Mks Inc Q3 FY2021 Earnings Call

Thank you for joining us, and welcome to the MKS Instruments Third Quarter 2021 Earnings Conference Call. I would now like to introduce your host, David Ryzhik.

Good morning, everyone. I am David Ryzhik, and I’m joined this morning by John Lee, President and Chief Executive Officer; and Seth Bagshaw, Senior Vice President and Chief Financial Officer. Yesterday, after market close, we released our financial results for the third quarter of 2021, which are posted to our website, mksinst.com. As a reminder, various remarks today about future expectations, plans and prospects for MKS comprise forward-looking statements, and actual results may differ materially as a result of various important factors, including those discussed in yesterday’s press release and in the most recent annual report on Form 10-K and any subsequent quarterly reports 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 financial measures. All forward-looking financial measures exclude any contribution from Atotech Limited, the acquisition of which we expect to close by the end of the year. Also, unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue. Please refer to our press release for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Now I’ll turn the call over to John.

Thanks, David. Good morning, everyone. And thank you for joining us today. We delivered strong third quarter results with revenue of $742 million and net earnings per diluted share of $2.79. I’m very pleased with the strong execution of the entire MKS team as we worked tirelessly to address supply chain constraints while remaining focused on technology innovation and design win opportunities with our customers. Sales to our semiconductor market grew 36% year-over-year and 13% sequentially to another record, and was led by broad based strength across our differentiated vacuum and photonics portfolios. We delivered another record quarter in our RF Power solutions business, which benefited from robust demand from leading-edge 3D NAND applications. As memory manufacturers scale 3D NAND to higher layer accounts and greater density, we anticipate a continuing need for higher power and more precise RF generators for high aspect ratio etching. We are the market leader for these solutions and remain well positioned to continue solving these challenges for our customers. In fact, following an outstanding 2020, where we delivered triple-digit growth and significant market share gains, revenue from our RF Power solutions has grown more than 50% year-to-date, translating to another year of meaningful market share gains. We also saw continued momentum in our plasma and reactive gas solutions with strength in our Dissolved Ozone products for wet clean applications. Given the increased need for water efficiency in semiconductor fabrication, we have designed a solution that recycles unused ozonated water. And I’m pleased to say in the third quarter, we installed our first system in a leading-edge semiconductor fab and are seeing growing interest from other customers. Sales of our photonic solutions to the semiconductor market grew notably in the third quarter, partly due to our acquisition of Photon Control early in the quarter, as well as continued growth in our optical solutions for lithography, metrology, and inspection applications. Our high-performance optical assemblies enable our customers to increase throughput while moving to shorter wavelengths and finer features. As we look out into the fourth quarter, demand in our semiconductor market remains strong and we anticipate revenue to remain consistent to slightly up relative to third quarter levels. This does factor in the continued industry-wide supply chain constraints that we are all facing. We continue to make good progress in our advanced markets, which grew 10% year-over-year, but declined 20% sequentially, primarily due to the seasonality in our flex PCB drilling business, which we mentioned in our second quarter call. Design win activity remained strong. We secured picosecond laser design wins for solar and PCB cutting applications and won a meaningful world-class optics design for a defense application. We added another beta customer for our HDI via drilling solution. I’m also very proud to announce that we received the Laser Focus World magazine’s Innovators Award for excellent innovation for our Capstone flex PCB via drilling solution. For the fourth quarter, we expect revenue from our advanced markets to be consistent to slightly up driven by steady demand across our end markets. I also wanted to provide an update on our pending acquisition of Atotech. We are progressing as planned and continue to expect the transaction to close by the end of this year. Our Atotech transaction is all about accelerating the next frontier in miniaturization and complexity for advanced electronics manufacturing. And we are looking forward to combining our highly complementary expertise and capabilities to optimize interconnect. High-performance interconnects are the highways that carry the massive quantities of data between semiconductors, sensors, and other components in advanced electronic devices. We believe that optimizing the interconnect requires a cross collaboration of laser-based processing and advanced chemistry applications to meet rapidly evolving customer requirements. Here is an example of how a high-density interconnect PCB in a mobile device has evolved in a short period of time. Since 2007, the number of vias on an HDI PCB panel has increased more than four times from 250,000 to more than 1 million. This has resulted in a more than 60% decrease in the size of the lines and spaces, as well as the diameters of the vias. These small geometries and greater density have been vital in enabling more functionality in our phones, such as more cameras, microphones, facial recognition, LiDAR, front cameras, 5G antennas, and more. These changes have also made it possible for smartphone makers to build in larger batteries while delivering thinner form factors. Enabling this rapid scaling of PCBs is what we and Atotech do. We believe these trends will only continue over time, and we are excited to harness our combined capabilities to accelerate new designs and roadmaps for our customers. We are also excited about Atotech’s general metal finishing business, which is well positioned for a number of attractive secular trends, such as automobile premiumization, electrification, and lightweighting, as well as the industry transition to Chrome six alternatives. This business also provides plating of new plastics for 5G antennas and chemistry for renewable energy applications, such as solar and wind turbines. Needless to say, we are eager to close a transaction, given our excitement about the opportunities that lie ahead for the combined company. With that, I’d like to turn the call over to Seth.

