Qnity Electronics Sees AI, Advanced Packaging Fueling Its Next Growth Phase

Key Points

• AI, advanced packaging and thermal management are Qnity Electronics’ primary growth drivers. The company says its advanced-packaging business could double over the next several years, while thermal-management demand is growing even faster.
• Qnity is expanding clean-room and manufacturing capacity in Delaware and Taiwan to address semiconductor-materials demand, particularly in advanced logic, HBM and DRAM. Node migration toward 2-nanometer and gate-all-around designs is also increasing materials intensity and benefiting its CMP business.
• The company targets margin expansion through higher-value products and a transformation program expected to generate about $100 million in EBITDA benefits over several years. Capital priorities include organic capacity and R&D investment, selective bolt-on acquisitions and share repurchases mainly to offset dilution.

Qnity Electronics NYSE: Q Chief Executive Officer Jon Kemp outlined the semiconductor-materials company’s strategy, growth drivers and capital-allocation priorities during the Deutsche Bank Technology Conference, emphasizing demand tied to artificial intelligence, advanced packaging and thermal management.

Kemp said Qnity, which was spun from DuPont about nine months ago, is positioned as a pure-play provider of materials spanning the semiconductor ecosystem. Its portfolio includes front-end fab materials, advanced-packaging materials, high-value assembly products and AI printed circuit board materials.

“AI is changing the unit of innovation and how things get built,” Kemp said, describing materials innovation as an enabler of new computing designs. He said Qnity operates a “local-for-local” model, with innovation and manufacturing capabilities located in major semiconductor markets including the U.S., Taiwan, Korea, Japan and China.

Standalone Structure and Capacity Investments

Kemp said the separation from DuPont has given Qnity greater strategic flexibility and a faster decision-making process. He cited the company’s acquisition of a five-story building in Taiwan, located less than 100 yards from an existing manufacturing site, as an example. The building included three floors of clean-room capacity and was acquired for $60 million.

According to Kemp, Qnity signed the purchase contract within 10 days, compared with what he said could previously have been a six-month authorization process. He said clean-room capacity has been a major industry constraint.

The company also announced capacity investments in Delaware and Taiwan during the first quarter. The initial Delaware production line is operating and is undergoing customer qualifications, with commercial sales potentially beginning by year-end and commercial volumes expected next year. In Taiwan, equipment installations are expected to be completed by the end of the year, followed by customer qualifications in early 2027 and potential volumes sometime next year.

Kemp said Qnity has expanded its cleans and slurry manufacturing footprint in Taiwan, Korea and China since 2022, while also adding pad capacity in the U.S., Taiwan and Korea.

Advanced Packaging, Thermal Management Drive Growth

Kemp described a shift from semiconductor “shrink” to “shrink and stack,” as chipmakers combine continued node scaling with packaging technologies that bring together GPUs, CPUs, memory and potentially other components. He said advanced packaging is where Qnity’s front-end and back-end materials capabilities converge.

Advanced packaging has been Qnity’s fastest-growing business over the past two years, according to Kemp. He said the company had underestimated the pace of adoption, particularly in data centers, though demand is also extending into premium consumer electronics, automotive and industrial applications.

Rather than provide a new compound annual growth rate forecast, Kemp said Qnity sees an opportunity for its advanced-packaging business to double over the next several years.

The company is also seeing strong demand for thermal-management materials, which Kemp said is currently growing even faster than advanced packaging. Qnity acquired its thermal-management business in 2021 from the former Laird Technologies organization. The portfolio includes thermal solutions at the chip, package and device levels.

Kemp said OEMs and hyperscale data-center operators are increasingly focused on heat management as computing power is packed into smaller spaces. Qnity has launched more than a dozen thermal products over the last two years, he said, including liquids, phase-change materials, gels, putties, greases and pads.

In its interconnect solutions segment, thermal management, advanced packaging and AI PCB products account for about 30% of the portfolio. Those three areas collectively grew more than 50% year over year in the first half, Kemp said.

Semiconductor Demand and Node Migration

On semiconductor demand, Kemp said the strongest utilization levels are in advanced logic and high-bandwidth memory, or HBM, and DRAM. Advanced-logic utilization was in the mid-80% range at the end of the second quarter and could move into the high 80% or low 90% range during the second half, he said. DRAM and HBM utilization was already in the high 80% to low 90% range.

Mainstream logic and NAND utilization were in the low 80% range, Kemp said. He characterized the outlook for mainstream logic as uneven, particularly for companies with greater consumer exposure, but said Qnity expects continued slow and steady improvement in legacy logic utilization and a gradual upward trend in NAND.

Kemp also highlighted the move from FinFET chip designs to gate-all-around architectures at 2-nanometer and sub-2-nanometer nodes. He said a move from a 14-nanometer construction to 2 nanometers can roughly double the number of layers, increasing materials intensity.

Qnity has significant exposure to chemical mechanical planarization, or CMP, which represents more than half of its semiconductor segment, Kemp said. He said third-party research indicates materials intensity can rise by roughly 20% to 30% with each node migration, with Qnity positioned toward the upper end of that range in more CMP-intensive transitions.

Margins, M&A and Leadership

Kemp said Qnity expects margin expansion to be supported by volume growth, a more favorable mix of higher-value products and a transformation program targeting roughly $100 million of EBITDA benefit over the next several years. About half of that benefit is expected to come from productivity initiatives, including automation, AI and machine learning in manufacturing, he said.

The company’s gross margin is currently in the high 40% range, according to Kemp, and he said Qnity sees an opportunity to reach 50% or the low 50% range over time. The company expects some transformation benefits in the second half of this year, with the bulk expected to emerge in the second half of 2027.

Qnity’s first capital-allocation priority is organic investment in capacity and research and development, Kemp said. The company is also interested in smaller bolt-on acquisitions in areas such as advanced packaging, thermal management and equipment-related consumables. It has a $500 million share-repurchase authorization, which Kemp said is currently intended primarily to offset annual dilution, along with a modest dividend.

Kemp also discussed recently announced leadership additions. Kate Dei Cas has joined as president of the semiconductor segment, while Ken Rizvi is scheduled to become chief financial officer on Oct. 1. Kemp said both executives bring more than two decades of semiconductor ecosystem experience.

About Qnity Electronics (NYSE:Q)

Qnity Electronics, Inc NYSE: Q is a global materials and solutions company serving the semiconductor and broader electronics industries. The company develops technologies used in the manufacture of advanced semiconductor devices and electronic components, with a focus on materials that support the performance, reliability and continued miniaturization of electronic products.

Qnity's offerings include semiconductor fabrication materials and process technologies such as dielectric and metallization materials, chemical mechanical planarization products, lithography-related materials, cleaners and other specialty products used throughout semiconductor manufacturing.

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