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

Why is Q4 sequential sales growth expected to be muted or potentially down, and is there any Q3 pull-in?

Q4 typically sees seasonal deceleration from consumer electronics and customer inventory control. Q3 includes a seasonal peak. The prior year's Q3 had a $40M pull-in from Q4 due to IT system go-lives, which tempers YoY growth but doesn't recur. Order books are healthy, but Middle East developments and customer ramp timing are variables.

“Typically, we'd see a small seasonal peak in the third quarter that's generally tied to consumer electronics. We're still consumer electronics has been fairly resilient for us this year because of our exposure to premium devices. Nonetheless, we typically would expect a little bit of a sequential deceleration third quarter to fourth quarter consumer electronics standpoint. And then usual, typically, we see customers do a little bit of inventory control in the fourth quarter as well.”

asked by James Schneider · answered by Michael Goss

Unpack the drivers for margin decline (mix, investments) and prospects for gross margin improvement given pricing actions.

Q2 margins were impacted by product mix (coming off strong Q1 mix) and growth investments (R&D, product qualifications). Semi margins for H1 were ~35%, expected to continue. $20M in logistics/energy costs are being offset by pricing actions. Transformation program benefits (plant productivity, footprint optimization) are expected to drive margin expansion, weighted towards H2 next year.

“As we start to see the benefits of some of the transformation program, and I think Mike gave a couple of nice examples from plant productivity as well as kind of a footprint optimization point of view. We're starting to see some of those opportunities kick in. Most of that will be weighted towards the back half of next year. But as we start to see both the increases in volume that help with factory loading as well as some of those transformation programs. There is an opportunity for nice incrementals to increase with both gross and EBITDA margin expansion.”

asked by James Schneider · answered by Jon Kemp

Given recent acceleration, what are updated thoughts on ICS's long-term growth, especially with AI and shrink-to-stack?

ICS's strong performance (28% organic growth) is driven by advanced packaging, AI PCBs, and thermal management, which have accelerated due to AI adoption. The business is consumable-based, tied to volume (PCB, advanced packaging, thermal). The company is thrilled with content gains and new application wins, and customer expansions in advanced packaging give confidence in long-term durability.

“What I would say is the business is still fundamentally a consumable-based business that's tied to volume. And so when you think about PCB area volumes or advanced packaging volumes, thermal volumes, I think the broader market is still trying to get the handle around third-party data, and we're working with some of those third parties to try and figure out how to model that a little bit more accurately.”

asked by Melissa Weathers · answered by Jon Kemp

Is Qnity capacity constrained anywhere, and how is it managing supply with strong growth in both businesses?

Qnity has been steadily adding capacity since 2022, deploying $600M in growth investments. Most investments are modular expansions in existing facilities across major geographic centers. Growth is faster than expected, but the company can quickly adjust and bring capacity online. They are well-prepared for long-term growth in '27 and '28.

“Given our well-distributed footprint, what I would tell you is that most of the -- we have existing facilities kind of located in all of the major geographic centers. So most of our investments are high-return, quick modular capacity expansions that are done in step with our customer technology road maps.”

asked by Melissa Weathers · answered by Jon Kemp

When will the benefits of recent product launches (EUV, HBM, CMP, etc.) be seen, what is most exciting, and were these new since the spin?

The recent activity reflects the benefit of being a pure-play company, highlighting continuous innovation and partnerships. Most are innovation-driven, with POR wins across all business lines targeting advanced technologies. The most exciting aspect is that these are the fastest-growing and highest-value parts of the market, setting up a favorable growth trajectory. Many of these innovations have been part of the strategy for years, now more in the spotlight.

“What I'm most excited about is all of those are they are the fastest-growing parts of the market. It's also the highest value parts of the market. that sets up a really favorable growth trajectory for Qnity going forward as we see that steady drumbeat of innovation wins and POR wins and customer partnerships for the fastest growing, most advanced technologies in the industry.”

asked by Christopher Parkinson · answered by Jon Kemp

How will Qnity's portfolio mix (logic vs. memory, end markets) evolve in the next 2-3 years compared to past assessments?

Device mix is still roughly 80% logic, 20% memory, with HBM/DRAM growing faster. End-market mix is shifting: data centers are up, industrial markets (automotive, aerospace, defense, telecom) are steady, and consumer electronics are growing slower but resilient. The highest growth is aligned to advanced nodes, advanced packaging, interconnects, and thermal materials, which are the highest-value parts of the market.

“From an end market point of view, data center is up a little bit, most of the industrial markets are steady and maybe consumer electronics down a little bit. I would come back and take away on this mix from a device mix as well as from an end market mix is our highest growth is aligned to the highest value parts of the market in advanced nodes, advanced packaging interconnects and thermal materials.”

asked by Christopher Parkinson · answered by Jon Kemp

What is driving the improvement in mainstream logic utilization, and what is the expectation for next quarter?

Mainstream logic improvement is driven by data center and industrial demand, consistent with expectations. Expect continued steady sequential improvement. The broader participation in "physical AI" (edge devices, vehicles, machines) creates more opportunities for Qnity, as it requires fundamental re-architecture and materials innovation.

“What I'm most excited about from mainstream logic is the broader participation in physical where we see demand moving from cloud to the edge and going to devices, vehicles and machines. I think a lot of that physical AI creates a lot more opportunities for broader participation from both the OEMs as well as the different fab and foundry partners and Qnity is well positioned in the broader industry landscape, no matter where the chips are coming from.”

asked by Saurabh Dhir · answered by Jon Kemp

Advanced nodes grew >20% in Q2, significantly higher than the 7% long-term expectation. Can this continue, and what's the near-term visibility?

The strong growth is due to broad-based participation and successful commercialization of advanced nodes (HBM3/HBM4, 3nm, 2nm, 18A) by multiple technology leaders. This pushes Qnity's content outperformance. The company is on track to reach its Investor Day target of 45-50% of portfolio from advanced nodes earlier than expected, currently at ~40%.

“What I can tell you is that we talked about at our Investor Day, migrating towards getting to be there, 50% of -- 45% to 50% of our portfolio would be driven by advanced nodes. And at the track record and the pace that we're on, we'll probably get there early. I think we're kind of exiting here the first half of the year kind of right at 40%.”

asked by Frank Mitsch · answered by Jon Kemp

Semi Technologies volume growth (18%) is significantly ahead of MSI. Is this due to CMP steps, share gains, or business wins? Is MSI still an accurate metric?

MSI remains the best indicator of overall wafer volume. Qnity's outperformance is due to content gains in advanced nodes, where more customers are successfully commercializing. Incremental share gains are seen in CMP pads, cleans, and slurries. Lithography business is also doing well, particularly in ancillary layers around photoresist for EUV.

“I think what we're seeing right now is the -- is with the success that we're seeing from our customers in advanced nodes. Building on the answer to the last question, it's pushing our content outperformance even higher because we're seeing more customers successfully commercialize their most advanced technology.”

asked by Bhavesh Lodaya · answered by Jon Kemp