ICHR Q4 2024: Targets 16%+ Gross Margin in 2025, 19–20% by 2026
- Strong gross margin improvement expectations: Executives highlighted a clear path to achieving over 16% gross margins for 2025—with potential improvements toward 19–20% in 2026—driven by the elimination of 2024 headwinds and increased contribution from high-margin proprietary products.
- Robust new product progress: The Q&A emphasized significant advancements in qualifying next-generation gas panels and high-purity valves, which are expected to drive margin expansion and support increasing revenue, making these new products a primary catalyst for growth.
- Sustained demand and operational capacity: Management noted strong, sustained customer demand with increased build rates and the ability to support revenues well below their current capacity, suggesting ample room for revenue growth without immediate capacity constraints.
- Margin Pressure from Cost Headwinds: Executives noted that higher direct labor costs and unexpected inventory charges in Q4 have already pressured gross margins, and if these persist into 2025, they could further compress profitability.
- Risk of Lower Gross Margins Due to Product Mix: There is concern that a heavier revenue mix from gas panels, which traditionally carry lower margins, may mute the overall gross margin improvement despite new product progress.
- Tariff and Export Control Uncertainty: Ambiguous rules and potential tariffs—especially concerning operations related to Mexico—create uncertainty around cost structures that could negatively impact margins.
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Margin Drivers
Q: What drives '25 margins above 16%?
A: Management explained that margin improvement—over 330 basis points—is primarily driven by new product progress and volume growth, while the 2024 headwinds are fading. -
Stabilization Outlook
Q: Caution on rising labor costs?
A: They noted that extra labor costs were incurred to meet stronger demand, with a stabilization expected in Q1 and only a modest second‐half increment. -
Future Gross Margins
Q: What margins for '26 are anticipated?
A: The outlook projects optimal gross margins of approximately 19–20% next year, fueled by increased proprietary content and enhanced efficiencies. -
Legacy Mix Impact
Q: How do legacy gas panels affect margins?
A: While higher volumes in legacy gas panels might slightly mute the margin percentage, operational efficiencies will counterbalance the mix impact. -
Capacity Constraints
Q: What revenue can current infrastructure handle?
A: The facilities can process revenues well above $400 million, with plans to use overtime and modest headcount additions to meet rising demand. -
OEM vs. Corporate Growth
Q: Will ICHR outgrow its OEM customers?
A: Management expressed confidence in outpacing OEM growth marginally, supported by strong demand in depth and etch segments. -
NAND Shipments Cadence
Q: How do NAND shipments compare quarter-over-quarter?
A: NAND shipments saw a healthy uptick in Q4 and are expected to sustain similar levels into Q1 and Q2, indicating steady growth despite a small revenue base. -
European Epi Customer
Q: Will the European epi customer exceed 10% revenue?
A: Management believes that despite healthy growth, the European epi customer will remain below a 10% revenue share while its contribution improves. -
Proprietary Panels Impact
Q: How much margin gain from proprietary panels?
A: Although exact basis points weren’t disclosed, these panels constitute one of the largest contributors to the year‐over‐year margin accretion. -
Gross Margin Clarification
Q: Clarify 16% margin exit versus full year?
A: They confirmed that while the run rate exited above 16%, the full-year expectation remains around 16%, with recovery and improvements to come. -
Gas Panel Deliveries
Q: Were gas panel deliveries on target?
A: Deliveries of next-generation gas panels met expectations at over 50 units in 2024, aligning closely with projections. -
Shipment Qualification
Q: Are gas panels qualifying or commercial?
A: Management treats shipments as commercial once they reach customer tools, even if their qualification phase is ongoing. -
Export Controls/Tariffs
Q: Any impact from export controls or tariffs?
A: With most procurement domestic and tariffs delayed in Mexico, any potential impact has been minimal and factored into current guidance. -
Space Components
Q: Do you process components for space applications?
A: Yes, they supply components for space-bound applications, notably for SpaceX, demonstrating a diverse client base.
Research analysts covering ICHOR HOLDINGS.