MKS Inc. (NASDAQ:MKSI) Q2 2025 Earnings Call Transcript

MKS Inc. (NASDAQ:MKSI) Q2 2025 Earnings Call Transcript August 7, 2025

Operator: Good day, and thank you for standing by. Welcome to the MKS Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Paretosh Misra, Vice President of Investor Relations. Please go ahead.

Paretosh Misra: Good morning, everyone. I’m Paretosh Misra, Vice President of Investor Relations, and I’m joined this morning by John Lee, President and Chief Executive Officer; and Ram Mayampurath, Executive Vice President and Chief Financial Officer. Yesterday, after market close, we released our financial results for the second quarter of 2025, which are posted to our investor website at investor.mks.com. As a reminder, various remarks about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday’s press release, our most recent annual report on 10-K and our most recent quarterly report on Form 10-Q.

These statements represent the company’s expectations only as of today and should not be relied upon as representing the company’s estimates or views as of any date subsequent to today and the company disclaims any obligation to update these statements. During the call, we will be discussing various non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue and gross margin. Please refer to our press release and the presentation materials posted to the Investor Relations section of our website, for information regarding our non-GAAP financial results and reconciliations to our GAAP measures. Our investor website also provides a detailed breakup of revenues by end market and divisions.

Now I’ll turn the call over to John.

John T. C. Lee: Thanks, Paretosh, and good morning, everyone. MKS delivered excellent results in the second quarter, highlighted by strong revenue performance and solid profitability. We executed well in delivering for our customers in a dynamic environment while continuing to manage our costs. And since our last earnings call, we made two additional prepayments on our term loan totaling $200 million, demonstrating our continued ability to use healthy free cash flow to delever the balance sheet. Second quarter revenue of $973 million was above the high end of our guidance, driven by demand growth in our Semiconductor and Electronics & Packaging end markets. Net earnings per diluted share of $1.77 were at the high end of our guidance.

Our gross margins, while in line with our guidance, reflect higher cost absorption due to tariffs. However, we held the line well and remain confident in our mitigation strategies. Ram will share more in his remarks. I’ll turn now to Q2 performance in our 3 end markets. Starting with our semiconductor market. Revenue came in above the high end of our guidance. With customer inventories having largely normalized, we benefited from very strong NAND upgrade activity that drove continued sequential momentum and demand for our RF power solutions, and we saw sequential improvement in our vacuum products business as well. We continue to gain traction with our remote plasma and gas delivery solutions for advanced logic applications. We also continue to execute well in our services business, which is seeing strong growth as our customers increasingly rely on higher-value solutions for reliability and uptime.

Over the past couple of years, we have expanded our value-added services capabilities. And this, combined with our larger installed base, is resulting in higher levels of growth. Services is a stable annuity-like revenue stream that delivers margins above our corporate average. In the third quarter, we expect semiconductor revenue to moderate on a sequential basis, mainly due to anticipated lumpiness in NAND upgrade activity. We believe it is still relatively early in the upgrade cycle, but customer indications suggest that the pace of conversions will fluctuate from quarter- to-quarter. Our semi outlook represents a mid- to high single digits year-over-year growth rate for the quarter, putting us in a strong position to outperform WFE for the year based on available industry commentary and forecasts.

Electronics and packaging revenue was well above the high end of our guidance. The better-than-expected result was driven by strength in both chemistry and chemistry equipment which more than offset normalization of flexible PCB drilling equipment shipments following a strong Q1 as we noted on our last earnings call. Our products and technologies play a key role in enabling the manufacturing of increasingly complex devices, and that is validated by the momentum we are seeing in advanced packaging and AI-related applications. This includes continued strong orders for our chemistry and chemistry equipment solutions for advanced multilayer boards and high-density interconnect boards related to AI applications as well as several advanced packaging and AI-related chemistry design wins.

