Entegris, Inc. (ENTG) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for coming. I'm Stacy Rasgon. I'm Bernstein's senior research analyst covering U.S. semiconductors and semi-cap equipment. And it's my honor to have our guest here today, Bertrand Loy, the President and CEO of Entegris. Our talk is going to last about 50 minutes. If you want to ask a question on the inside cover of your program, there is a QR code that you can scan that will bring you to our Q&A form or pitch called Pigeonhole. You can submit questions there, and we will leave time at the end to ask them. Bertrand is going to get started, just giving a brief overview of the company and what they do and then we'll into our chat. It gives me great -- my very great pleasure to welcome Bertrand. So thank you so much for coming. Appreciate it.

Thank you, Stacy. Thank you for the opportunity to be with you here today. So let me start with a brief overview. I know you have a lot of questions, so I don't want to take too much of the time in the intro. But -- so Entegris is a specialty materials company, created about 60 years ago.

60?

60 years ago, yes, just at the very beginning of the semiconductor industry. So deep roots into the semiconductor industry and really supporting the semiconductor technology road maps for all these years. The company has evolved tremendously over the last 60 years. But the mission here remains the same. The mission is about developing unique process solutions to help our customers advance their device performance and help them improve their yields. So we've been diligently working at doing just that through a very intense focus on internal development, organic development, but also by being very active on the M&A front. So today, Entegris is about roughly $3.5 billion in revenue. And that really puts us as the largest independently traded specialty chemical company with a focus on electronics applications, semiconductor applications, in particular. But beyond the size, what we're most proud of, really is the growing importance of our value proposition, the growing importance of what we do for our customers. And if you think about what our customers are trying to do, they are trying to improve their device performance. And to do that, they are really leveraging 2 levers. The first 1 is, they're trying to enable increasingly complex device architectures. And the other lever is miniaturization. They are trying to make everything smaller on the wafer. To do that, they need Entegris. Our core competencies are material science and material surety. Material science is essential to enable those new very complex architectures, things get all around in logic, think 3D NAND and the multilayer architectures, think about the growing complexity in DRAM. So that's what we do on our material science platform. When it comes to miniaturization, contamination control is critical in order to achieve the right defectivity level. So purity of your processes and purity of all of the chemistries and materials that you use in your process is critical. So when you think about Entegris, we are the only company in the world having both leading edge and compelling leadership position in material science, and we have a leadership position in materials purity. So we are an indispensable partner to any technology leader in the semiconductor industry. So very proud of that. So we've been demonstrating that by delivering very compelling growth well in excess of the industry as a result of the ability that we've had to increase the Entegris content per wafer and everything was actually going really, really well from '17, '18, '19 over to 2022, very significant growth. And then we acquired CMC Materials, put on a lot of debt on the balance sheet, the industry turn and then all of the investment community started having a lot of concerns about leverage level and the ability to delever about the real resilience or not of our business and whether or not we'll be able to actually outperform the market in a down cycle. So we are very pleased in the first quarter to be able to actually start providing answers to some of those concerns and questions. Pleased to complete the second large divestiture that I believe now provides a clear path to our deleverage commitment. I think we have also been demonstrating by reaffirming our annual guidance that our business is resilient. It doesn't mean that we're not prone to a downturn, but we are, on a relative basis, more resilient. And we're also demonstrating that we are able to outpace the industry, not just in upturn but also in a down cycle. So again, we are pleased to be able to report -- to provide some of the much expected answers as part of our Q1 results. So I'll stop here. I'll turn to Stacy for questions.

I do want to start just a little bit on the near-term stuff, and I don't want to harp on it, but I do want to start there because we are going into a downturn -- we're in a downturn depending on which parts of the market you're looking at? And maybe just what are you currently seeing out there? I'm not asking for any updates on the quarter, but just like -- what are you seeing across the end markets. Clearly, we have -- from the broader semi-cap guys, we're seeing weakness in leading edge logic. We're seeing memory spending. This is probably the worst memory cycle certainly since the financial crisis, maybe even since the tech bubble in terms of underutilization and inventories. And presumably wafer starts are going down, I mean that affects you guys. And maybe you can remind us a little bit within that context, how much of your business is sort of wafer start-driven versus more like CapEx-driven because both of those right now are kind of going down, right?

