Given strong customer visibility into 2027, what are MKS's lead times and how is the company managing supply chain to meet anticipated demand?

MKS is in constant communication with customers who have provided longer-than-normal plans. The company is building capacity, inventory, and scaling factories to meet anticipated increases. Lead times are currently normal, and the supply chain is stepping up to support the ramp. “Lead times right now for us are still kind of normal. So we're executing really well given we're already a couple of quarters into the ramp. So of course, we've got to manage many suppliers. But right now, our supply chain is stepping up.”

What are the key end markets driving the strong growth in Specialty Industrials, and what is the durability of this growth?

The strong performance is primarily driven by datacom (AI-driven communications testing for data centers) and defense markets, both of which are expected to remain strong. Other sub-markets like automotive and industrials are seeing incremental improvement but not at the same magnitude. “I think we called out two of the submarkets, and that was datacom, data communications. And again, that's driven by AI. So communications testing for AI data centers. That continues to be strong. We expect that to continue to be strong.”

How should investors think about chemistry growth given equipment strength, potential inflection in 2027/2028, and the AI contribution to chemistry revenue?

AI contribution to chemistry revenue is now 15% to 20%, up from 10% previously. While the chemistry equipment business is growing very fast with visibility through 2027, the ratio of chemistry sales per dollar of equipment sales is now at the lower end of the 20-40% range due to higher ASPs of AI-focused equipment. Chemistry is still expected to grow significantly. “I would say it's incrementally better. So think about 15% to 20% as the right number now for chemistry as a percentage of our chemistry for AI, so that's one update.”

MKSI

MKS (MKSI) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 6, 2026

Source: earnings call transcript

Executive summary

MKS Inc. Q2 FY26 — Strong Demand Across All Markets Drives Outperformance and Accelerated Growth

MKS delivered a strong second quarter, with revenue and profitability metrics exceeding expectations, driven by robust demand across all end markets, particularly in semiconductor and advanced packaging applications. The company is making strategic investments in capacity and working capital to meet accelerating customer demand and capitalize on long-term growth opportunities, while also prioritizing deleveraging efforts. Management anticipates continued strong sequential improvement and accelerated year-over-year growth into Q3 FY26.

Highlights

Q2 revenue of $1.25 billion was up 16% sequentially and 28% year-over-year, exceeding guidance.
Semiconductor revenue grew 19% sequentially and 28% year-over-year, accelerating from 13% in Q1.
Electronics & Packaging revenue was up 19% sequentially and 44% year-over-year, above the high end of outlook.
Specialty Industrial revenue increased 8% sequentially and 14% year-over-year, driven by datacom and defense.
Non-GAAP diluted EPS of $3.30 was up 86% year-over-year and above the high end of guidance.

Concerns

Gross margin of 47.6% included 100 basis points of discrete benefits, implying underlying pressure from product mix and investments.
Chemistry equipment sales, while strong for market share, have a lower gross margin and temporarily impact overall company gross margin.
Investments in capacity ramp-up (Malaysia, Guangzhou) are expected to impact gross margin by 50-80 basis points per quarter for the next few quarters.

Guidance & targets

Category	Target	Timeline	Confidence
Q3 FY26 Revenue	$1.35 billion, plus or minus $40 million high materiality	Q3 · FY26	High
Q3 FY26 Semiconductor Revenue	$630 million, plus or minus $15 million medium materiality	Q3 · FY26	High
Q3 FY26 Electronics & Packaging Revenue	$385 million, plus or minus $15 million medium materiality	Q3 · FY26	High
Q3 FY26 Specialty Industrial Revenue	$335 million, plus or minus $10 million medium materiality	Q3 · FY26	High
Q3 FY26 Gross Margin	47%, plus or minus 100 basis points high materiality	Q3 · FY26	High
Q3 FY26 Operating Expenses	$280 million, plus or minus $5 million medium materiality	Q3 · FY26	High
Q3 FY26 Operating Income	$355 million high materiality	Q3 · FY26	High
Q3 FY26 Adjusted EBITDA	$395 million, plus or minus $28 million high materiality	Q3 · FY26	High
FY26 Capital Expenditure	4% to 5% of revenue medium materiality	FY26	High
Q3 FY26 Effective Tax Rate	approximately 20% low materiality	Q3 · FY26	High
FY26 Effective Tax Rate	lower end of 18% to 20% range low materiality	FY26	High
Q3 FY26 Net Earnings Per Diluted Share	$3.58 plus or minus $0.31 high materiality	Q3 · FY26	High
WFE Support Capacity	$200 billion to $250 billion range medium materiality	Future	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Semiconductor Growth was broad-based across deposition and etch products, including power for NAND upgrades and vacuum subsystems, plasma generators, reactive gases for advanced logic and DRAM applications. Photonics and Optics solutions also gained momentum in lithography, metrology and inspection.	$554 million	28%	19%	—
Electronics & Packaging Driven by elevated demand across the portfolio, including chemistry solutions, chemistry equipment, and flexible PCB drilling sales. Chemistry equipment continues to inflect higher, benefiting from AI-related applications. Flex PCB drilling sales were strong into the flex PCB markets for advanced smartphones and peripherals. Chemistry sales YoY (excluding FX and palladium pass-through): 21%	$381 million	44%	19%	—
Specialty Industrial Year-over-year growth was driven by datacom and defense applications, while sequential improvements reflected continued momentum in datacom as well as seasonal recovery following the Lunar New Year. Revenue has not been this high since 2023.	$313 million	14%	8%	—

Orderbook & backlog

Order backlog very healthy Q2 FY26 end

Gives good visibility through the second half of the year for the semiconductor market.

