Advanced Energy Industries - Earnings Call - Q2 2025

Executive Summary

• Revenue of $441.5M and non-GAAP EPS of $1.50 came in toward the high end and above the high end of guidance, respectively, with data center computing revenue at a quarterly record, +47% QoQ and +94% YoY, driving the upside.
• Versus S&P Global consensus, AEIS delivered a bold beat on non-GAAP EPS ($1.50 vs $1.31*) and revenue ($441.5M vs $421.3M*), while EBITDA, on S&P’s standardized basis, missed ($56.2M actual vs $73.3M*); AEIS’s reported adjusted EBITDA was $74M, highlighting definition differences.
• Q3 2025 guidance: revenue $440M ± $20M, GAAP EPS $0.82 ± $0.25, non-GAAP EPS $1.45 ± $0.25; management also guided gross margin to ~38.5% and exiting 2025 at 39–40% including tariffs, reflecting benefits from the completion of China factory closure.
• Catalysts: hyperscale AI demand, multiple next-gen data center ramps, two new leading-edge semi design wins and low-rate initial production for new plasma power platforms; tariff mitigation and manufacturing consolidation underpin margin trajectory.

What Went Well and What Went Wrong

What Went Well

• Data center computing revenue surged to $141.6M (+47% QoQ, +94% YoY) on ramping hyperscale design wins; CEO: “strong customer demand for our AI data center solutions”.
• Non-GAAP gross margin improved to 38.1%; excluding tariffs, it would have been >39%, indicating structural cost actions are gaining traction.
• I&M backlog grew for the first time since early 2023; distribution sell-in and resales increased QoQ, and channel inventories fell for the fifth straight quarter, supporting gradual recovery.

What Went Wrong

• Semiconductor equipment revenue fell 6% QoQ to $209.5M as customers shifted delivery schedules to mitigate tariffs; management reduced 2025 semi growth outlook to mid-single digits from ~10% prior.
• Tariff costs were higher than initially expected in Q2, creating >100 bps gross margin headwind; exclusion implies stronger underlying margin quality.
• On S&P’s standardized basis, EBITDA missed consensus (actual $56.2M vs $73.3M*), highlighting a definitional gap versus AEIS’s reported adjusted EBITDA of $74M.

Transcript

Speaker 6

Greetings. Welcome to Advanced Energy Industries' second quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll turn the conference over to Edwin Mok, Vice President of Strategic Marketing and Investor Relations. Thank you, Mr. Mok. You may now begin.

Speaker 2

Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy Industries' second quarter 2025 earnings conference call. With me today are Steve Kelley, our President and CEO, and Paul Oldham, our Executive Vice President and CFO. You can find today's earnings press release and presentation on our website at ir.advancedenergy.com. Before we begin, let me remind you that today's call contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially and are not guaranteed for future performance. Information concerning these risks can be found in our SEC filings. All forward-looking statements are based on management's estimates as of today, August 5, 2025, and the company assumes no obligation to update them. Any targets beyond the current quarter presented today should not be interpreted as guidance. On today's call, our financial results are presented on a non-GAAP financial basis unless otherwise specified.

Excluded from our non-GAAP results are stock compensation, amortization, acquisition-related costs, facility infrastructure and other transition costs, restructuring and asset impairment charges, and unrealized foreign exchange gain or loss. Detailed reconciliation between our GAAP and non-GAAP results can be found in today's press release. With that, let me pass the call to our President and CEO, Steve Kelley.

Speaker 3

Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. Second quarter revenue exceeded the high end of our guidance range, driven by strong demand for Advanced Energy Industries' data center power solutions. We also benefited from increased demand in industrial and medical, posting our first sequential growth in that market since 2023. On a year-over-year basis, second quarter revenue grew 21%, our third consecutive quarter of year-over-year growth. Earnings per share also came in at the higher end of guidance. Our business diversification strategy, which is focused on three distinct target markets, is driving more consistent profitability and cash flow. We have been mitigating cycle risk by participating in multiple growth markets, each with its own characteristics. The strategy is playing out nicely this year, with our success in data center compensating for softness in industrial and medical.