Yes. I mean the industry right now, short term, it's not pretty immature. It doesn't change my view about the long-term fundamental prospects of this industry, which are very exciting. So it remains a great place to be. But short term, certainly, there is a lot of consternation out there. And the visibility is not very good. So that's what we conveyed in our recent earnings call. We do not expect any recovery in memory. We do not expect any recovery in CapEx this year. We expect to touch bottom in advanced logic, and we expect some modest sequential recovery in the back half of the year. That's for the industry. So nothing really great, frankly, to expect this year. But we expect to do better than that. And we expect to do better than that because there will be a number of no transitions, especially in advanced logic in the back half of the year. And that is really the source of that outperformance because as our customers transition to new nodes, we have an opportunity to increase the Entegris wafer -- content, the Entegris content per wafer. And we expect to see evidence of that in the back half of the year. So that's why we expect to be able to outpace the industry by about 6 to 7 points.

Okay. What is your content? Have you ever actually given that number?

Not on the dollar basis. What we've done is probably 2 analyst days ago we gave you a per wafer -- we normalize the numbers. And we actually told you about the rate of growth, comparing multiple nodes. So if you're interested in a number, I would encourage you to go back to that presentation.

I mean, is that content like node to node is it actually going up and accelerating...

It is. And I think that improvement is not linear. It's accelerating actually pretty rapidly. I mean you think about why that is -- we are actually a relatively new entrant when it comes to advanced materials. So in other words, we are not selling most of the currently used deposition materials in particular, but we have invested heavily in developing the next generations of dielectric materials, some other things. So those materials will be adopted. And when they get adopted, obviously, that will be a step function change in terms of Entegris wafer -- Entegris content per wafer. And then, of course, we've done the same when it comes to filtration. The purity requirements are becoming increasingly complex in terms of the smallness of the contaminants that our customers are trying to remove the number of species of concerns, but also the permissible concentration levels, all of which is requiring more advanced filtration and then a greater frequency of replacement of those filters, which is also driving, obviously, a greater Entegris content per wafer.

The fact that it's actually trailing node logic and foundry now that's holding up, is that good or bad or indifferent from me? Because it feels like your content on the leading edge stuff and some of the more advanced memory is going to be higher.

Well, I think -- look, I mean, first of all, it's always good to have some resilience in your business model. And I think -- so I think that right now, I'm glad that the mainstream fabs are holding up actually well. But yes, for sure, I mean, for us to deliver on that outperformance, we need or we will benefit from greater levels of output in the leading-edge fabs.

Got it. Maybe we could switch from a high level to maybe a little more granular on your business segments. You have 3, now it's 4 business segments. So we've got specialty materials, micro contamination, handling and planarization. I hope I have those right.

Yes.

Okay. Can you talk a little bit about what each of those are and maybe what your growth algorithm is across those businesses over the long term?

Sure. So let's start with -- so if you think about semiconductor processing, right, it's really about the series of additive and subtractive steps. So in terms of additive steps, it's deposition of materials, that's what we do in SDN. So we are focused on the new materials there. And so we're developing the new molecules that will be key to enabling gate all around, enabling 3D NAND chips with 1,000 or 2,000 layers, right? I mean that's what we're talking about with our customers right now. Right now, we're barely a 200, but the goal is to get to 2,000, 3,000. And to do that, our customers will have to adopt new materials, and we are actively engaged in developing those new materials. So that's what we do within SCEM. I'll come back to the answer around the question -- around the growth and the profit levels. So then APS, it's all about the subtractive steps. It's going to be about the polishing. It's going to be about the post CMP cleaning steps. So think about slurries, thinks about the pads...

This is a new space for you.

