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    MKSI
    Earnings call· Jun 2026(Q2 FY26)

    MKS Q2 FY26 earnings call MKSI

    Aug 6, 2026 Source

    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

    5

    • 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

    3

    • 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

    13
    CategoryTargetConfidence
    Q3 FY26 Revenue
    $1.35 billion, plus or minus $40 million
    high materiality
    High
    Q3 FY26 Semiconductor Revenue
    $630 million, plus or minus $15 million
    medium materiality
    High
    Q3 FY26 Electronics & Packaging Revenue
    $385 million, plus or minus $15 million
    medium materiality
    High
    Q3 FY26 Specialty Industrial Revenue
    $335 million, plus or minus $10 million
    medium materiality
    High
    Q3 FY26 Gross Margin
    47%, plus or minus 100 basis points
    high materiality
    High
    Q3 FY26 Operating Expenses
    $280 million, plus or minus $5 million
    medium materiality
    High
    Q3 FY26 Operating Income
    $355 million
    high materiality
    High
    Q3 FY26 Adjusted EBITDA
    $395 million, plus or minus $28 million
    high materiality
    High
    FY26 Capital Expenditure
    4% to 5% of revenue
    medium materiality
    High
    Q3 FY26 Effective Tax Rate
    approximately 20%
    low materiality
    High
    FY26 Effective Tax Rate
    lower end of 18% to 20% range
    low materiality
    High
    Q3 FY26 Net Earnings Per Diluted Share
    $3.58 plus or minus $0.31
    high materiality
    High
    WFE Support Capacity
    $200 billion to $250 billion range
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    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 million28%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 million44%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 million14%8%—

    Operational metrics

    24
    Non-GAAP gross margin
    47.6%
    Q2 FY26

    Includes approximately 100 basis points of discrete items, mostly from the refund of tariffs and duties. Underlying margin remained healthy despite unfavorable product mix and accelerated investments.

    Non-GAAP operating income
    $320 million
    Q2 FY26

    Yielding an operating margin of 25.6%, which was up 480 basis points year-over-year and well above guidance midpoint.

    Non-GAAP operating margin
    25.6%up 480 bps YoY
    Q2 FY26

    Well above guidance midpoint, reflecting healthy operating leverage as revenue scales.

    Operating expenses
    $275 million
    Q2 FY26

    In line with guidance.

    Adjusted EBITDA
    $358 million
    Q2 FY26

    Yielding a 28.6% margin and also above the high end of guidance.

    Adjusted EBITDA margin
    28.6%
    Q2 FY26

    Above the high end of guidance.

    Net interest expense
    $33 millionvs $46 million in Q2 FY25
    Q2 FY26

    Reflecting full quarter benefits of Q1 financing actions and continued proactive principal prepayments.

    Effective tax rate
    19.6%
    Q2 FY26

    In line with guidance.

    Net earnings
    $232 million
    Q2 FY26

    Above the high end of guidance.

    Non-GAAP EPS
    $3.30up 86% YoY
    Q2 FY26

    Per diluted share, above the high end of guidance.

    Cash and investments balance
    $611 million
    Q2 FY26 end

    Part of total liquidity of over $1.6 billion.

    Available liquidity
    $1.6 billion
    Q2 FY26 end

    Comprised of cash and cash equivalents and undrawn revolving credit facility.

    Free cash flow margin
    15%
    Q2 FY26

    Calculated as free cash flow divided by revenue.

    Term loan prepayment
    $100 million
    Q3 FY26 (early)

    Made earlier this week, continuing proactive deleveraging efforts.

    Net leverage ratio
    3xdown 1 turn YoY
    Q2 FY26 end

    Based on a trailing 12-month adjusted EBITDA of $1.1 billion, showing strong progress towards target leverage ratio.

    Dividend per share
    $0.25
    Q2 FY26

    Follows a 14% increase in dividend in Q1.

    AI chemistry revenue share
    15% to 20%vs 10% previously
    Current

    As a percentage of overall chemistry revenue, incrementally better than previous quarters.

    Palladium price
    $1,300stay flat
    Q3 FY26 (expected)

    Expected to stay flat in Q3 FY26.

    Gross margin impact from investments
    50 to 80 bps
    per quarter

    Impact from investments in Malaysia and Guangzhou ramp-up, charged through COGS.

    VSD gross margin (historical)
    46%
    2021

    Historical peak for VSD gross margins, driven by China direct sales and RF power for NAND greenfields.

    VSD gross margin (recent)
    42.9%
    March quarter

    Recent level, lower than historical peak due to mix within VSD and investments.

    Chemistry sales to equipment sales ratio
    lower end of 20% to 40% range
    Current

    Due to higher ASPs of higher-end equipment sold for AI boards, making the math for the ratio appear lower, though chemistry sales are still strong.

    Chemistry equipment revenue (historical)
    $200 million
    per year (past)

    Past maximum annual revenue for chemistry equipment.

    Chemistry equipment revenue (current)
    significantly higher than $200 million
    FY26

    Expected to be significantly higher than historical levels for FY26, and expected to continue to grow.

    Industry KPIs

    8
    MetricValueDetails
    Lead timesnormal
    Backlog order bookvery healthy
    Services installed baseelevated
    Fab capacity utilization100%%
    Bookings net order intakestrong
    Wfe industry spend outlook—
    Design wins socket pipelineachieved
    Inventory channel inventoryrising

    Orderbook & backlog

    2
    Order backlogvery healthyQ2 FY26 end

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

    Chemistry equipment demand visibilitythrough 2027Q2 FY26 end

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

    Capital programs

    2
    Malaysia Supercenterramping

    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 Expansionunderway

    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

    3
    Product mix impact on gross marginQ2 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 marginnext 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 equipmentQ3 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

    5

    Semiconductor revenue growth

    Q3 FY26
    Current28% YoY in Q2 FY26
    Targetover 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.

    Q&A highlights

    6

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.