Semiconductor has performed well for Advanced Energy Industries, with mid-single-digit growth expected this year after a growth year in 2024. Our improved profitability and cash flow are allowing us to make the technology and capacity investments necessary to fuel long-term profitable growth. These investments give confidence to our customers that Advanced Energy Industries has the technology roadmap and manufacturing expertise necessary to support their long-term success. In data center, our high-efficiency, high-power density products have proven ideal for AI applications. This year, we have won a number of next-generation programs, which are expected to support further growth in 2026. In semiconductor, customer interest in our EVOS, eVerest® RF plasma generator, and NAVEX platforms is very strong. We expect to more than double revenue from these platforms in 2025, as initial wins go into early stages of production.

We believe that these wins will drive revenue growth in 2026 and beyond, as leading-edge fab processes ramp to volume. In industrial and medical, we've invested heavily in new products, a new website, and a robust sales and channel effort. The result is that we have secured a record number of design wins, some of which are turning into revenue this year. Looking forward, we expect that these wins will accelerate our growth in I&M, allowing us to gain market share. In addition, with the closure of our last China factory in June, we are making good progress on our Gross Margin Improvement Program. We continue to expect gross margin to approach 40% exiting 2025. Now, let me provide some comments on tariffs. The tariff environment continues to be very dynamic.

Actions we are taking to mitigate the impact of tariffs include qualifying products in our Mexicali facility under USMCA, leveraging our geographic footprint, and finally, optimizing our supply chain and logistics. We will continue to work with our customers to mitigate costs as the environment evolves. Now, let me provide some color on each of our markets. Second quarter semiconductor revenue was solid. Although revenue was down sequentially, it grew double digits year on year. On the new product front, we had another quarter of robust EVOS and eVerest® RF plasma generator shipments, as some early design wins began the transition to low-volume production. These transitions are important milestones, validating the progress our customers are making with their end customers. During the second quarter, we also secured two new significant etch and deposition wins for leading-edge processes.

Customers valued the capabilities of our new technologies, as well as our ability to quickly tailor solutions to meet their process requirements. In data center computing, revenue jumped nearly 50% sequentially and almost doubled year on year, as we ran hyperscale design wins and captured increased demand. We believe this new level of demand will continue for several quarters to come. In addition, we have already won a number of next-generation designs, which are scheduled to ramp in 2026. Our primary focus in this market continues to be serving our key hyperscale customers with leading-edge solutions. We also see an expanding set of AI-related opportunities at enterprise and other customers, where we could leverage existing technology blocks to quickly deliver solutions. We expect these new opportunities to drive incremental growth in 2026 and beyond. In industrial and medical, second quarter revenue grew sequentially but was down year on year.

I&M total backlog grew this quarter for the first time since the beginning of 2023. In distribution, which accounts for roughly half of our I&M revenue, sell-in and resales increased quarter over quarter. Channel inventories decreased for the fifth quarter in a row. These encouraging data points support our view that AE's I&M revenue will continue to improve from this point forward. On the design win front, we secured wins in medical imaging, robotics, process control, and Millero. Our digital marketing investments are also yielding results. Since launching our new website in late 2023, we have secured over 300 I&M design wins, which originated as website inquiries. Our partnership with key distributors is also expanding our ability to reach a broad set of small and medium-sized I&M customers. Telecom and networking revenue was flat sequentially.

During the quarter, we won a next-generation telecom design that leveraged our leading position in this market. In addition, we see AI driving new opportunities for us in networking. Now for some closing thoughts. We are capturing opportunities in a dynamic market environment, and are delivering upside to our expectations for the year. Following the strong second quarter, we expect to operate around this new higher level of revenue in the second half, resulting in an overall 2025 revenue growth of approximately 17%. In data center, based on higher demand levels and the success of our new products, we now expect to grow revenue over 80% in 2025. Semiconductor revenue is now projected to grow mid-single digits in 2025, with revenue from our next-generation plasma power products expected to double.