That's a new space that's coming out of the acquisition of CMC Materials that we announced only close to about a year ago now. Right. So that's the -- when I talk about material science, those are really the 2 divisions at the heart of that material science capabilities. Then move to materials purity, while we have 2 divisions serving that purpose. The first 1 is really micro contamination. So it's a series of liquid and gas filters, and I'll spare you the details, but it's really about purifying chemistries. Purifying gas is liquids. And then you have AMH, Advanced Materials Handling because it's great to purify chemistries, but then you need to protect that purity during transportation. And then you need to protect the purity of the chemistries during the transport of that chemistry in the subfabs, all the way to the point of dispense onto the wafer. So we have solutions for the subfabs. We have solutions for the tools all the way to the final point of dispense. So that's at the heart, those 2 divisions are at the heart of our materials purity franchise. So in terms of -- in terms of the financial profiles of those 2 divisions, let's start with the growth rate. The purity requirements are becoming increasingly hard to achieve. And as a result of that, it's going to drive significant increase in the consumption of filters and as a result, I expect this division to be the fastest-growing part of our business, which is also good because it happens to be the most profitable part of our business. So the mix obviously is going to play out nicely there. The second fastest-growing division will be SCEM. SCEM is where we are developing a lot of really, really cool and exciting technologies and deposition materials, selective edge, dry resist and a bunch of other things that I'm prohibited to talk about. But it's exciting. The downside of that is we are in big investment mode right now, and it shows the operating income is not very exciting. But believe me, you would like to grow when it starts ticking off.

Where are the margins there now and where the target margin?

So right now, I mean, this thing is going to be oscillating between the mid and high single digit.

That's in the SCEM -- that's not core?

Yes, that is SCEM. Thank you for clarifying any misunderstanding there. So it's only SCEM. I'm talking SCEM. And the 3-year goal is to get to 20%. And I think there will be more margin expansion potential down the road when we see the leverage coming from the increased revenue. But right now, not very pretty. Then -- in terms of growth, next will be APS, I think...

The materials handling.

That's absolutely -- I'm sorry, too many acronyms. That's the planarization.

Yes, that's right.

So that's an area where we expect to be growing at about 2 to 3 points faster than the market. I think there's more to that down the road. But for the next 3 years, that's probably a good realistic goal and the margin profile there is actually also attractive in the high 20%. And then last 1 is the AMH. So materials handling. And there, these are the wafer FOUPs. Those are the FOUPs, the fluid handling solutions. They are actually great product lines. We don't invest a ton in R&D. We have already very compelling differentiation there. And we sell those products at a premium. So we are really essentially waiting for the customer to see the values so that they are willing to pay the premium that we are asking for those products. And we have been able to gain actually pretty significant market share, but -- but that's also the part of the business that is most exposed to CapEx. And right now, we don't expect really CapEx to recover for some period of time, right? So I think this is probably going to be the slowest growth over the next 2 to 3 years. And the margin potential for that business is in the low 20s.

Got it. We've got slower growth in materials handling because of low CapEx, we've got lower margins in Specialty Materials because of investment.

Yes, but it's expanding.

Yes, I get it. But, yes, short-term. We've got microcontamination, which is your highest margin business, probably your highest growth.

Yes.

And we've got planarization where its...

The planarization, I think it's really where we are actively engaged in selling this vision of integrated material solutions for our customers. At the end of the day, our customers, what they want is the new materials that will enable their new device architectures. Those materials to be adopted, need a few things. First, they need the right molecule, they lead a safe and stable way to transport those materials from the point of manufacturer or the point of synthesis to the point of use. And then you need, most importantly, a way to really dispense this material onto the wafer in a very cost-effective way. So we have that, that's what SCEM is developing. But once you deposit the material, you're going to need to polish it. Those materials are very, very hard to polish. And by actually sharing information around the film composition early on we expect that we will be able to develop slurries faster than any one of our competitors.

Got it. You're not making the pads as well, are you?

We are making the pads. But the secret sauce in that recipe remains the story.

For those of you that don't know, by the way, what we're talking about. Some materials are very difficult to etch and so you use this is called CMP, chemical mechanical policy, you put a slurry, which has mechanical abrasives as well as chemical properties, and you take a brush or had you will scrub the material away. And so those are the advantage of being able to take it off in a very controlled and a good fashion as well as making everything very, very flat with all the different materials I get the same effectively level, so you can start to build stuff on top of that.