Thank you, John. I’ll cover our third quarter results and provide additional detail and guidance for the fourth quarter. Sales for the third quarter were $742 million, up 26% year-over-year and down 1% sequentially. While sales were negatively impacted by industry-wide supply chain constraints in the third quarter, our team continued to execute well, responding to our customer needs that allowed us to exceed the midpoint of our guidance. Even with supply chain constraints, sales to the semiconductor market set another record at $488 million, up 36% year-over-year and up 13% sequentially, reflecting broad-based demand from our semiconductor capital equipment customers. In particular, we delivered record revenue from our RF power, pressure, and plasma and reactive gas solutions. We also delivered strong growth in photonics revenue from semiconductor customers. This included continued momentum in our ample solutions business, as well as $15 million in contribution from the acquisition of Photon Control, the market leader in temperature measurement for the semiconductor market. This acquisition represents another seamless extension of our surround-the-chamber portfolio, and integration is already well ahead of schedule. MKS’s broad vacuum and photonics portfolio allows us to address the widest array of critical semiconductor manufacturing steps, spanning deposition, etch, wet clean, lithography, metrology, and inspection, which we believe is unique to the industry. Sales to advanced markets grew 10% year-over-year to $254 million in the third quarter and declined 20% sequentially, primarily due to seasonality of demand for flexible PCB via drilling solutions, which we discussed at our second quarter earnings call. Additionally, sales of industrial applications softened in the third quarter due to supply chain constraints impacting our vacuum portfolio. However, demand trends in these applications also remain healthy. For example, in synthetic diamond manufacturing, we’ve seen growing demand for our microwave pressure inflow products that are critical to the chemical vapor deposition process used in the manufacture of synthetic diamonds. For the third quarter, the revenue split between our semiconductor and advanced markets was 66% and 34%, respectively. The third quarter gross margin was 47%, a decrease of 40 basis points sequentially due to marginally higher input costs but up 190 basis points year-over-year. Third quarter operating expenses were $148 million, up less than $1 million sequentially, in line with our expectations for the quarter. The third-quarter operating margin was over 27%, a decrease of 60 basis points sequentially but up 400 basis points year-over-year, reflecting strong operating leverage in our financial model. Adjusted EBITDA for the third quarter was $222 million, resulting in an adjusted EBITDA margin of 30%. The net interest expense for the third quarter was $6 million and the non-GAAP tax rate was approximately 20%, reflecting the geographical mix of our taxable income. Net earnings for the third quarter were $155 million, or $2.79 per diluted share. In terms of working capital, day sales outstanding were 54 days at the end of the third quarter, appearing to be 52 days at the end of the second quarter. The inventory turns were 2.9 times in the third quarter, compared to 3 times in the second quarter. We remained focused on improving our cash conversion cycle. In the third quarter, operating cash flow was $153 million and free cash flow was $133 million. We had increased our dividend in the second quarter by 10%, and made a dividend payment in the third quarter of $12 million or $0.22 per share. Exiting the third quarter, we maintained a strong balance sheet and liquidity position with cash and short-term investments of $880 million. Our term loan principal balance was $827 million at the end of the third quarter. We exited the quarter with a $53 million net cash balance, which included a net payment for the Photon Control acquisition of $268 million. As John mentioned, our pending acquisition of Atotech is proceeding as planned. Integration planning activities are progressing very well. We’re also pleased to announce that we successfully syndicated our debt financing on October 22. Our term loan financing was 2 times oversubscribed, comprised of two tranches: a U.S. $4.7 billion loan at 225 basis points over LIBOR with a 50 basis point floor and a euro tranche of €500 million at 275 basis points above EURIBOR with a zero basis point floor. Both tranches were priced at 99.75. The funding of the financing will coincide with the close of the acquisition of Atotech, subject to customary ticking fees. We believe this overwhelmingly strong interest from the lender community is a testament to the strategic rationale of the acquisition as well as our strong combined financial model and our track record of successful acquisition integrations and deleveraging. We look forward to closing the acquisition and are excited to welcome the talented Atotech team to MKS. I’ll now turn to our fourth quarter outlook, which excludes any contribution from Atotech. We estimate fourth quarter revenue of $760 million plus or minus $30 million. This forecast includes the headwinds of industry-wide supply chain constraints, which we expect to persist through the fourth quarter. However, overall business levels are expected to remain strong. Based on anticipated product mix, revenue levels, and elevated input costs, we estimate fourth quarter gross margin of 46% plus or minus 1 percentage point and operating expenses of $151 million plus or minus $4 million. For the fourth quarter, net interest expense is expected to be approximately $6 million and our tax rate is expected to be 18%. Given these assumptions, we expect fourth quarter net earnings of $2.85 per diluted share plus or minus $0.26. I’d like to now turn the call back to the operator for Q&A.