In I&M, after an extended correction period, demand is recovering, with a stronger order book driving higher sequential revenue in the second half. Looking beyond the near term, we are very excited about our growth prospects. With a strong customer pull for our new products, we are well positioned to gain share. Our efforts to structurally improve manufacturing costs are yielding tangible results. We remain confident in our ability to achieve our gross margin goals despite added tariff costs. Finally, we continue to actively pursue our acquisition strategy and have a solid pipeline of potential opportunities. Paul will now provide more detailed financial information.

Speaker 0

Thank you, Steve, and good afternoon, everyone. Second quarter revenue of $442 million was just above the high end of our guidance, driven by upside in the data center computing market. Gross margin improved slightly quarter over quarter and was in line with our target despite several headwinds. Operating margin increased 110 basis points sequentially as we grew revenue faster than operating expenses. As a result, we delivered earnings per share of $1.50, up 76% from last year and at the highest level since 2022. During the quarter, we continued to execute our new product strategies, added capacity to meet growing data center demand, completed final production in our China factory, and strengthened our capital structure. Now let's review our financial results in more detail. Second quarter total revenue was $442 million, up 9% sequentially and 21% year over year.

Revenue in the semiconductor market of $210 million was up 11% over last year, but down 6% sequentially. Q2 semiconductor sales declined slightly more than anticipated as we saw customers shift delivery schedules to mitigate the near-term impact of tariffs, partially offset by higher service revenue. Data center computing revenue was $142 million, up 47% quarter over quarter and 94% year over year. During the quarter, we captured upside demand for our new data center power solutions. Industrial and medical revenue of $69 million increased 7% sequentially, but was still 13% below last year. We believe this market has passed the bottom given increased backlog, improved customer inventory, and encouraging data points from our distributors. Telecom and networking revenue was $22 million, flat quarter over quarter as anticipated. Gross margin was 38.1%, up 20 basis points sequentially, despite increased tariff expenses and production ramp costs.

We were able to partially offset these headwinds by taking actions to manage our manufacturing costs on higher volumes. We're encouraged by the progress we're making on gross margin improvement, as excluding the impact of tariffs, gross margin would have been over 39%. Operating expenses were $104 million, up $5 million from last quarter on higher spending on new product activities and annual salary increases. However, OpEx as a percent of revenue declined almost 100 basis points sequentially and 260 basis points year over year, demonstrating the leverage in our model. Operating income for the quarter was $65 million. Depreciation was $10 million, and our adjusted EBITDA was $74 million. Other income increased sequentially to $2 million, primarily due to higher investment income in our deferred compensation plan.

For Q2, our non-GAAP tax rate was 15.3%, below our estimate of 19% on favorable mix of earnings, better visibility for optimizing the impact of the global minimum tax, and favorable discrete items. As a result, second quarter EPS was $1.50 per share, compared to $1.23 in the previous quarter and $0.85 a year ago. Turning now to the balance sheet. Total cash and cash equivalents at the end of the second quarter were $714 million, with net cash of $147 million. Cash decreased $10 million sequentially as we took advantage of market volatility and repurchased $23 million of our common stock at an average price of $83.83 per share. Cash flow from continuing operations was $47 million. Inventory turns were flat sequentially at 2.7 times, but total inventory of $398 million was up 8% sequentially, driven by the strong increase in demand.

This increase was more than offset by higher payables, with DPO at 63 days. Receivables increased about 10%, or $27 million on higher revenue. DSO was flat at 62 days. During the second quarter, we paid $4 million in dividends and invested $28 million in CapEx. The higher capital spending is consistent with our expectation of increased investments over the next several quarters to support growth in the data center market, infrastructure capability, and our factory consolidation strategies. Despite increased working capital and CapEx, free cash flow in Q2 grew 21% sequentially. In addition, during the quarter, we extended the maturity date of our undrawn credit facility of $600 million from September 2026 to May 2030, while maintaining substantially the same favorable terms as our 2019 agreement. Before moving on to guidance, let me provide more color on the impact of tariffs on AE.