So no, thank you for the clarification.

And by the way, a lot of acronyms and stuff in this space.

But you're doing, in fact, exactly what you're trying to prevent. You're essentially throwing a lot of sand and mud on the wafer and you're scrubbing it. And you're trying to do that in control fashion, so you don't scratch it and you don't create defects. So it requires an incredible amount of precision in that step. So everything has to be perfectly tuned perfectly crisp. So that's -- what does process that.

Why is it important for you to get into this part of the market?

It's important because, again, we want -- we win if the new materials are adopted quickly. So the faster they are adopted, the faster you're going to see those step function changes in terms of integrated content per wafer. Those materials are not going to be adopted if we cannot find a polishing solution. The slurry makers were not investing fast enough and -- who are not finding solutions to polish those new materials, they're very hard to polish in a controlled fashion. So we are investing a lot more in R&D. We're making big progress already. And the resulting -- what we expect to accomplish as a result of that is that those combined solutions will all benefit and we will be able to increase our market share across those 3 platforms. So deposition, planarization and post CMP cleanse. Today, we are #1 or #2 in each of those 3 verticals with about 30% market share. If we do it right, we believe that we will be able to come to market with optimized solutions, which means better wafer level performance across the whole thing in a faster time frame. And time to solution is very important in this industry because those node transitions are essential. That's the rule [ of course ]. So if we do that right, we should be able to improve the market share from 30% to something greater than the 30 over the time.

Are there any other competitors that can sort of provide that like more holistic view across the different states?

We are the only 1. Today we are the only one. And not only that, but remember that is an overarching need for greater purity across those 3 different building blocks. And we are the industry leader when it comes to materials purity. So not only are we going to be able to optimize the materials themselves, but we're going to be able to do that at a much higher level of purity. And all of that, again, in a faster fashion than if the customer was trying to disaggregate the collaboration across 3 or 4 different partners.

Got it. So to switch to micro contamination. Why is that business your highest margin? Part of me feels like the specialty chemicals would be highest because it feels hardest to do, but maybe I'm wrong. Why is micro- -- is it like a consumable model? Like why are those margins so much higher?

Well, I think that it's a function of the value that we're contributing to the customers. I mean remember that what we are enabling is yield optimization. To put that in context, 1 point of yield in advanced logic is worth about $150 million annually. So if you need to use a lot of filters that are $10,000, $20,000 a piece how much they are? Yes. And some of them are replaced weekly and some of them even more often.

But I was picturing something much smaller, I think so.

Well, but it's a drop in terms of -- I mean, the trade-offs are pre compelling. So -- so that's that. And then again, I think that we have demonstrated the ability to develop solutions faster than our competitors. So frankly, a lot of our competitors have given up. 20 years ago, we probably had 5 competitors. Today, we have one.

Who's that?

That's Paul Danaher, right? But today, at the very leading edge, our market share is close to 80%, right? So -- and that's a function, again, of the performance benefits that our customers are seeing as they use our filters as compared to the competitive offering. So Danaher is a health care company now, mostly anyway as -- that's probably part of the reasons we've been able to accomplish that, but it's a very good company, nonetheless. But we have a great team. And I think that we have been able to reach those very high levels of market shares across a number of product lines, by the way. So back to what I was mentioning in terms of deposition materials, slurries, and the post-CMP cleans, a 30% market share when you hear us claim that we have higher market share aspiration it's possible. We've done it before. Filtration 20 years ago, we were having 30% market share. And we're feeling pretty good about it. Today, we have 80% market, right? So having said that, again, the way to earn that is through very active collaborations with your customers. It's really having a deep understanding of their road map, a deep understanding of the problems that they're going to encounter and really find all solutions in a timely fashion.

What does that customer collaboration model look like? And how has it evolved? You must be cloning both with the end customers as well as presumably with the semicap vendors as well, right?

