Semiconductor Outlook
Q: What's your view on semiconductor business into 2025?
A: We see utilization rates improving, especially in HBM DRAM. Logic and foundry remain strong, but NAND is still muted. For 2025, while views have come down, we still expect an up year, with foundry, logic, and DRAM holding up well. NAND strength depends on customer upgrades, but currently, it's still muted.

Gross Margin Outlook
Q: What's causing gross margin to decline sequentially?
A: It's due to mix. We expect higher Electronics and Packaging revenue next quarter, driven by equipment orders related to AI. Equipment has slightly lower gross margin than chemistry, impacting overall margins. For 2025, if volumes increase, we expect a 50% gross margin flow-through. Inflationary costs have come down, potentially providing tailwinds.

Debt Reduction Plans
Q: What's your plan for debt paydown through 2025?
A: Deleveraging remains our top priority. We'll use excess free cash flow to pay down debt and consider repricing if the market allows. Despite muted markets, we prepaid $426 million in 2024. If revenue grows, more free cash flow will be available for deleveraging.

NAND Outlook and Positioning
Q: When do you expect NAND strength to return?
A: NAND remains muted for us. While some customers discuss upgrades, significant capacity increases requiring new RF power haven't materialized yet. We have a leadership position in critical etch for VNAND with our RF power solutions and are confident we'll benefit in the next upcycle.

China Exposure
Q: What's your semiconductor business exposure to China?
A: In October 2022, we had $200 million at risk due to restrictions on direct sales to China OEMs. Those numbers are out of our results now. We sell indirectly through major equipment OEMs, so our exposure aligns with the market, not specific to MKS.

CapEx Plans and Malaysia Expansion
Q: What's the CapEx outlook with the new Malaysia factory?
A: We're expanding capacity by building a new factory in Malaysia for semiconductor and photonics products. This reduces risk in our manufacturing footprint. Typically, our CapEx spend is 3%–5% of revenue; it may edge toward 5% in the next year or two due to these projects.

Growth Initiatives and TAM Expansion
Q: How do your growth initiatives affect your market opportunity?
A: By investing in areas like lithography, metrology, and inspection, we've outgrown WFE by 200 basis points. Despite headwinds like loss of China business, these initiatives allow us to expand our total addressable market. Leveraging our broad portfolio lets us move quickly into new opportunities.

E&P Strength Drivers
Q: What's driving E&P strength despite smartphone weakness?
A: E&P strength is driven by increased bookings for flex equipment used in smartphones and rigid PCB equipment for chemistry related to AI. Both factors contribute to quarter-on-quarter growth.

Balancing Costs and Investments
Q: How will you balance cost control with growth initiatives?
A: We're maintaining cost discipline while ensuring long-term strategic initiatives are well funded. Our focus is on continuing margin progression and cash generation to strengthen our balance sheet. We're investing in opportunities where we see the best potential, including R&D and field service expansion.

Impact of Foundry Consolidation
Q: How would foundry consolidation impact MKS?
A: We're not overly concerned about potential consolidation in the industry. We've operated successfully through consolidation over decades by providing valuable technology and maintaining fair gross margins. We believe the value of our portfolio will continue to support our business.

Photonics Initiatives Progress
Q: Update on photonics initiatives and ramp expectations?
A: We've secured another photonics win with a different customer in lithography, metrology, and inspection. While lead times are longer for these subsystems, we see plenty of long-term opportunities to gain share with our unique technology. We're excited about growth in our world-class optics initiative and market share gains in this segment of WFE.

Automotive Demand and EV Exposure
Q: What's the demand outlook in automotive, especially EV?
A: Automotive demand is muted, but our revenue remains stable. We haven't broken out EV versus ICE revenue, but EVs offer slightly better opportunities for our GMF business due to components like battery metal coatings. Overall, our automotive business is holding up steadily.

Seasonality and Q1 Expectations
Q: Any seasonality to expect in March quarter?
A: The March quarter is usually lower due to consumer product cycles affecting our business, especially MSD Atotech. Equipment orders follow investment cycles, so their impact may differ. It's uncertain how this will play out in Q1.

HBM Laser Wins
Q: Details on your HBM laser win and potential similar wins?
A: We've secured significant wins with lasers used in precision cutting for HBM chip stacking. Precise cuts improve yields, which is increasingly important. It's significant for our laser group and involves multiple customers.