The tariff environment continues to be very dynamic, making the overall impact difficult to predict. For Q2, tariff costs were higher than we initially expected. However, we are implementing multiple mitigation strategies with our customers that should help reduce the tariff impact. Combined with other operational actions, we continue to believe that we are on track to achieve our long-term margin and operating goals. Looking forward, the expected impact of tariffs as we understand them today is incorporated in our guidance. Turning now to our guidance. Following our very strong Q2 results, we expect Q3 revenue to be similar to Q2 and for Q4 to grow sequentially. This outlook would translate to approximately 17% growth for the year. We expect Q3 semiconductor revenue to be down slightly versus Q2 based on customer forecasts.

Given first-half results and our updated outlook, we now project semiconductor revenue to grow mid-single digits in 2025. For data center computing, we expect demand to remain at or above Q2 levels in the second half. As a result, we've increased our 2025 annual growth projection for data center from 50% to more than 80%. We believe the industrial and medical market has passed the bottom and expect modest sequential growth in both Q3 and Q4, paced by the impact of tariffs on the broader economy. Telecom and networking revenue should remain in the low $20 million level. As a result, we're forecasting our third quarter revenue to be approximately $440 million, plus or minus $20 million. We expect gross margins in the third quarter to improve to around 38.5%, mainly driven by the initial benefits of the closure of our final China factory.

As we realize the full benefit of the factory closure and improved factory efficiency, we expect gross margins to be between 39% and 40% exiting the year, including the impact of tariffs. We expect operating expenses to be up slightly on higher variable costs, given the stronger full-year performance. Other income should return to the $1 million range. The tax rate is expected to be 17% to 18% on optimization of our model going forward. As a result, we expect Q3 non-GAAP earnings per share to be $1.45, plus or minus $0.25. Before opening up for questions, I want to highlight a few important points. We participate in solid growth markets that can operate on different cycles, which should enable us to deliver more robust and consistent financial results over time.

We believe increasing demand in data center, technology investments in semiconductor, and market recovery in industrial and medical will drive overall revenue growth for Advanced Energy Industries in 2025 and 2026. In addition, we continue to have strong design win momentum driven by our leading-edge products, which we expect to enable us to outgrow our markets. From a profitability perspective, we grew revenue second quarter 21% year over year, but we grew EPS 76%, driven by gross margin expansion of 280 basis points and the overall leverage in our model. This performance demonstrates the opportunity for AE to accelerate earnings growth as we improve margins and increase revenue going forward.

Beyond the benefits of exiting China for manufacturing that will fully kick in by Q4, we believe further production efficiency and new product mix will enable us to continue to achieve our long-term margin and financial goals, despite the higher cost of tariffs. Lastly, with a solid balance sheet and strong cash flow generation, we will continue to look for strategic acquisitions to add scope and leverage our scale. With that, we'll take your questions. Operator?

Speaker 6

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question at this time, you may press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for our first question. The first question is from the line of Krish Sankar with TD Cowen. Please proceed with your questions.

Hi, thanks for taking my question and congrats on the great results. I've registered one question. You kind of mentioned about sustainability of the data center demand. If I flatline your $142 million in Q2 through the rest of the year, obviously you're going to grow over 80%. I'm just kind of curious, how sustainable is this run rate? Historically, data center used to be very lumpy. I understand AI has changed things. Is this more a structural change? Is there any market share gain? How do you think about the sustainability of data center revenues going forward? Thank you.

Speaker 3

Yeah, thanks for the question, Krish. Looking forward, we think these revenues are sustainable into 2026. The reason is the hyperscalers are continuing to invest at a very high rate. We've seen what they spent this year and what they intend to spend next year, and that's supported by the forecast that we're receiving from our customers. Particularly at Advanced Energy Industries, you see a high frequency of change in this market because each of the GPUs that comes out typically on a yearly basis usually requires more power. That means each power solution is probably a little bit more expensive, and you have to work very closely with the customer, which is what we're doing. Our win rate is quite high. We're also seeing some ancillary opportunities appear that complement what we're doing with our large hyperscale customers. We think some of those opportunities may kick in in 2026.