Thank you. Our first question comes from Jim Ricchuiti of Needham. Your line is open.

Hi, good morning. A couple of questions on the Advanced Markets business. I’m wondering if you can give us any sense as to how you see the equipment portion of that business in the current quarter. Is there any kind of disruption as it relates to some of the supply chain issues that we’re seeing throughout the consumer electronics market?

Hey, Jim. Thanks for the questions. This is John. Yes, I think when we look at the Advanced Markets and the contributions from the various divisions, the expectations for light motion and equipment solutions were consistent with what we expected. The supply chain constraints manifested mostly in the V&A side of the business. As you know, we have supply chain constraints on the V&A side, and we’ve talked about the semi equipment side of it, but obviously those constraints also affect the portion of the Advanced Market business for V&A as well.

And John, are you satisfied with the progress that you’re seeing in HDI or did you add another customer there? I’m just wondering, the existing customers that you’re working with. Are you seeing the kind of scale-up that you anticipated? Or is this just because it’s a new product and it’s taken longer to scale it?

Yes. We’re really happy with the customers that we’ve previously announced that have placed volume orders. So, those tools have been running in production 24/7 for the past six to eight months, and those tools have been performing well. We also have these other design wins with other large volume PCBA manufacturers. When they ramp, we certainly expect that the orders will pick up. The interest in testing our tool remains very high. So, we continue to do demos for various customers. Our goal is to make sure that we continue to get these data sites, get the design wins, and then when they ramp, we should see the volumes pick up.

Got it. I’ll jump back in the queue. Thank you.

Thank you. Our next question comes from Patrick Ho of Stifel. Your line is open.

Thank you very much, and congrats on a really nice quarter given the circumstances. John, maybe following up supply constraint issues as you mentioned continue to persist, but you guys did a really good job in both the September and the December quarter outlook on the semiconductor side of things. Can you just qualitatively provide a little more detail? Are they the same components, the same issues that you experienced in the September quarter or are things changing kind of on a dynamic basis, where one thing may be resolved and something else pops up? Can you just give a little bit of color on the issues you’re dealing with?

Thanks for the question, Patrick. It’s like the latter. So when a particular part becomes constrained, we solve that issue and then another one pops up. And so this has been true for the last couple of quarters. These supply chain constraints are still largely about electronic components, but not the same electronic components. So as we solve each one, then a new one pops up. I’d say the difference in this particular cycle with supply chain constraints is that we’re partnering with our customers much more closely. It’s been great to see. So, we are working with them to resolve supply chain constraints and working with them to design substitute components. That’s actually been a silver lining in the supply chain constraint issues: this stronger relationship with our partners and customers.

Great. And as my follow-up question, it looks like you continue to gain here on the RF Power side of things you talked about, the 3D NAND applications. High aspect ratio is something that’s also becoming a bigger application in DRAM. Do you see, I guess, progress and gains continuing on the RF Power front, particularly as DRAM has more and more of these high aspect ratio applications as well?

Yes, Patrick. We’re really excited about the industry trend towards vertical structures in general that started with even earlier than 3D NAND. 3D NAND certainly accelerated that. We think that as you pointed out, DRAM has become very vertical as well. And of course, when 3D DRAM becomes a reality, that’s going to continue that trend towards verticality in the semiconductor industry, and the experience that we’ve had over the last six or seven years in developing our power solutions for that puts us in a pole position to offer those solutions and develop new solutions as these new challenges come up.

Great. Thank you.

Thanks, Patrick.