The trends we’re seeing demonstrate our unique capabilities and how we collaborate with customers to solve their most complex problems. We expect revenue from our Electronics & Packaging market to be up on a sequential basis and up double digits on a year- over-year basis in Q3. This is particularly noteworthy in an environment where many analysts see fairly muted smartphone and PC growth, validating MKS’ position in a market where complex electronics applications like AI are driving growth. We believe revenue from our chemistry solutions will increase sequentially, consistent with prior years, and we anticipate continued strength in our chemistry equipment business, where we’ve already seen 4 consecutive quarters of strong orders in what has historically been a lumpy business.

We view equipment sales is a good leading indicator of future chemistry revenue given our high attach rates. Our specialty industrial market revenue was slightly above the midpoint of our guidance in Q2. Within this market, the life and health sciences and research and defense end markets showed modest sequential improvement and industrial remains steady. Notable orders in this business include dissolved gas delivery systems used in flat panel display manufacturing, highlighting how we are successfully leveraging our R&D for Semiconductor and Electronics & Packaging end markets into other areas of high technology. We also secured multiple design wins for applications in areas including research and defense and life and health sciences. Looking ahead to Q3, we expect revenue in our specialty industrial market to be flattish.

Overall, we executed well and delivered strong financial results in Q2. Our integrated portfolio of power, vacuum, chemistries and photonics remains well positioned to capitalize on the advanced applications driving growth in our semiconductor and electronics and packaging end markets. I’d like to thank our global teams for their hard work in driving these results and our full momentum in a dynamic market environment. An important pillar of our success is the culture we have built at MKS, and I’m happy to see the broader recognition we have received. Recently, U.S. News & World Report named us the Best Company to Work for and TIME included us among America’s Best Midsized Companies. With that, let me turn it over to Ram to run through the financial results and third quarter guidance in more detail.

Ram?

Ramakumar Mayampurath: Thank you, John, and good morning, everyone. We delivered strong results in the second quarter, driven by healthy demand in our semiconductor and electronics and packaging end markets, continued stability in our specialty industrial end market and disciplined execution. Second quarter revenue was $973 million, up 4% sequentially and up 10% year-over-year. The result was above the high end of our guidance and reflected better-than-expected trends in key end markets. Second quarter semiconductor revenue was $432 million, up 5% sequentially and 17% year-over-year. This result exceeded the high end of our expectations. Sequential growth was driven by healthier demand in our Vacuum Solutions business, while year-over-year growth reflected continued demand in our broad portfolio of technologies enabling deposition and etch applications.

Results also benefited from normalization of customer inventories and FX tailwinds. Second quarter Electronics & Packaging revenue was $266 million, up 5% sequentially and above the high end of our guidance. This was driven by growth in our chemistry and chemistry equipment business, partially offset by lower demand for flexible PCB drilling equipment, which, as we communicated on our last call, was lower after a strong growth in Q1. We believe a small portion of the sequential improvement in Electronics & Packaging revenue reflects tariff-related pull-in demand. However, underlying demand trends remained favorable, especially as we gain traction in AI and more complex applications, as John noted. On a year-over-year basis, sales were up 16%, driven by growth in chemistry, chemistry equipment and flexible PCB drilling equipment sales.

Chemistry revenue was up 10% year-over-year, excluding the impact of FX and palladium pass-through, continuing the strong growth trend from last year. Chemistry is a large portion of our consumables and service revenue stream, which adds stability to our business and accounts for roughly 40% of our revenue. In our Specialty Industrial business, second quarter revenue was $275 million, an increase of 2% sequentially and above the high end of our guidance midpoint. Revenue was down 5% on a year-over-year basis, primarily due to continued softness in the industrial market, partially offset by a modest improvement in research and defense. Moving down to P&L. Second quarter gross margin was 46.6%, just above the midpoint of our guidance. The sequential decline was largely driven by incremental costs related to tariffs.

We estimate that incremental tariffs negatively impacted our gross margin by 115 basis points, which was slightly higher than expected, reflecting the volatility in the tariff landscape at the time of our projection in May. While the situation remains dynamic, we have implemented a range of mitigation strategies over the past few months that we anticipate will be effective in limiting the tariff impact going forward. Second quarter operating expenses were $251 million, slightly favorable to our guidance, demonstrating our continued focus on managing our OpEx as we balance investing for growth with driving profitability. Second quarter operating income was $202 million with an operating margin of 20.8%. This reflects the strong revenue performance and OpEx discipline that I highlighted.