I think probably one of the more important aspects of this business is the willingness to invest, not just in development, but also in factory capacity. We continue to spend to expand our capacity to serve the market.

Thanks a lot, Steve. Appreciate it.

Thank you, Krish.

Speaker 6

Our next question is from the line of Steve Barger with KeyBank. Please proceed with your questions.

Hey, thanks. Good afternoon. Steve, could you talk about content per server or content per rack for an AI data center versus a traditional DC? Are you modeling the business based on where you see that hyperscaler CapEx going, or how do you put together a forecast with demand like this?

Speaker 3

Yes, Steve. The content of an AI data center for us is much higher because the power consumption is much higher. Typically, you're looking at 5 to 10x the power consumption of a non-AI data center. That's all good news for us. The way we model our future revenue is based on customer forecast. We have a select group of customers that we work closely with, and they give us forecasts which are updated every quarter, if not more frequently, quite frankly. We take that as our base level, and then we add in a few other opportunities where we can reuse our technology blocks, which we develop for our large hyperscale customers. That's how we come up with the forecast.

Does that 5 to 10x power consumption translate into 5 to 10x revenue for you? Is that a linear relationship, or how does that scale as the power demand goes up?

Yeah, unfortunately, it doesn't scale on a linear basis. It's definitely higher. I don't have a figure of merit for you, but we noticed that each successive generation ends up costing a bit more and leads to better ASPs for Advanced Energy Industries.

Got it. Just a quick follow-up. You talked about low-volume production for some of the new products on slide five, which is great to see. Do you expect that to turn into a stronger program next year? Are these design wins for your normal customers, or are you finding new customers who are also embracing the technology?

I think what you're referring to are wins in the semiconductor processing area. I think the significance of the fact that we're going into low-rate initial production on some of those wins is it confirms that our customers had been successful at their customers, who are the fab operators. What we see this year is more than doubling of the new product revenue in semiconductor, and that's into the tens of millions range. We see that really catalyzing significant growth starting next year as these new leading-edge processes go to volume, both on the logic part of the equation as well as the memory side.

Thanks very much.

Thank you, Steve.

Speaker 6

The next question is from the line of Joe Utratchi with Wells Fargo. Please proceed with your questions.

Yeah, thanks for taking the question. On the semiconductor business, I think you talked about mid-single-digit growth now for 2025. In the last quarter, you were talking about 10%. I'm wondering if you could help us understand what's changed there or expand upon what's changed there. Then, relative to, I think, one of your customers talking about second half or first half being flattish, it looks like you're going to be down 6%, 7%.

Speaker 3

Yeah, I think we're a little bit optimistic coming out of Q1. We had just come off a very strong quarter. What we've seen is, I think the tariffs are starting to influence some of the ordering behavior from our customers as they eat into their own inventory and they move things around, right, to optimize versus the tariff regimes. The second is, based on what we've heard from our customers and also reading other earnings call transcripts, China seems to be slowing down. I think transit logic in general, across China as well as non-China geographies, is slowing. Finally, there's been a little bit of concern on the DRAM side. The growth seems to have slowed a bit. Looking at our revenue levels that we're generating in 2025 for semiconductor, we're actually quite pleased with the revenue level.

If you take out 2022, which was the COVID recovery year, these are the highest levels we've ever had in semiconductor. We're operating at about $200 million a quarter, which is quite healthy for us.

Got it. As a follow-up on the tariff front, I think you quantified it over 100 basis points of gross margin headwind this quarter. What's the expectation? I can understand, appreciate that the tariffs are moving around quite frequently. What's the expectation embedded within the guidance for that impact this quarter? What's the right revenue level to think about being at 40% now?

Speaker 0

Yeah, thanks for the question, Joe. We're projecting the tariffs level will stay at this level or a little higher as we look into Q3 and probably through Q4. That means that we have some mitigation actions that were kicking in over the course of Q2 that largely offset the increased rates that we've seen announced last week. As we look forward, we think there's further opportunity to mitigate that going forward as we work with our customers on optimizing supply channels and chains and those types of things.

