Steve Tusa: Sorry. So you said $700 million of that as to what you can see clearly as being like data center related customers?
Ed Breen: Yes.
Lori Koch: Yes.
Steve Tusa: And how fast did that grow in like the fourth quarter? Or did it grow in the fourth quarter?
Lori Koch: Yeah. So, overall, semi volumes in the fourth quarter were down in the high single-digits as some of the OEMs continue to destock. So that’s one other piece, too, is they could still be producing and they’re producing out of inventory versus buying new materials to add to their inventory. But if you compare our results that have been released year-to-date versus the peers that sell materials in those subsegments they are in line.
Steve Tusa: Okay, great. All right. Thanks a lot for the color. Appreciate it.
Ed Breen: Thanks, Steve.
Lori Koch: You’re welcome.
Operator: Your next question comes from Aleksey Yefremov with KeyBanc Capital Markets. Please go ahead.
Aleksey Yefremov: Thank you. Good morning, everyone. I wanted to come back to water filtration in China. Do you have visibility into the underlying demand? Apparently, you do have destocking, but what data points are you tracking to understand how healthy the actual market is?
Ed Breen: Yes. So, Aleksey, it’s a great question. I would say true demand is down 3% or 4% negative. If you look at our direct customers we sell to over there, they have a little bit of destocking going on at their end, but by and large, when you look at their demand, again, they’re in the 3% to 4%, some of them are 5% down, somewhere right in that range. But if you go to our distributor customers, they were down over 30%. And that’s where we started to see orders come back through January for deliveries kind of in the May, June, July timeframe. And as I mentioned earlier, the water orders in January were up 13%. And a big part of that was the China orders from the distributors. So, the market is definitely down a little bit.
But if we could just get all the destocking to come back, that’s a huge swing for us even if the market for a little bit stays down. So, the inventory in China on water will bottom in that kind of May, June timeframe. And that’s why I think we’re starting to, obviously, then see these orders, at least preliminarily in January, come in kind of for that time period.
Lori Koch: And just from a logistics perspective…
Aleksey Yefremov: Thanks, Ed. And…
Ed Breen: Yeah, go ahead, Lori.
Lori Koch: Yeah. Maybe just real quick, on the logistics perspective, so Ed had mentioned an expected bottoming of the distributor inventory levels in China in the May-June timeframe. We ship from the US to them primarily. So, there’s about a 60-day lag between when they need the material at their facility versus when we ship it, and then we recognize the revenue when we ship it. So, there will be a bit of a favorable impact from our perspective on revenue versus when it arrives at their facilities for use in China.
Aleksey Yefremov: So, what is the sort of two to three year growth rate for the water business? Will it step down you think because China is slower, or this is temporary?
Lori Koch: Yeah, we think it should still be in the mid-single-digit range. So, we think that China is just resolving of some higher inventory levels. If you look back at the volumes before we started to see a downturn globally, I’m going to talk about global volumes, water was up 8% in full year 2022. And then, in the first half, it was up 4% in Q1 and 9% in Q2, and then we started to see the downturn in Q3. So, we think it’s a temporary dislocation. There’s still a lot of confidence and opportunity for outsized growth versus GDP in the water business.
Aleksey Yefremov: Thanks a lot.
Ed Breen: Thanks, Aleksey.
Operator: Your next question comes from Patrick Cunningham with Citi. Please go ahead.
Patrick Cunningham: Hi, good morning. I’m just curious on your expectations for the retained businesses in the corporate segment into the year and given maybe we’re starting to see a challenging auto and EV backdrop into the first half of the year.
Lori Koch: Yeah. So, 2023 was very favorable for the auto industry, kind of up in that high single-digit range, and we would outperform that in the EV space just by about 25% to 30% of our portfolio is now EV. On a full year basis, though, for 2024, we do see it about flat from a volume perspective, in-line with where auto builds are. So, obviously, China is going to slow down a bit in 2024 off of a really strong 2023, especially tail end of 2023. But longer term, we’re still very confident in the EV expansion opportunity and the pace of the EV growth, and we have a really nice position to continue to benefit from that, not only in the corporate retained businesses primarily with adhesives, but also within the W&P portfolio, Nomex. We’ve got a really nice opportunity on the e-motor side of the house with using Nomex as an insulator.
Patrick Cunningham: Got it. Very helpful. And then just on Spectrum, how is it performing relative to expectations? And has it been hit by any residual destocking or deterioration in primary demand?
Lori Koch: Yeah. It’s in-line with our expectations. It’s ramping nicely with the new customer win that we highlighted when we acquired the business, that’s going very well. We’ve actually integrated the business within the company and combined it with our Liveo healthcare business to further take advantage of those commercial synergies that continues to be a nice opportunity for us.
Patrick Cunningham: Okay. Thank you.
Ed Breen: Thanks, Patrick.
Operator: Your next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.
Vincent Andrews: Hi. First, can you just clarify on the full year remarks? When you talk about sales and profit growth in the back half, are you talking 3Q and 4Q? Or maybe not 3Q, but definitely 4Q?
Lori Koch: It starts in 3Q. It’s greater in 4Q from a year-over-year perspective.
Vincent Andrews: Okay. And then, Ed, can I ask you the destocking is what it is and it’s going to be what it’s going to be. But thereafter, in managing these businesses and investing in them and presenting them to the investment community, how do you think about shipments versus demand and making sure that we don’t get into another situation where the supply chain lines up with more products than we’ll ultimately want? Or is that not something that you can really have the visibility on to control and that, too, will just be what it’s going to be?
Ed Breen: Vincent, only twice in my like, I think, 26 years now doing this, has this happened. So, it’s a very rare event. I mean it was obviously — look, you know the semi stores, just they overshot so much on inventory. But a lot of this was COVID-driven, the craziness of the supply chain. It’s just not something that would normally happen. It really is kind of one of those once in opportunities or dislocations let me say it that way. And by the way, interestingly, it goes down rapidly in a short cycle and can go up rapidly. It happened — by the way, the little bit of ’08, ’09 was destocking. It was mostly a true recession where demand was down, but I’d say about a third of that then turned into destocking because of the situation.
And so, it got worse quicker than people were expecting, but that recovered also fairly quick. So, I don’t — I just don’t see something like this happening again. And we are almost, as I said, almost all the short-cycle business so we really saw it across a lot of the portfolio in normal times, you’re just not going to overshoot.
Vincent Andrews: Okay. Thanks very much…
Ed Breen: I mean, semi will overshoot once in a while, but not to the extent of what we saw here the severity of it.
Vincent Andrews: Okay. Thank you again.
Operator: Your next question comes from Frank Mitsch with Fermium Research. Please go ahead.
Frank Mitsch: Yes, hi. Good morning. Ed, you indicated that, obviously, you made a proactive decision to work down your inventories. And you’ve mentioned a couple of times the negative impact of factory absorption in 4Q and in ’23. I was wondering if you could size that for us. And obviously, the expectation is that, that’s not necessarily going to continue in ’24, so that should be a nice tailwind for you?