Second quarter adjusted EBITDA was $240 million and above the high end of our expectations, with adjusted EBITDA margin of 24.7%. Net interest expenses was $46 million, slightly favorable to our guidance. The second quarter effective tax rate was 18.2%, which is consistent with our guidance. Second quarter net earnings were $119 million or $1.77 per diluted share and at the high end of our guidance, reflecting our strong financial performance. Free cash flow, a defining strength of our company was up sequentially and year-over-year to $136 million, representing over 100% of our net earnings and 14% of our revenue. We invested $29 million in capital expenditures in the quarter. We continue to expect full year CapEx to fall within 4% to 5% of our revenue.

We closed the quarter with approximately $1.3 billion of liquidity comprised of cash and cash equivalents of $674 million and our undrawn revolving credit facility of $675 million. We made a voluntary principal prepayment of $100 million in June and another $100 million prepayment earlier this month. We remain focused on executing our long-term capital allocation priorities of investing in organic growth opportunities while reducing our leverage through principal prepayment and working with our banking partners to reduce our interest expenses as market opportunities arise. We exited the quarter with gross debt of $4.5 billion and a net leverage ratio of 4x based on our trailing 12-month adjusted EBITDA of $945 million. Our net leverage ratio improved slightly from the end of the prior quarter, reflecting our strong free cash flow and higher year-over-year adjusted EBITDA sales.

Finally, during the second quarter, we paid a dividend of $0.22 per share or $15 million. Let me now turn to our third quarter outlook. The guidance we are providing represents our best estimate based on the dynamic trade environment in which we are operating. We expect revenue of $960 million, plus or minus $40 million. We believe our technology is integral to our customers’ success, and we are designed into many of the advanced applications of product support. By end market, we expect semiconductor revenue to be $405 million, plus or minus $15 million. Revenue from Electronics & Packaging market is expected to be $285 million, plus or minus $10 million. And revenue from our Specialty Industrial market is expected to be $270 million, plus or minus $15 million.

We are guiding gross margin of 46.5%, plus or minus 100 basis points. Our estimated tariff impact is expected to be below 100 basis points, marking an improvement from Q2. As I noted earlier, we have largely implemented our short-term mitigation strategies based on the current trade environment. This environment has remained fluid, but we are committed to optimizing our performance and offsetting these costs. We expect third quarter operating expenses of $252 million, plus or minus $5 million and adjusted EBITDA of $232 million, plus or minus $24 million. We expect a tax rate of approximately 18% in the third quarter. We expect our full year tax rate to be at the lower end of the 18% to 20% range we provided previously. The new U.S. tax bill was passed subsequent to quarter end.

We are currently evaluating the impact of this legislation, which is not reflected in our guidance. We expect third quarter net earnings per diluted share of $1.80, plus or minus $0.29. We are pleased with our performance in the first half of the year. Despite trade-related challenges, our revenue, earnings per share and free cash flow in the first half of the year are up significantly relative to the prior year. In the second half, we will continue to work on capitalizing on opportunities as we collaborate closely with our customers, maintain a disciplined cost structure and keep our focus on strong cash generation that will allow us to make the investments necessary to support our long-term growth and to continue to lower our leverage. With that, operator, please open the call for Q&A.

Operator: [Operator Instructions] Our first question comes from Krish Sankar from TD Cowen.

Q&A Session

Krish Sankar: John, I had a couple of them. Number one is, when I look past the September quarter, even if I try to flatline semis in December, it looks like you might probably grow 10% year-over-year, which is better than WFE. I’m just kind of curious how to think about semi revenue trends beyond September? And are there anything that we need to keep in mind kind of like what you mentioned, there is some Q-over-Q volatility with NAND, et cetera.