Chemistry equipment demand visibility through 2027 Q2 FY26 end

Supported by AI server investments, including optical modules, and gives confidence to expand capacity.

Capital programs

Malaysia Supercenter ramping

Benefit:Support WFE in $200 billion to $250 billion range

Opened in Q2, with first revenue shipments occurred. Not needed for 2026 demand, ramping up to meet 2027 demand and beyond. Can be expanded at option. Reconfigured to support a WFE in the $200 billion to $250 billion range when fully utilized.

Guangzhou Chemistry Equipment Factory Expansion underway

Benefit:Doubling capacity

Announced doubling of capacity to meet growing demand for chemistry equipment, especially from AI server investments. Expected to be online in Q3 2027. Germany factory is being used to fill the gap until the expanded Guangzhou facility is ready.

Risks & headwinds

Product mix impact on gross margin Q2 FY26 and Q3 FY26

unfavorable product mix

Mitigation:Strategic choice to push forward on equipment sales for future market share; focus on operational excellence programs.

Investments in capacity ramp-up impacting gross margin next couple of quarters

50 to 80 basis points per quarter

Mitigation:These investments are strategic to prepare for future demand and will eventually lead to margin improvements as plants get fully loaded.

Seasonality in flex equipment Q3 FY26

partially offset by flex equipment-related seasonality

Mitigation:Flex market typically down sequentially in Q3 ahead of next design cycles, coming off a very strong first half.

What to watch in Q3 FY26

Semiconductor revenue growth

Q3 FY26

Current 28% YoY in Q2 FY26

Target over 50% YoY in Q3 FY26

Why it matters

This acceleration indicates MKS's WFE outperformance and the strength of the current investment cycle.

Our semi outlook for Q3 implies year-over-year growth will accelerate to over 50% with strength across our entire portfolio of solutions.

Find out whether MKSI delivers this. Inve re-checks your case every morning.

Q&A highlights

What is the outlook for NAND upgrade cycles and how does it bridge to future greenfield projects, comparing the dollar spend magnitude between upgrades and new tools?

MKS expects continued NAND upgrade activity, which benefits power products. Greenfield NAND fabs, expected in late 2027/early 2028, will be even better for the full semiconductor portfolio. While not disclosing specific dollar magnitudes, the power component is the largest part of the BOM for upgrades, and new tools offer the full portfolio opportunity.

“So between now and then, we would expect continued upgrade activity. ... the power part of that upgrade is the largest part of the BOM in terms of cost, and, therefore, opportunity for MKS.”

asked by Unknown Analyst · answered by John Lee

2 min read 6 chapters

Detailed narrative

AI-Driven Demand Across End Markets

MKS is experiencing strong, broad-based demand across all its markets, with intensifying AI-driven investment in semiconductor and advanced packaging applications. The company's foundational position in vacuum, plasma, power products, optical components, photonics, laser systems, and proprietary chemistries enables leading-edge etch, deposition, lithography, metrology, inspection, and advanced circuit board integration.

This reflects MKS's core role as a leading enabler of advanced electronics, with performance benefiting from investments in capabilities and customer relationships.

Semiconductor Market Acceleration

The semiconductor market saw significant acceleration, with Q2 revenue up 19% sequentially and 28% year-over-year, compared to 13% in Q1. Growth was broad-based across deposition and etch products, including power for NAND upgrades, vacuum subsystems, plasma generators, and reactive gases for advanced logic and DRAM.

Photonics and Optics solutions also gained momentum in lithography, metrology, and inspection. The Q3 outlook implies year-over-year growth will accelerate to over 50%, indicating MKS's WFE outperformance during improving investment environments.

Electronics & Packaging Driven by AI Servers

Electronics & Packaging revenue exceeded expectations, up 19% sequentially and 44% year-over-year. Laser drilling system sales for flex PCBs (smartphones, peripherals) were strong, and chemistry sales remained robust. Chemistry equipment demand is at an all-time high, supported by AI server investments, including optical modules, with visibility extending through 2027.

The company is doubling capacity at its Guangzhou equipment factory and seeing increased order activity in rigid PCB drilling for AI and low earth orbit markets.

Strategic Capacity Expansion and Working Capital

To meet anticipated demand growth, MKS is increasing working capital investments and expanding global capacity. The new Malaysia supercenter, which opened in Q2, can be expanded further, and the Guangzhou chemistry equipment factory is being doubled. These facilities are crucial for future capacity needs and strengthen customer engagement.

The company is also utilizing its Germany factory to bridge demand for chemistry equipment until the expanded Guangzhou facility comes online in Q3 2027.

Specialty Industrial Market Strength

The Specialty Industrial market delivered a strong quarter, with revenue up 8% sequentially and 14% year-over-year, reaching levels not seen since 2023. This growth was primarily driven by the datacom and defense markets, with datacom benefiting from AI-driven communication testing for data centers.

Performance in other sub-markets like automotive and general industrials showed incremental improvement but not to the same magnitude as datacom and defense, which are expected to remain strong.

Gross Margin Dynamics and Investments

Q2 gross margin of 47.6% included a 100 basis point benefit from discrete items like tariff refunds. Excluding these, the underlying gross margin remained healthy despite unfavorable product mix and accelerated investments. The ramp-up of VSD (Vacuum Solutions Division) and chemistry equipment sales, while strategically important for market share and future chemistry revenue, temporarily acts as a headwind to gross margin due to their lower margins and the upfront costs of capacity expansion.

These investments are expected to impact gross margin by 50-80 basis points per quarter for the next few quarters.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.