How does this affect?

I think I'll start with, you know, we're close to that $450 million mark as it is today. Certainly at that level, if you excluded tariffs, we're very comfortable that we'd be over 40%. It's probably trending up another $20 million or so on top of that that offsets that roughly 100 basis points of tariff impact.

Thank you.

Speaker 6

Our next question is from the line of Brian Chin with CFOL. Please proceed with your questions. Mr. Chin, you're live for a question. Perhaps your line is on mute.

Hi, can you hear me okay? Sorry about that.

Yep.

Speaker 3

We can hear you.

Great, thanks for the questions. What is the accurate belief that what you've shifted to date in data center is more in support of, you know, "legacy H200, H100 computing racks" where, you know, looking forward, you know, GB200, GB300, there's obviously a multiplier effect in terms of power per rack. Even off of a very strong 2025 revenue in data center, wouldn't that give you a lot of confidence just in terms of directional growth, maybe even magnitude next year?

Yeah. Brian, I don't have specifics as far as where all of our power supplies are going and to what GPUs they are tied to. What I can say is that we have won a number of new designs this year that will ramp to volume next year. We're actually working now on designs that will ramp to volume in 2027. I think we're keeping up. It's basically a very rapid design cycle now where we have to work closely with the customer so that they can hit their design windows based on these new GPUs. It's a very dynamic environment, but we're winning at a very high rate.

Got it. If you were to characterize it, you may not be adding many new customers, but you probably have plans.

Yeah, I think I wouldn't say we're adding many new customers, Brian, but I would say within the customer base that we address, we're adding more and more projects. Our risk is somewhat mitigated by the number of projects we're engaged in. We're also able to reuse a lot of technology from generation to generation, which allows us, you know, to turn these new designs quickly. I think moving forward, we will be able to engage in some ancillary opportunities where we could reuse technology blocks we've developed for other customers. At the end of the day, the limiting factor for many of these customers is going to be engineering bandwidth. We have to make sure we don't overextend ourselves and that we service our main customers to the best of our abilities.

Thank you.

Speaker 6

The next question is from the line of Jim Rashidi with Needham & Company. Please proceed with your questions.

Hi, thanks. Good afternoon. Is there any way to characterize the margin profile of the new design wins in data center relative to some of the legacy data center products you've sold into this market?

Speaker 0

Yeah, I think the best way to think about that, Jim, if you go back two or three years ago, you know, we talked about this market being highly dilutive. If you go back a year or two before that, you could see the numbers from what we acquired Artisan at, which had margins overall in the low 20s. It had that included I&M, which was above our corporate model. It's been historically quite dilutive. As we've talked about over time, we've been able to rationalize the portfolio and our new products are much closer to the corporate average. On balance, we're not at the corporate average at this point, but the dilutive impact is much less. In fact, we've said that as the mix shifts around, we kind of expect that to live within a band of plus or minus 50 basis points.

This quarter, our percentage of data center revenue was up, I think, eight points or something, quite a lot. We were able to basically stay on our margin target. We absorbed, if you will, the kind of the dilutive effect within our model, really without any problems. I think that demonstrates that we're approaching the corporate average there.

That's helpful, Paul. Steve, you talk about these ancillary opportunities looking out to 2026. Is there any way of sizing that? I would think these have been enterprise customers you've been selling to, but this is now being driven by the AI demand. Is that a fair way to characterize it?

Speaker 3

Yeah, that's a good way to characterize it, Jim. There are enterprise customers and some other new customers that have appeared. Generally, we'll entertain those opportunities where we could do so without stretching our engineers too far. We try to reuse as much as possible and execute. We're also installing a lot of new capacity in our factories in the Philippines and Mexico to support these opportunities, not just for our biggest customers, but also some of the smaller ones.

Got it. Thanks. Just one other quick question, maybe you switch over to I&M. Has there been, or is there any impact from the recent design wins in I&M on the growth that you're expecting in the second half, or is that what you're seeing? Is that mainly the market recovery and these design wins are more of a '26 story?