John T. C. Lee: Krish, thanks for the question. I think the way to think about it is that the basic WFE portfolio that we have is growing year-over-year, and we believe it’s growing faster than the market. So that’s good. And the way I think about it is that there’s a NAND upgrade overlay over that. You saw that result in a really strong Q2, but it can be lumpy. And certainly, our customers are going to tell us when they need it. But longer term, of course, the NAND upgrade cycle is great for MKS given our long history in providing high aspect ratio dielectric etch, power for dielectric etch. So I think that’s the way to think about it, Krish. The base is pretty strong growing year-over-year for us. And then the NAND upgrades can be lumpy and can make the quarter much higher or more flatter.

Krish Sankar: Got it. And then as a quick follow-up. On the E&P side, I think your PCB business, 3 months ago, you said they might be a little slightly weaker in June because of pull-ins of the tools in March, but then it looks like June came in better. I’m wondering if some of the PCB strength you’re seeing has to do with more of downstream smartphone pull-ins or how to think about the PCB business going forward?

John T. C. Lee: Yes. I think we saw a little bit of pull-ins. It’s hard to tell, but it’s pretty minimal, Krish. I think Q2 was just strong because a lot of it was driven by AI, both the equipment and the chemistry. And our guidance in Q3 is higher. And as you know, typically, Q3 is higher due to the consumer product cycle that we have in chemistry. And equipment for chemistry remains very strong. So I think there probably was a little bit of pull in EP. We don’t think there was any pull-in for semi, but Q3 was still guiding higher.

Operator: Our next question comes from the line of Steve Barger from KeyBanc Capital Markets.

Robert Stephen Barger: John, I’m going to stick with the chemistry equipment orders and some of the momentum there. Does it feel like that’s the beginning of a sustainable trend? And what are you hearing from substrate manufacturers in terms of capacity utilization and how they’re viewing growth, whether it’s from traditional products or AI-related products?

John T. C. Lee: Yes, I’ll take the last one first, the substrate makers, they are seeing high utilization rates, and we’re seeing that in our chemistry business. And it’s fundamentally driven by AI. So no mystery there, really, Steve. I think your question on equipment. Traditionally, historically, it’s been a pretty lumpy business. We’ve seen now 4 straight quarters of sustained relatively high bookings and then the shipments that follow for chemistry equipment. And we believe most of that is related to demand for AI capacity, not necessarily package substrates, but in HDI and MLB that support that AI need. And so having this really broad portfolio is really helpful for MKS. When E&P goes up, we benefit from that, especially given semi could be a little lumpy. Also having the broad portfolio of chemistry and chemistry equipment really helps us deliver solutions faster and more completely to our customers.

Robert Stephen Barger: That’s good detail. And I suspect you all have been engaged in strategic planning for next year. And certainly, with things feeling maybe a little bit better than last year, any high-level thoughts on where you want to point the company, what your operational priorities are or anything in the portfolio that we should be thinking about?

John T. C. Lee: Well, I think some of the areas that we talked about that we’re focused on to outgrow in semi, for instance, world-class optics power for high aspect ratio etch, both anti electric and conductor, those remain. And then certainly, our efforts in Electronics & Packaging, giving that a complete solution of chemistry, chemistry equipment, as well as laser equipment. So I don’t think those priorities really change. Those have been well thought out long-term priorities. And you’re starting to see some of that benefit as those markets come back.

Operator: Our next question comes from Melissa Weathers from Deutsche Bank.

Melissa Weathers: I wanted to go back to the NAND piece within the semis business and talk about that lumpiness. I totally understand we’re in the early innings on that upgrade cycle. But I also know there was a pretty large inventory overhang in that business. So like could we see some inventory replenishment on that side of the business? Or is it really just that customers are just pulling what they need and nothing more than that. So it should move pretty closely in line with demand?

John T. C. Lee: Yes. I think I would characterize it as the latter, Melissa, just because inventory has burned as we have said in the past, also lead times are much better now in general, getting the chips to make our power supplies, you have normalized lead times. And so given that, then I think it’s probably going to be more tied together rather than a buildup of inventory. Of course, during a large ramp, very large ramp, then, of course, you could see some buildup of inventory, but right now, it feels like because our lead times are relatively back to normal, we expect that we’d be shipping to demand.