So and then more. So yes, collaborating very closely with the device makers, in partnership with the toolmakers. Our materials need a tool to be deposited or for the clean step in a way [indiscernible]. So we need to work with those as well. And we are increasingly working with the world chemical manufacturers as well because one of the reasons our micro contamination business has been growing so fast in particular, is that, you have a broader array of chemistries entering the fabs that have to reach much higher level security today than was the case a few years ago. And I'm talking about the solvents, I'm talking about the assets to basis.

How pure does it all have to be?

It has to be very, very, very pure. I mean, it depends across the board, but you're talking about when it comes to metal contaminants, you're talking about parts per quadrillion, right? So -- and I think we have -- we used to -- we like to use this analogy of saying, one, parts but quadrillion is equivalent to, one, I know it was a soft for me to use the analogy, but 1 drop of water in the overall volume of water going over the Niagara fall in 1 day, right? So you need to identify that particular contaminant and selectively remove it without altering the rest of the base formula and the active ingredients.

I was saying this all the time, but I just -- I look at all the stuff across it. I'm amazed any of this works at all. Like [ it will be my budget or not ].

And so our job is, in fact, to push the boundaries of what we think is possible. And the truth is that 10 years ago, I was getting a lot of questions about can we go below 5-nanometer. And frankly, even talking with the CTO of TSMC, I would say, I'm not sure. We can go past 3. It's going to be really, really hard. Well, here we are at 3 talking about 2 and talking about angstrom levels, right? So this industry is incredible. I mean you have a lot of incredibly bright people able to constantly push the limits of what you think is possible. That's win logic, that's true in memory now. I mean if you think about I was in Asia not too long ago, talking with customers about their road maps, 3D NAND, again, I think I mentioned that just a moment ago, their road maps are calling for three 5,000 layers, right? I can tell you that they will -- I don't know if we're going to get there. But at least we're going to try really hard -- and even if we fall short of 5,000 layers and we get to 1,000 and 2,000 that's still.

We're at 192 now or whatever it is.

Significant opportunities for us. More layers mean more volumes of material consumed. And more importantly, it means that new materials will have to be developed because the only way that we will be able to get to 1,000 layers is if we can deposit those layers in thinner films, which means that we have to come up with materials, conductive and dielectric materials that can actually perform electrically and frankly, from a structural standpoint at the levels that our customers are expecting. So we have some ideas, and we're going to get to work. And over the next 5, 6 years, 10 years, it's going to be really exciting. So it's true that I'm glad that we moved off the short term because the short term is really...

It is what it is, right?

But when you fast forward and you look at what's ahead of us, it's exciting. And frankly, that's 1 of the reasons why we are investing in this downturn. And I know that for many investors, it sounds counterintuitive, but we have a high degree of conviction in this growth performance available to us, this opportunity to contribute a road map of our customers. So we're investing in CapEx. We're investing in R&D even if we are in a downturn.

So I mean given that like -- and you've talked about a few of them, but like what do you think are the biggest discontinuities over the next, like, several years that are going to be most relevant? You talked about something like 3D NAND layers going to thousands. But like what are some of the other discount annuities do you think are most important for you that you're trying to enable?

I think that -- I mean, logic remains the core focus. I mean we have so many opportunities as we get to the [ angstrom ] regime. Gate all around is also a materials-enabled or an materials-intensive architecture, so a lot of opportunities for us as well. Why is that, by the way? Because, I mean, you're going to have to really find new materials for those Nano wires or urbans, depending on who you talk to, they call it differently. And then you're going to be -- you're going to have to actually etch very precisely around those nano wires. So it's going to be mostly enabled through deposition steps and selective etching steps. And we are developing those solutions as we speak, right? So logic, between the compounding complexity of those very complex architectures and the push for more miniaturization, I think that's going to be still where we -- is a very fertile ground for opportunities. But memory is actually becoming increasingly exciting for us as well. I mean we talked about 3D NAND, but DRAM is also now entertaining the EUV structures, 3D structures on back end. So a lot of interesting developments as well.

Does your intensity differ like between logic or DRAM or NAND? I feel like it should, but maybe not.