Thank you. Our next question comes from Krish Sankar of Cowen & Company. Please go ahead.

Hi, thanks for taking my question. I had two of them too. John, I remember you said last quarter, September revenues would have been $750 million without supply constraints, and I was zooming for that got pushed into December. So if I look at it without supply constraint, it looks like September to December quarter, the revenues are flat. Am I thinking about it right? Or is there something else going on? And then I have a follow-up.

No. I mean, in our semiconductor business, it’s certainly going up quarter-to-quarter. The supply constraints, we certainly wanted to highlight that. If you think about our Q2 to Q3 decrease in revenue, remember that E&S was due to its natural cyclicality going to go down about $50 million. So, we actually did better than that with the rest of the business. When you take that out, we’re actually up quarter-over-quarter. And then, Q4 is also the cyclical downturn for E&S. So our guidance for Q4 is actually also up quarter-over-quarter relative to Q3.

Got it, got it. That’s super helpful. And I just had a follow-up. I think Seth kind of mentioned about the higher input costs impacting gross margins. It looks like everyone in the supply chain is increasing prices, and I understand it’s hard for you to increase prices at your semi customers, maybe they pay for shipping, but not for product pricing increases. But are you doing any price increase on the advanced market side where you have a longer tail of customers?

Yes. Krish, this is Seth, I’ll take that question. Yes, we have higher input costs in Q3 and obviously through Q4, and we don’t have a view that it will kind of abate. But you might recall, we have a pretty unique process MKS called a profit and cash recovery team. So we’ve had that in place for probably six, seven years. What I would kind of say is we meet on a monthly basis at the executive level and the next couple levels down the organization, it’s really global initiatives. That’s designed to drive profitability improvements. There’s many levers there. We try to drive down product development costs and higher margins, as well as low-cost country migration. There’s always some level of pricing ability in that mix as well. That’s an ongoing cadence. We meet again on a monthly basis. We do offset inflation every year, simple inflationary pressure. We also create opportunities to invest in other areas of the business. I would say, not to get into details about pricing dynamics, but that is part of that overall equation. It’s an embedded process we’ve had for a number of years that has been very successful, and that’s very much robust today.

Got it. Thanks, Seth.

Yes. You’re welcome.

Thank you. Our next question comes from Paretosh Misra of Berenberg. Your line is open.

Thanks, guys. Good morning. So regarding Atotech, can you talk about the cyclicality in the PCB business? Does that industry need more capacities similar to what we are seeing in the semi business or how supply versus demand?

Hey, Paretosh. There are different aspects to the PCB industry. So in terms of high density interconnects, it’s less cyclical because that covers many, many types of end devices. In terms of flexible PCBs, that’s a little more cyclical because the adoption today is strongly influenced by smartphones and those advanced devices. That’s also spreading across different types of advanced devices as well. So if that’s a proxy for the electronics division of Atotech, there’s certainly less cyclicality than the semi equipment type of business. But it’s also growing very fast because the growth of semiconductors as well.

Got it. And then looking further ahead, what sort of opportunities do you think exist for Atotech to increase their content per device? Because I would think that as devices get smaller, they’re probably likely to use more of these chemistries and materials per device.

Yes. No, we are excited about once we close the kinds of opportunities for us to work together with Atotech with our laser drilling group to provide solutions to our customers faster. We think there’s a great amount of opportunity there to increase share for both the Atotech side and the MKS side. We’ve talked about that in the past. As features get smaller, it requires the ability to deliver advanced processes, and that requires investments in R&D. As you know, Atotech invests more in R&D than any of their competitors. It’s also part of the MKS DNA; we like industries that continually evolve and require more difficult challenges and require investments in R&D. That’s really a formula for success for MKS and also a formula for success for Atotech.

Great. Thanks, John.

Thanks.

Thank you. Our next question comes from Tom Diffely of D.A. Davidson. Your question please.

Yes, good morning. Thank you. John, I was wondering, another Atotech question. Have you been able to collaborate with them over the last couple of quarters, any kind of joint development work going on ahead of the potential close?

Well, we’ve been working with them before any announcement on the acquisition as well. So that kind of work continues, Tom, and that’s kind of normal business as we are still independent companies. We’re certainly in the middle of integration planning while we’re keeping to the fact that we’re both independent companies. We can start planning on what we might do together afterwards, but the regular collaborative type of work that the two independent companies work on, that has continued great.

Okay. And then, Seth, another supply question obviously, it looks like issues continue into the fourth quarter when you’re talking to the suppliers. Do you get a sense as to when either excess capacity comes on board or when they think the supply constraints might alleviate?