Melissa Weathers: Got it. And then on the gross margin outlook, I don’t know if this is for John or for Ram, but I know the chemistries piece does typically carry higher gross margins, and the E&P business is supposed to grow pretty nicely. So the moving pieces on that gross margin outlook, why wouldn’t you see more of an uplift just from that higher chemistries mix in the third quarter?

Ramakumar Mayampurath: This is Ram. I’ll take that. So we did see — we do see a seasonality pickup in better chemistry in Q3. And we are seeing the benefit of that in the margin. However, we are also seeing higher equipment sales, which, as you know, comes with a lower gross margin, but we are very happy to have equipment business because it commits to future chemistry orders with high margins. So that equipment orders will sort of offset some of the mix advantage we get from chemistry. Tariffs are a bit better, as I noted in Q3 compared to Q2, but then our volume is slightly lower than Q2. So we are guiding margins relatively at the same levels.

Operator: Our next question comes from Shane Brett from Morgan Stanley.

Shane Brett: Firstly, on E&P. If I take your Q3 guide, you’re tracking about 20% year-over-year growth through Q3, which is well ahead of the GDP plus 300 basis points you spoke about at your 2022 Analyst Day. Just given the AI strength that you’re seeing, maybe in some revenue synergies with Atotech, have your growth expectations for this business materially changed since the Analyst Day?

John T. C. Lee: Yes, Shane, thanks for the question. I think it hasn’t really changed. We’re not updating our 5-year model yet. But I would say that we are seeing that advantage driven by AI. I think we’re seeing a unique advantage for MKS, which is that we’re providing a more complete solution. So the chemistry revenue, organic chemistry revenue, we believe, is also outgrowing some of our competitors quarter-on-quarter year-over-year. But also in addition to that, we have equipment and which most of our competitors, if not all, don’t have that. And that equipment, we’re finding is incredibly crucial for our customers to be able to deliver the more complex HDI and MLB processes needed for AI. So we’re benefiting from both of those right now. And then — so we’re in a great position to hit our long-term models.

Shane Brett: Got it. And as for my follow-up, so this might be a bit of a long shot question, but there has been talks that the big GPU customer may move from CoWoS to CoPoS, but just including this inflection, how should sort of this inflection or the any other inflections that may sort of significantly impact your business for the E&P side going forward?

John T. C. Lee: Yes. So I think what you’re talking about is CoWos moving potentially to CoWoP, I guess, I don’t know how we say this anymore, but that S used to be substrate — stands for substrate and the P stands for PCB. So the idea of CoWoP is that you remove and you skip substrates, as I think you know, going right to the PCB, which is the HDI and MLB. Traditionally, our — we have had a very strong position in HDI, not only in chemistry, but in equipment, as you know, and we’re seeing that as well driven by AI. So if the industry were to skip the substrate or some part of the industry were to skip the substrate, we believe that’s actually a tailwind for us because of our historic position there, and because our tools are uniquely enabling for that HDI layer.

And this goes back to the longer thesis that we have for the acquisition of Atotech. If that were to happen, the HDI boards would have to become much more sophisticated, smaller lines, smaller features, many more layers. And the whole idea there is in order to do that, you need that, we believe, combination of chemistry knobs and equipment knobs to get there. So the industry is very flexible. They will always look for the most economic solution. And this is certainly an area of interest for some companies.

Operator: Our next question comes from Peter Peng from JPMorgan.

Kaykin Peng: Within your semiconductors, can you kind of provide some color on how the lithography and inspection applications are doing? I think the last you updated us, you guys were kind of in this $300 million revenue run rate, any color on that?

John T. C. Lee: I would say that we’re not immune to cycles in world-class optics either for lithography metrology inspection. So as you know, it’s been a little more muted than it has been in the past. I would say this, the cycles there are a little more muted. So I would say that $300 million range is still intact. And maybe it might be pushed out a little bit in terms of growing from that. But we’re really happy with the design wins we continue to participate with, with our customers. We designed in, as you know, into the most advanced pieces of equipment in that market. And so when the market returns, we’ll enjoy that growth.

