MKS NASDAQ: MKSI reported first-quarter fiscal 2026 results that came in at the high end or above management’s guidance, supported by stronger demand across its semiconductor and electronics and packaging end markets. On the company’s earnings call, President and CEO John Lee said the year is “off to an outstanding start,” adding that second-quarter guidance reflects expectations for continued momentum “driven by strong bookings across our end markets.”
Q1 results beat guidance as demand improved across end markets
Executive Vice President and CFO Ram Mayampurath said MKS posted first-quarter revenue of $1.08 billion, up 4% sequentially and 15% year-over-year.
By end market, the company reported:
- Semiconductor revenue: $466 million, up 7% sequentially and 13% year-over-year
- Electronics and packaging revenue: $321 million, up 6% sequentially and 27% year-over-year
- Specialty industrial revenue: $291 million, down 2% sequentially and up 8% year-over-year
Mayampurath said first-quarter gross margin was 47%, at the high end of guidance, citing benefits from “higher volume and favorable mix, including higher chemistry revenue,” which he said more than offset the impact of higher palladium prices that are passed through “at 0 margin.”
Operating income was approximately $235 million, for an operating margin of 21.8%. Operating expenses were $271 million, which Mayampurath attributed to higher R&D investment and a seasonal increase in stock-based compensation. Adjusted EBITDA was $277 million, for a margin of 25.7%.
Net earnings were $157 million, or $2.30 per diluted share, above the high end of guidance. The effective tax rate was 20.9%, in line with the company’s outlook.
Semiconductor growth broad-based; Q2 expected to accelerate
Lee said first-quarter semiconductor revenue was “broad-based across products targeted to DRAM, NAND, and foundry logic applications.” He attributed sequential growth to vacuum and power products for deposition and etch, plasma and reactive gas offerings for advanced logic nodes, and photonics products used in lithography, metrology, and inspection.
Lee also highlighted that “power solutions growth reflects increasing NAND equipment upgrades,” tying the trend to AI-driven enterprise storage needs and migration to higher NAND layer counts.
Looking ahead, Lee said the company continues to see strong order activity, “especially in remote plasma and microwave for advanced DRAM applications, dissolved gas for logic applications, and lasers for back-end applications.” He said MKS expects semiconductor revenue in the second quarter to grow high teens sequentially and over 25% year-over-year.
In response to a question from James Ricchiuti of Needham & Company about whether customers are building inventory, Lee said customers have been clear about shipping needs and “their desire to build inventory,” adding, “I assume some of it is to build inventory at this point.” He said supply chain performance has improved and MKS is “starting to accelerate our factory builds because our supply chain is delivering to us.”
Asked by Steve Barger of KeyBanc about upgrade opportunities beyond NAND, Lee said the company is seeing NAND upgrades, but for DRAM and logic/foundry the company’s understanding is that “most of that…is just greenfield,” tied to new tools for advanced nodes.
Electronics and packaging strength led by flex drilling and chemistry
Lee said electronics and packaging revenue exceeded expectations despite seasonality around the Lunar New Year. He pointed to strength in flex PCB drilling systems and continued strong performance in chemistry and chemistry equipment. Excluding FX and palladium passthrough, Lee said chemistry sales increased 22% year-over-year, driven by AI-related advanced PCB manufacturing and high-end smartphones.
Mayampurath echoed those trends, saying the sequential improvement reflected “higher flexible PCB drilling and chemistry sales,” while the year-over-year comparison was driven by healthy growth across chemistry, flexible PCB drilling equipment, and chemistry equipment.
For the second quarter, Lee said the company expects electronics and packaging revenue to grow in the high single digits sequentially and over 30% year-over-year, with strength in both chemistry and chemistry equipment. He added that “laser drilling orders remain very healthy as PCB manufacturing complexity increases,” primarily in flex for smartphones and wearables, and also in rigid PCB laser applications tied to the low Earth orbit (LEO) satellite market.
On the question of whether higher memory pricing is impacting consumer electronics, Lee said MKS’ first-quarter performance and second-quarter guidance indicate the company is “not currently seeing any material impact from higher memory pricing on the consumer electronics end markets.”
Ricchiuti asked about the apparent resilience in laser drilling demand despite broader smartphone unit concerns. Lee said flex drilling demand is being driven by “the advanced smartphone build,” particularly high-end smartphones, while AI is driving broader electronics and packaging demand, including chemistry equipment.
AI-driven PCB complexity and bonding cited as opportunity
Deutsche Bank’s Melissa Weathers asked about packaging trends such as warpage in next-generation AI processors. Lee said AI boards are getting bigger and adding layers, which can contribute to warpage, and noted the industry is working on solutions including “glass cores,” while many customers today are “making them thicker” and improving bonding between layers.
Lee said bonding is “an area of opportunity” for MKS because the company is a market leader in chemistry used to bond layers, adding that bonding is “a big contributor to yield.”
In response to Citi’s Elizabeth (last name not provided in the transcript) on the AI portion of MKS’ chemistry portfolio, Lee said the company previously described AI as about 10% of chemistry revenue on average for last year, rising quarter by quarter, and exiting 2025 “closer to 15%.” He said the company is “expecting that range right now,” around 15%, depending on AI growth and consumer demand.
Cash flow, balance sheet, and Q2 outlook
Mayampurath said MKS ended the quarter with $1.5 billion of liquidity, including $569 million in cash and cash equivalents and an undrawn $1 billion revolving credit facility. Free cash flow was $29 million, which he said is typically seasonally low in the first quarter due to variable compensation payments and was also pressured by higher working capital as demand ramps.
The company continued to deleverage, including a $100 million term loan payment made earlier in the week. Net debt at quarter-end was $3.6 billion, and trailing 12-month adjusted EBITDA was “over $1 billion,” resulting in a net leverage ratio of 3.5x. MKS also raised its dividend by 14% to $0.25 per share, totaling $17 million in the quarter.
For the second quarter, MKS guided to revenue of $1.2 billion ± $40 million, including:
- Semiconductor: $550 million ± $15 million
- Electronics and packaging: $350 million ± $15 million
- Specialty industrial: $300 million ± $10 million
The company expects second-quarter gross margin of 47% ± 100 basis points and operating expenses of $275 million ± $5 million. Adjusted EBITDA is projected at $328 million ± $26 million. MKS guided to second-quarter EPS of $2.90 ± $0.30.
On tariffs, Mayampurath said the company has “neutralized the tariff cost dollar for dollar,” but continues to see about 30 to 40 basis points of gross margin impact from passthrough, which is included in the Q2 guide.
Lee also announced the company plans to host its next Investor Day on December 14 in New York City.
About MKS NASDAQ: MKSI
MKS Instruments, Inc NASDAQ: MKSI designs, manufactures and markets technology solutions that enable advanced processes in a variety of high‐technology and industrial markets. The company's core offerings include vacuum and gas delivery systems, pressure and flow measurement instruments, optical metrology tools, photonics subsystems and critical components for manufacturing processes. These products support the precise control and monitoring needs of semiconductor, industrial manufacturing, life and health sciences, and research applications.
The company's product portfolio features mass flow controllers, pressure transducers, vacuum gauges, gas purity monitors, laser-based metrology systems and photonic devices such as lasers and detectors.
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