tariffs. So no one's trying to make money on this, obviously. So I think it's been a collaborative working relationship with our suppliers, and we haven't really seen any impact of tariffs and price increases from our partners there.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

Thank you.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Thanks, Matt.

Operator

Thank you for the question. Our next question comes from Jim Schneider from Goldman Sachs. The floor is yours.

James Schneider
James Schneider
Analyst at Goldman Sachs

Good morning. Thanks for taking my question. I was wondering if you could maybe focus on the topic of tariffs from a different angle for a moment. First of all, can you talk about whether you bake any relative conservatism into the September guidance based on some of the pull in commentary you had earlier? And secondly, as a result of President Trump's announcement on semiconductor tariffs last night, I'm wondering if you see any kind of competitive advantage for you relative to your competitors as a result of that or kind of any other angle on that you can foresee at this point? Thank you.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Hey, Jim, it's John. I'll take maybe the first one and Ron can add. But the announcement last night was last night, and so it's hard to tell where that will end up. Certainly, strokes, it's complex. It may or may not impact the entire semiconductor ecosystem.

John Lee
John Lee
President, CEO & Director at MKS Instruments

So I would say it's hard for us to tell right now the puts and takes. I would say in general though, with respect to tariffs, as Ram said, we had more of an impact in Q2. We're looking at less of an impact in Q3 as some of our mitigation actions start taking hold. But it is a very dynamic environment, and things can change quickly, as you know, so I think it's a little hard for us to determine if there's any kind of competitive advantage or disadvantage with what was announced last night. I don't know if Ron, if you want to add anything to that.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

Yeah, think you covered it, John, and I'll just add that with regard to the guidance, there are two key variables here. One is the shifting rules itself, and the second is the timing of our mitigation actions kicking in. So when we guide, we guide based on the best information we have at that point in time, based on the rules we know at that point. So I wouldn't say there's any conservatism built into the guide. It's the best information we have at that point.

James Schneider
James Schneider
Analyst at Goldman Sachs

Thank you very much.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Thanks, Jim.

Operator

Thank you for your question. David Lu, the floor is yours. You may go.

David Liu
David Liu
Senior Research Associate at Mizuho Financial Group, Inc.

Hi. Thanks for taking my question. I was wondering if you can provide a little bit more color on on your HDMI MLB for AI applications, maybe to the extent you have visibility whether, you know, you see them going into merchant GPUs, hyperscaler versus neo clouds, custom basics. Yeah. Any color you have there?

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yeah. Dave, I think, you know, in general, it's probably customers trying to get all that business. It's a little difficult for us to tell if it's going to particular parts of the AI food chain, but I think in general, many of our customers need that capacity. Many customers are trying to get into that market in a stronger sense. And so they're building that capacity up, and that's where we're seeing the equipment orders, which have been, as we said, strong over the last several quarters.

John Lee
John Lee
President, CEO & Director at MKS Instruments

So I think it's a little hard for us to tell specifically what that substrate or that HDI MLB is going towards, but I think in general HDI type chips require a lot more layers in HDI, a lot more layers in MLB, and that's why, and that is the application these customers are asking for.

David Liu
David Liu
Senior Research Associate at Mizuho Financial Group, Inc.

Okay, thanks. And then maybe follow-up on OpEx. Are you guys still seeing the $2.52 60 range for fiscal twenty five? And then maybe 2026, where do you guys see you investing in, your business? Thanks.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

Yeah. David, this is Ram. I would I would take I would keep the $2.50 to $2.60 as the range for Q4. We are not guiding beyond Q3, but that's a useful range to model. As you saw in Q2 in our guidance for Q3, we are at the lower end of that rate.

Ramakumar Mayampurath
Ramakumar Mayampurath
EVP & CFO at MKS Instruments

So OpEx is something we take very seriously and try and manage while making the investments needed for the company's long term success. So it's a balance between meeting profitability and investments for long term success. But it's something which we watch very carefully.

David Liu
David Liu
Senior Research Associate at Mizuho Financial Group, Inc.

Thank you.

Operator

Thank you for your question. Our final question comes from the line of Shane Brett from Morgan Stanley. You may go ahead.

Shane Brett
Shane Brett
Equity Research Analyst at Morgan Stanley

Thank you for letting me ask another question. I just have one. So in the June, your specialty industrial business grew quarter over quarter for the first time since June 2023, if I'm correct. I know you're guiding the September down a touch sequentially, are there any positive lead indicators in that business that you would call out? Thank you.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Yeah, Shane, think as you know, our specialty industrial segment is made up of several different markets. And I would say in general, industrials has been muted and remains muted, I would say that. Defense has been a bright spot, grown quite a bit, and life and health sciences remains relatively stable. So lots of puts and takes, but I think those are the ones I would point out.

Shane Brett
Shane Brett
Equity Research Analyst at Morgan Stanley

Got it. Thank you very much.

John Lee
John Lee
President, CEO & Director at MKS Instruments

Thanks, Shane.

Operator

Thank you for your question. This concludes the question and answer portion of our session. I would now like to turn it back to Pratosh Misra, Vice President of Investor Relations for closing remarks. The floor is yours.

Paretosh Misra
Paretosh Misra
VP - Investor Relations at MKS Instruments

Thank you all for joining us today and for your interest in NPS. Jared, you may close the call, please.

Operator

Thank you. And thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Executives
    • Paretosh Misra
      Paretosh Misra
      VP - Investor Relations
    • John Lee
      John Lee
      President, CEO & Director
    • Ramakumar Mayampurath
      Ramakumar Mayampurath
      EVP & CFO
Analysts
    • Krish Sankar
      Managing Director at TD Cowen
    • Steve Barger
      MD - Equity Research at KeyBanc Capital Markets
    • Melissa Weathers
      Director - Equity Research at Deutsche Bank
    • Shane Brett
      Equity Research Analyst at Morgan Stanley
    • Peter Peng
      Equity Research at JP Morgan Chase & Co
    • Joe Quatrochi
      Director & Equity Research Analyst at Wells Fargo
    • Mark Miller
      Equity Research Analyst at The Benchmark Company LLC
    • James Schneider
      Analyst at Goldman Sachs
    • David Liu
      Senior Research Associate at Mizuho Financial Group, Inc.
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