Kaykin Peng: Got it. And then my follow-up on. In your Electronics & Packaging, if I look at from an absolute dollar year-over-year, you guys have been almost growing like $40 million to $50 million in terms of absolute year-over-year. And you mentioned that the smartphone and PC markets are [indiscernible]. Can I kind of correlate that this is all driven by AI applications this $40 million, $50 million? Or is there any other stuff in there that’s driving that kind of year-over-year growth?

John T. C. Lee: Yes, Peter, I think that’s the right way to look at it. We’re happy with the year-over-year growth despite the fact that it’s well known that certainly PCs and smartphones are still muted. And we saw that a year ago, and AI was a part of our growth, but not as important or not as big as you see it now. So PCs, smartphones remain muted, but we’re outgrowing due to the fact that more and more of our business is targeted to AI. And as I mentioned before, we not only have the chemistry, but we have the equipment that’s enabling AI.

Operator: [Operator Instructions] Our next question comes from Joe Quatrochi from Wells Fargo.

Joseph Michael Quatrochi: Maybe just a follow-up on that. I guess as I think about the expectations for chemistry growth in 3Q, it sounds like relatively seasonal. So do we assume that to get to seasonal it’s because you’re seeing outperformance at AI and your kind of traditional applications would be otherwise below seasonal growth?

John T. C. Lee: I think the way to think about it, Joe, is that the seasonal growth is driven by consumer products. So that’s kind of the PC smartphone market. And so that really hasn’t changed too much. We said a little earlier to an earlier question. It might be a little pull in, but we’re still seeing an uptick in Q3 versus Q2. And then overlaid on top of all that is just the growth in AI. So the seasonality is still driven by those consumer products, Joe.

Joseph Michael Quatrochi: But I guess the rate of growth is — I mean, is it better than normal seasonality given that there’s added AI applications that are seeing incremental demand?

John T. C. Lee: Well, I think that’s true. The base, the foundation is much higher because there’s an AI additive to it. So yes, I think that’s the way to think about it. And as a reminder, as you know, Joe, because of seasonality in Q4 for the consumer product cycle for chemistry is usually one of the lower quarters as well.

Joseph Michael Quatrochi: Yes. That’s helpful. And maybe as a follow-up in the semi business, just outside of the NAND lumpiness, I mean, are you seeing customers — we’ve heard customers kind of focusing more on inventory optimization versus buying incremental new components or keeping inventory flat, just given kind of the tariff dynamics and trying to avoid some of those. Are you seeing that in your business as well?

John T. C. Lee: Yes. No, I think we saw some peers say that. We haven’t really seen any of that, Joe, because our lead times are very low, our — we believe our customers are buying to need rather than trying to optimize inventory. So we didn’t see any of that.

Operator: Our next question as from Mark Miller.

Mark S. Miller: Some of the laser firms are reporting that after many sluggish quarters that their business is improving. I’m just wondering what you’re seeing in your laser segment?

John T. C. Lee: Yes. No. I think our laser segment, we continue to gain some design wins in some of the key markets. I think we talked about HBM dicing in the past. But in general, industrial lasers, that remains relatively muted, Mark. It has really no change from the several quarters before. I think some of it is just customers being a little more cautious as well as you can see from the PMIs around the globe that it’s still relatively balanced between growth and contraction. So No, we haven’t really seen a lot of pickup there for lasers for industrial applications.

Mark S. Miller: In terms of your key component suppliers, are you seeing any price increases from them due to tariffs?

John T. C. Lee: We partner with our suppliers as well as with our customers, especially with tariffs. And so we’re trying to find ways that both of us can reduce the impact of tariffs. So no one’s trying to make money on this, obviously. So I think it’s been a collaborative working relationship with our suppliers, and we haven’t really seen any impact of tariffs and price increases from our partners there.

Operator: Our next question comes from Jim Schneider from Goldman Sachs.