Yes, it’s a good question, Tom. And I think John kind of answered this question a little earlier as well, because it’s kind of a fluid situation. As John mentioned, we’ll solve kind of one component shortage and we’ll pop up another kind next day. Think of our approach the last couple of quarters; that’s not too atypical in a big ramp environment. Obviously, we’re much higher in record volumes; it’s much more magnified. But it’s really continued working through each of the suppliers, working closely with them. As one issue comes up, we solve another that comes up. It’s kind of that type of process at this point in time. So, it’s hard to say when it will be alleviated, but everybody’s working on it. A lot of smart people are driving the right behavior. Our team has done a great job because we did beat the midpoint of our guidance for the quarter, and we’re working very hard to keep our customers obviously stocked with their products.

Okay. And that 40 basis point input cost hit in the quarter. Do you expect that to stay roughly at the same levels over the next couple quarters?

Yes, it’s probably in the, so you’re right, in Q3 probably about 40 basis points is our estimate. In the fourth quarter, guidance is probably a little bit marginally higher, and it’s hard to say when that will abate going forward. I did mention earlier in response to a question that we do have a profit and cash recovery process, which is how we mitigate any major increases in input cost inflationary pressure. So, we’re going to lean into that probably a little bit more obviously going forward, but it’s probably a little bit north of 50 basis points in Q4 at this point is our estimate.

Okay. Thanks for your time.

Okay. Thanks, Tom.

Thank you. Our next question comes from Joe Quatrochi of Wells Fargo. Please go ahead.

Yes. Thanks for taking the question, John, curious about your thoughts on the semiconductor cycle. Typically, you know, MKS outperforms WFE when things are good, and then when things slow you see it a little bit more just from an inventory correction standpoint. But clearly the supply chain dynamics are having inventory levels be much leaner. So, I know it’s hard to predict, but how do you think about that in terms of maybe a softer landing for MKS or maybe even, to some extent, a bit of an inventory restocking?

Joe, those are probable outcomes of the fact that we are in a supply constraint environment. Things are pushing to the right for our customers and for us. Logically, that extends any kind of cycle for sure. To your point, if a downturn comes, then people are going to need to replenish their inventory. There’s not a lot of inventory just sitting out there obviously. When you think about how MKS performs relative to WFE, our model is 200 basis points above long-term WFE. We don’t like to cherry pick; we like to look at the long term because if you take the last two years, 2020 and projected 2021, we will have outperformed WFE by 1,000 basis points. If you take it back five years, six years, that’s the 200 basis points that we have modeled, and we still subscribe that that’s the model that you should expect from us.

Just want to add one point to that too; we’ve got about $1 billion run rate in our advanced markets business. So just emphasize the fact that we have worked really hard to be a broad-based revenue stream, and Atotech will add to that dynamic going forward as well. Even though the majority of our sales now are in the semiconductor market, we do have other areas that balance that out throughout any cycle. The service business has also grown substantially; that’s a pretty sticky business. We’ve worked pretty hard over the years to make that operating model pretty robust and rock-solid through any type of cycles we see.

Got it. And then just on the advanced market side, you talked about the industrial applications softness just from supply chain dynamics. Does your guide assume a similar level of impact in the fourth quarter or do things get maybe a little bit worse before they get better?

Our guide is flat to slightly up in both markets as we said. So we’re thinking that we could do a little better even with the supply constraints coming up. We’re not saying the supply constraints are getting better; in fact, they may be as bad or worse even. But I think our ability to deal with it is better. Our ability to partner with customers is certainly a lot better, as I mentioned earlier. That’s why we’re comfortable with our guide of flat to slightly up in both markets.

Got it. Thanks.

Thank you, Joe.

Thank you. Our next question comes from Sidney Ho with Deutsche Bank. Your line is open.

Thanks for taking my questions. Maybe just a follow-up to the supply constraint question. Looking back, third quarter was the total revenue being constrained roughly what you expected? And if you look at Q4, can you quantify the impact that the supply constraints had on both the revenue and gross margin line, and specifically related to gross margin, I understand you talk about higher input costs, but being down quarter-over-quarter excluding that impact, what would be the reason behind that?