Yes. So today, certainly. But I think that memory will probably be in 4, 5 years where logic was for us 5 years ago. So it's good. I mean 10 years ago, our story was all about logic. And only logic because the requirements in memory manufacturing were we're not stringent, that's changing. And as you know, in terms of wafer starts, memory is significant. I mean not this year, but longer term, it's very significant. So it's actually going to be a big driver for our growth as well.

But even with that, like so AMET was here today. And I mean, their view seems to be going forward that memory is probably a smaller percentage of World WFE going forward than it has been in the past. That sounds like it'd be positive for you as well if it's true.

Yes. I mean, I think, again, I think what -- I mean the takeaway for you is that unlike an equipment maker, I mean, we actually have market share levels that are very similar across the various customers. We have exposure and opportunity across the various segments. And I think we -- that's 1 of the reasons I think our business is actually more resilient is, we have actually a broader platform, a more diversified platform in terms of the applications we serve, in terms of the customers we serve.

Got it. I want to switch gears a little bit. I'd love to talk about China. And there's a near-term demand question. But like longer term, I mean, clearly, the whole geopolitical situation is getting a little more nerve-racking and there's been export controls put on them. So I mean, I guess, how much of your business today is sort of driven by indigenous Chinese semi manufacturing? Were you guys actually impacted either directly or indirectly by the export controls that were put in place?

Yes. So China is about 15% of our revenue. And I would say that two-third of that 10% of our revenue -- total revenue would be genius Chinese semiconductor manufacturers. And so like everybody else, after the October 7th ruling, we spend out of time working with the administration, understanding the rules, talking with our customers, having them make their proper representations to us that they would be operating at the permissible nodes. So yes, I mean we have -- we will be limited in terms of being able to serve less than a handful of customers. So we have quantified the impact. We said it's about $20 million a quarter. And based on what we're seeing after Q1, it seems to be a good approximation.

Okay. Got it. Is there any risk about like local, like Chinese competition or anything like that? I mean, clearly, the worries about broader decoupling are rising and -- maybe it's okay because I mean we've already limited their ability to build a leading-edge ecosystem. So they got to double or triple [ down ] lagging it. So maybe it's not that much of an issue, I don't know, but is that something you guys have to think about?

I mean, China has been trying to enable an entire semiconductor ecosystem, including material suppliers. So it's not new. They've been working at it for about 15 years now. So they're going to continue to try and maybe with renewed vigor. So we're going to have to pay attention to evolutions. But as of today, there are really no company capable of doing what we're doing in China.

Got it. Got it. I guess it's probably none that are 60 years old doing this either.

Maybe that's what it is or maybe that's just being really fast at moving the needle and raising the bar.

Got it. I want to talk a little bit about the broader like M&A strategy. And we should talk a little bit about the CMC deal. So I know that's closed. Where is the leverage sitting today? And where is it going to go? Because I think you're right. I think you acknowledge it directly when we started, it's levering up to buy something into a cycle peak. It hasn't settled that well. Again, it is what it is. It's fine. But where is the leverage now? Where is it going to go? And then you talked about some divestitures in order to bring that leverage down. Can you talk about what you're divesting and how much that adds to it?

Yes. So right now the leverage is 5% gross average. The commitment we've made is to get to 3.5% by the end of next year, 2024. And yes, divestitures will play a big role into that. So we completed and closed the divestiture of QED. That was about $135 million QED -- that was -- it was actually a part of CMC Materials. It was around polishing of -- I'm drawing a blank -- so clearly non-core. And so we -- $135 million of proceeds from that. So then we just announced the sale of electronics materials, electronic chemical to Fujifilm. So those are really a number of solvents and bases and assets, and purity grade chemicals. And again, here, it was really about the margin profile of that business that we didn't think was sufficient to be part of the platform going forward. So we announced the deal. We need to go through regulatory approval. The good news is that we don't need to file in China. The other good news is that there is really no overlap between the Fujifilm portfolio and the EC portfolio. So hopefully, we can close this deal before the end of the year. And that's going to generate $700 million of proceeds, right? And then we also talked about the DRA business or the pipeline business. So the drag reducing agents for oil and gas, and we will initiate another auction process before the end of the year for that business.