I think it's a bit of both. Obviously, the market's gone through an extended correction period, and we're starting to see stocking orders. We're starting to see orders from customers we haven't seen orders from in quite some time. That's more due to the market. In addition, we're seeing some of these wins that we've recorded over the past, say, two years start to contribute to our revenue growth in the second half of this year. I think you'll see that accelerate next year because we have quite a backlog of design wins. The dynamic is that most customers are working through their inventory, and they're waiting for that inventory to clear before they ramp their new products. We think 2026 is going to be a good year for industrial and medical, and we think we're going to gain share next year into 2027.

Great. Thank you.

Speaker 6

Our next question is from the line of Mark Miller with Benchmark. Please proceed with your question.

I'm just wondering if you can give us some feeling if you're seeing any pull-ins from data center customers or any double ordering, or if inventory levels, if they're overstocking inventory in anticipation of demand.

Speaker 3

Yeah, Mark, we don't see that, quite frankly. In data center, we're certainly being expedited, but that's because the demand continues to increase. In industrial medical, what we see right now is that most customers are still recovering from the supply chain shock associated with the COVID supply chain issues. There's a reluctance to put in place inventory as insurance. I also think there's a lot of uncertainty about the tariffs themselves. I think people are taking a wait-and-see attitude, and they're trying to match their orders to real demand.

We're starting to see some time of depressed pricing. NAND pricing is starting to improve. Any feeling about, you know, in terms of NAND improvements next year, if that would be an opportunity for you?

You know, for us, we're less exposed to NAND than to the other parts of semiconductor. Where we're most excited is for leading-edge logic as well as DRAM because, you know, that's where our products are being evaluated, and that's where they're going to go into production next year. I think we're also participating in NAND, but there's really less activity there as far as capacity additions. There's some upgrade activity going on, but that's not a big area for us at this point in time.

Thank you.

Speaker 6

Thank you. If you'd like to ask a question at this time, you may press star one from your telephone keypad. The next question is from the line of Scott Graham with Seaport Research Partners. Please proceed with your questions.

Hey, good evening, and congratulations on a good quarter. I was hoping that you would, at this point, be able to, with your EVOS, eVerest® RF plasma generator, and NAVEX, maybe be able to quantify a little bit what that's meaning to SEMI. Was that maybe half of the growth year over year in that segment? Is that something you can tell us?

Speaker 0

Yeah, it's a good question, Scott. It's difficult for us to quantify that for a number of reasons competitively. What we said is we expect that number to double from last year, what we call revenue from those three products. Steve just commented that it's in the double-digit millions of revenue this year. We always expected it to be a slow start because of the way these products ramp, and that it would contribute a little bit to growth in the second half. I think separately, we said think in the 1% range or 1% to 2%. We expect that to pick up next year as these products move out of this early production phase and into more of a ramp phase. We're encouraged by the progress we're seeing. In that regard, I think it's following that normal process.

The good news, we continue to have a lot of irons in the fire on a number of applications and a number of customers who are still working through that qualification process.

Got it. Thank you. Industrial and medical, I was hoping that, you know, certainly with 50% of sales through distributors, I assume that they're showing you POS data, and I was hoping you'd be able to share that with us.

Speaker 3

Yeah, what we've shared is that, you know, for five quarters now, our sales into the channel have been less than the sales out of the resale data, right? That's led to a decrease in inventory, and I think an increased willingness from distribution to stock products, particularly new products. I think that the trend is favorable. It's obviously taken some time for the distributors to work down their inventories and also for the end customers to work through their inventories. What we see now is that some end customers have worked through them, others have not. That's why we think the recovery in I&M is going to be gradual. The other issue there in I&M is the tariff impact. A lot of the industrial and medical customers tend to be small or medium-sized, and they're not in a great position to mitigate some of the tariffs.

Got it. Thank you.

Thanks, Matt.

Speaker 6

Thank you. At this time, this will conclude our question and answer session. We'll also conclude today's conference. Ladies and gentlemen, we do thank you for your participation. This concludes today's conference. You may now disconnect your lines and have a wonderful day.