I think that impact is part of it. There’s probably a little product mix. There’s also a little bit of inefficiency in our factories because the supply comes in lumpy. I think that’s kind of in the noise, Sidney, so I wouldn’t read too much. We’re not trying to say that gross margins are changing except for these kinds of inefficiencies brought on by supply constraints and the inefficiencies that they cause in our factories. So there’s nothing more to the gross margin guidances than that. Other question about how much of the supply constraints we expect in Q3 materialized? It was probably on that order that we talked about of the $30 million we discussed earlier, plus or minus that was our range, but we did better. We did better in Q3 than we guided. In Q4, we maintained the range plus or minus $30 million. We don’t see the supply chain constraints changing much; the challenges are going to be there. Our ability to deal with it as an industry and as MKS seems to be a little better. We’ll see how we end up at the end of the quarter.

Okay. Maybe my follow-up question, on the operating expenses side, you guys have done a pretty good job in the past few quarters staying between the $140 million and $150 million range and keeping incremental operating margin above your target of 40% for a number of quarters now. How should we think about the trajectory beyond Q4 excluding Atotech obviously? Do you think there’ll be some catch-up in spending, maybe some expenses coming back, maybe you need to hire more people, et cetera?

Yes. I’ll take that, Sidney. So, when I think about Q4 guidance on OpEx and annualize that starting point, then probably add in roughly the inflationary piece on top of that, 3%, 4%, that’s probably a pretty good estimate for next year. We’re still doing the budgeting process right now and the planning process, but I think it gives you a pretty good sense of what we’re thinking for next year on OpEx. We are going to lean into a number of areas; we do a number of investments in R&D, but we're able to offset that from other cost initiatives as well. Even with those inflationary amounts, I believe next year we’re going to lean into other product development areas that we think are compelling in the long term.

Okay. Thank you.

Yes. You’re welcome.

Thank you. Our next question comes from Mark Miller from The Benchmark. Your line is open.

Thank you for the question and congrats on a quarter. Just wondering any comments about what you’re seeing in the booking trend?

Yes, Mark. We usually don’t discuss bookings, but I would comment that they remain very strong, obviously stronger than we can ship, as we talked about all quarter. One of the things we’d look at more in terms of the semi side is the delivery requests are starting to slide to the right, that might be an indication of a downturn. We’re seeing none of that; it’s all the other way. We’re also seeing booking windows open up and extend from our customers as they try to get in line further and further out into the future. It remains very strong, very robust, and we really have no concerns about that. We’re really all focused on getting the supply so we can deliver the products at this point.

Okay. And as a follow-up, several new fabs have been discussed coming up starting next year. What do you expect, you’ll start to be impacted, your bookings will start to be impacted by the ramp in these new fabs, second half of next year?

If you think about some of the fabs that have been announced, they’re just literally digging the holes right now in Arizona. Austin, Texas hasn’t even started digging the hole yet. These fabs will take at least a year and a half, 2 years to be ready to have equipment put in. Of course, those companies have to decide if the business justifies that. I don’t think it’s a second half 2022 for those fabs, but there are a lot of empty shells or fabs with capacity to add. Those new fabs probably have a two-year lead time. You can ask the chip companies that they may say similar things or longer or shorter, but it’s at least in that timeframe.

Thank you.

Thanks, Mark.

We have a follow-up question from Jim Ricchuiti of Needham. Your line is open.

Yes. Just a question on, again going back to the Advanced Markets, the way you’re characterizing the business in Q4. What I’m wondering is, if we pull out, look at the light motion business and perhaps pull out some of the semi-related portion of that business, I’m curious what kind of trends you’re seeing in that business, just because it is some of it is a proxy for the broader economy, and there have been some pockets where there’s been some slow. Are you seeing any change in order patterns in that Light & Motion business excluding the semi area?

Yes. That’s a great question, Jim. We break out the semi part of Light & Motion, then we look at the rest. The Advanced Markets, certainly the semi side is growing faster; you would expect that given the buildouts in WFE. But the Advanced Markets are also growing kind of double-digits. That’s really a great sign and as you know, it’s different markets: solar, display, advanced manufacturing, and defense even. We’re happy with the advanced markets growth of the Light & Motion division; that’s been double-digits right now.

Okay. And you’re seeing that across geographies.

That’s a good question. I think it’s still strongly Asia-focused, but that’s because a lot of our business is Asia-focused, more of the GDP-type businesses like research, et cetera. That’s probably not geographical; it’s everywhere.

Got it. Thanks a lot.

Thanks, Jim.

Thank you. At this time, I’d like to turn the call back over to David Ryzhik for closing remarks.

Thank you everyone for joining us today and for your interest in MKS. Operator, you may close the call, please.

Thank you, sir. This concludes today’s conference call. Thank you for participating. You may now disconnect.