MKS Q2 Earnings Call Highlights

Key Points

• MKS reported strong second-quarter results, with revenue of $1.25 billion, up 16% sequentially and 28% year over year, while operating margin reached 25.6% and adjusted EBITDA totaled $358 million. Growth was broad-based across semiconductor, electronics and packaging, and specialty industrial markets.
• AI investment is accelerating demand for MKS’ semiconductor, advanced packaging, chemistry, optics and photonics products. Semiconductor revenue rose 28% year over year, electronics and packaging revenue climbed 44%, and management expects third-quarter revenue to increase to $1.35 billion, including semiconductor growth of more than 50% year over year.
• MKS is expanding capacity to meet sustained demand, including doubling its Guangzhou chemistry-equipment facility and ramping its Malaysia Super Center. The company generated $188 million in free cash flow, held more than $1.6 billion in liquidity, and continued reducing debt with a $100 million term-loan prepayment.

MKS NASDAQ: MKSI reported second-quarter 2026 revenue of $1.25 billion, up 16% sequentially and 28% from a year earlier, as demand increased across semiconductor, electronics and packaging, and specialty industrial markets. Management said revenue and key profitability measures reached the high end of, or exceeded, the company’s guidance ranges.

President and Chief Executive Officer John Lee said investment tied to artificial intelligence is supporting demand across the company’s semiconductor and advanced packaging offerings. “Momentum is continuing to build at MKS,” Lee said, citing broad demand for vacuum, plasma, power, optics, photonics, laser systems, chemistry products and equipment.

The company expects third-quarter revenue of $1.35 billion, plus or minus $40 million. Its outlook includes semiconductor revenue of $630 million, electronics and packaging revenue of $385 million, and specialty industrial revenue of $335 million.

Semiconductor demand accelerates

Second-quarter semiconductor revenue was $554 million, rising 19% sequentially and 28% year over year. The growth rate accelerated from 13% year-over-year growth in the first quarter, driven by demand in DRAM and logic as well as increased NAND upgrade activity.

Lee said demand was broad-based across deposition and etch applications, including RF power used in NAND upgrades, vacuum subsystems, plasma generators and reactive gases used in advanced logic and DRAM applications. The company also cited momentum in optics and photonics products for lithography, metrology and inspection markets.

MKS expects semiconductor revenue to grow more than 50% year over year in the third quarter. Lee said the company has healthy backlog visibility through the second half of the year and continues to secure design wins, including in advanced logic dissolved-gas applications and high-aspect-ratio dielectric etch RF power applications.

Regarding NAND, Lee said upgrades are expected to continue before planned greenfield fabs begin coming online toward the end of 2027 and the beginning of 2028. He noted that new fabs would create broader opportunities for MKS’ semiconductor product portfolio than upgrades, although RF power represents a significant portion of the bill of materials in upgrade projects.

The company’s Malaysia Super Center began ramping during the quarter and has made its first revenue shipments, according to Lee. MKS said it did not require the Malaysia site to meet 2026 demand but is scaling it to support expected demand in 2027 and beyond. When the Penang facility is fully built out, management believes it can support a wafer-fab-equipment market in the range of $200 billion to $250 billion.

AI investment drives packaging equipment and chemistry demand

Electronics and packaging revenue reached $381 million in the second quarter, up 19% from the prior quarter and 44% from a year earlier. The company said chemistry solutions, chemistry equipment and flexible printed-circuit-board drilling equipment all contributed to the improvement.

Chemistry sales rose 21% year over year excluding foreign-exchange effects and palladium pass-through, according to Chief Financial Officer Ram Mayampurath. Lee said AI-related applications now represent about 15% to 20% of MKS’ chemistry revenue, an increase from the company’s prior estimate of 15%.

Management described chemistry equipment demand as the strongest it has experienced, supported by AI server investment and optical-module applications. MKS said its visibility for chemistry equipment extends through 2027, supported in part by longer lead times and customer down payments.

To support that demand, the company is doubling the capacity of its Guangzhou chemistry-equipment factory. The expanded facility is expected to be online in the third quarter of 2027. MKS has also increased production at its Germany factory to bridge demand before the Guangzhou expansion opens, while continuing to find additional capacity at its existing Guangzhou operation.

Lee said chemistry equipment sales are increasingly weighted toward higher-end systems required for AI boards, resulting in higher equipment selling prices. While MKS has previously said chemistry revenue can equal 20% to 40% of equipment sales over time, Lee said the ratio is now expected to be toward the lower end of that range because of the higher equipment prices. He added that equipment installations can take 24 to 30 months before reaching chemistry volume production.

For the third quarter, MKS expects electronics and packaging revenue to increase more than 30% year over year. AI-related investment is expected to be partly offset by seasonal declines in flexible PCB equipment sales following a strong first half. Lee said flex drilling is primarily tied to smartphones, foldables and peripherals, while rigid PCB drilling is seeing increasing activity related to AI and low-Earth-orbit applications.

Profitability, cash flow and balance sheet

Second-quarter gross margin was 47.6%. Mayampurath said the result included about 100 basis points of discrete benefits, primarily tariff and duty refunds. Excluding those items, he said gross margin remained healthy despite less favorable product mix and investments to prepare for higher demand.

Operating income was approximately $320 million, representing a 25.6% operating margin and an improvement of 480 basis points from the prior year. Adjusted EBITDA was $358 million, or 28.6% of revenue. Net earnings were $232 million, or $3.30 per diluted share, up 86% year over year on a per-share basis.

The company generated $188 million in free cash flow, equal to about 15% of revenue, and ended the quarter with more than $1.6 billion in liquidity, including $611 million in cash and cash equivalents and a $1 billion undrawn revolving credit facility.

MKS made a $100 million voluntary prepayment on its term loan after quarter-end. Leverage stood at three times trailing-12-month adjusted EBITDA of $1.1 billion, down one full turn from the year-earlier period. Mayampurath said the company expects capital expenditures and working-capital investment to increase in the second half as it supports growth, while continuing to prioritize debt reduction.

For the third quarter, MKS forecast gross margin of 47%, plus or minus 100 basis points; operating income of $355 million; adjusted EBITDA of $395 million, plus or minus $28 million; and diluted earnings per share of $3.58, plus or minus $0.31.

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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