James Edward Schneider: I was wondering if you could maybe focus on the topic of tariffs from a different angle for a moment. First of all, can you talk about whether you baked any relative conservatism into the September quarter guidance based on some of the pull-in commentary you had earlier? And secondly, as a result of President Trump’s announcement on semiconductor tariffs last night, I’m wondering if you see any kind of competitive advantage for you relative to your competitors as a result of that or kind of any other angle on that you can foresee at this point?

John T. C. Lee: Jim, it’s John. I’ll take maybe the first one, and Ram can add. But the announcement last night was last night. And so it’s hard to tell where that will end up. Certainly, broad strokes, it’s complex. It may or may not impact the entire semiconductor ecosystem. So I would say it’s hard for us to tell right now the puts and takes. I would say in general, though, with respect to tariffs, as Ram said, we had more of an impact in Q2. We’re looking at less of an impact in Q3 as some of our mitigation actions start taking hold. But it is a very dynamic environment and things can change quickly, as you know. So I think it’s a little hard for us to determine if there’s any kind of competitive advantage or disadvantage with what was announced last night. I don’t know, Ram, if you want to add anything to that?

Ramakumar Mayampurath: Yes. I think you covered it, John. I’ll just add that with regard to the guidance, there are 2 key variables here. One is the shifting rules itself and the second is the timing of our mitigation actions kicking in. So when we guide, we guide based on the best information we have at this point of time based on the rules we know at that point. So I wouldn’t say there’s any conservatism built into the guide, it’s the best information we have at that point.

Operator: [Operator Instructions] David Liu, the floor is yours.

Jing Xiao Liu: I was wondering if you can provide a little bit more color on your HDI, MLB for AI applications, maybe to the extent you have visibility, whether you see them going into [ merchant ] GPUs, hyperscaler versus neocloud, custom ASICs, any color you have there?

John T. C. Lee: I think in general, it’s probably customers trying to get all that business. It’s a little difficult for us to tell if it’s going to particular parts of the AI food chain. But I think, in general, many of our customers need that capacity, many customers are trying to get into that market in a stronger sense. And so they’re building that capacity up, and that’s where we’re seeing the equipment orders, which have been, as we said, strong over the last several quarters. So I think it’s a little hard for us to tell specifically what that substrate or that HDI MLB is going towards, but I think in general, HDI- type chips require a lot more layers in HDI, more layers in MLB and that’s why that is the application these customers are asking for.

Jing Xiao Liu: And then maybe a follow-up on OpEx. Are you guys still seeing the $250 million to $260 million range for fiscal ’25? And then maybe 2026, where do you guys see you’re investing in your business?

Ramakumar Mayampurath: Yes, David, this is Ram. I would keep the $250 million to $260 million as the range for Q4. We are not guiding beyond Q3, but that’s a useful range to model. As you saw in Q2 and our guidance for Q3, we are at the lower end of that rate. So OpEx is something we take very seriously and try and manage while making the investments needed for the company’s long-term success. So it’s a balance between meeting profitability and investments to — for long-term success. But it’s something which we watch very carefully.

Operator: Our final question comes from the line of Shane Brett from Morgan Stanley.

Shane Brett: Let me ask another question. I just have one. So in the June quarter, your Specialty Industrial business grew quarter-over-quarter for the first time since I think June quarter of ’23, if I’m correct. I know you’re guiding the September quarter down a touch sequentially, but are there any positive lead indicators in that business that you would call out?

John T. C. Lee: Yes, Shane, I think as you know, our Specialty Industrial segment is made up of several different markets. And I would say, in general, industrials has been muted and remains muted. I would say that. Defense has been a bright spot, growing quite a bit. And life and health sciences remains relatively stable. So lots of puts and takes, but I think those are the ones I would point out.

Operator: This concludes the question-and-answer portion of our session. I would now like to turn it back to Paretosh Misra, Vice President of Investor Relations for closing remarks. The floor is yours.

Paretosh Misra: Thank you all for joining us today and for your interest in MKS. Gerard, you may close the call, please.

Operator: Thank you, and thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.