Got it. You've bought a number of things over the years. I mean there was ATMI, [indiscernible], Sinmat and Global -- and like I guess -- maybe you could talk a little bit about how you've been building the portfolio up to where it take through those deals? And I guess, are you done now is the portfolio now where it needs to be to accomplish what you want to accomplish?

So we built the portfolio the same way. We think about our internal R&D projects. I mean we -- as I said, we engaged routinely and extensively with our customers on their road maps. We understand not what their current problems are, but what the emerging problems may be. And then we reflect on that internally, and we have to decide whether we think we have the tools and the technology that will allow us to solve the issues that we have committed to trying to solve. And sometimes we have everything we need internally and then we're just going to commission an internal R&D program. And sometimes we realize that there's probably a better way to address the issue, and we decide to acquire companies when they are available, which is not always the case. So that's really what led us to acquire a lot of the companies, you mentioned, from ATMI. Sale was really because we had -- we wanted to purify larger quantities of gases. We had small-scale gas purification systems. We needed something much larger for the mega fabs that are being built, and it was willing to actually partner with us. In the case of Sinmat, we knew that power electronics would most likely prefer SiC wafers as the substrate of choice for power electronics. And we wanted to get exposure to that. So Sinmat had what we thought was a really interesting technology for slurries -- for silicon carbide. So we acquired that. We invested a lot in R&D, and we have actually built a very compelling platform. We have a market share in excess of 80% right now. And as we combine with CMC materials, we are now also developing the perfect pad, earlier commented about the role of the pad, so that we have now the full solution for SiC polishing. So -- are we done yet? Well, for -- yes or no. I mean in terms of the segments that we're serving, I think we have what we need, but we're constantly looking for the next opportunity. What is -- if you think about our business model, it's all about identifying emerging applications, unserved applications or applications that we believe will be best equipped to serve and then really zoom in and then really expand as to some extent. And we try to select areas that we expect will be growing faster than the rest of the industry. And we try to do that again and again and again. So we are -- we have new ideas. And as the years unfold, we will be -- we will be looking at organic and inorganic moves. But again, to be clear, right now, the focus is to delever the balance sheet and we have made that commitment, and we will honor that community.

Got it. So we have about 10 minutes left. Actually, I have a fair number of audience questions probably that are lining in the room. So the first 1 is maybe a misunderstanding. So I'm going to just ask you to clarify. The question is 70% logic, 30% memory going to 70% memory, 30% logic. I didn't hear you say that.

No. So 70% logic, 30% memory. Yes, that's about the ratio today. What will it be in the future? It's really hard to tell, frankly. And I think is because we expect logic to continue to grow rapidly but we expect to have a lot of opportunities in memory as well.

Okay. So the question is, how much of -- whatever the ratio becomes, the question was how much of it is incremental growth in memory versus cannibalizing logic sales?

There's no cannibalizing.

Okay. That's what I wanted to get it. Easy one. Can you share with us the geographical mix of your production facilities and volume?

Yes. So it's about 60% U.S., 40% Asia. And you should expect us to continue to do more in Asia over time. Obviously -- we're in Asia. So we just announced -- we opened a new facility in Kaohsiung in Taiwan, right? And we will continue to invest in most likely Korea and potentially Japan as well. Of course, we have some investments in the U.S. as well. I mean we -- again, we believe that this industry is going to double in size over the next -- or before the end of the decade. We believe that we will be actually doing more than that because we expect to outpace the industry. So we need to add capacity. We're running really out of capacity in 2022. So this downturn to a great extent is a blessing in disguise. And that's one of the reasons we are investing massively in CapEx in spite of being in the downturn.

Massively, what does that mean in terms of capital intensity?

Well, I mean, today, it's -- we're talking about $500 million. So that's significant. So on an ongoing basis, on a more normalized level, it will be about -- you expect us to spend about 10% of our revenue in CapEx. But this year, it's obviously going to be a [ 20% ] market now.

Okay. Do customers switch suppliers easily? If not, how is Entegris able to win over existing suppliers in new domains? What's the risk that competitors will eventually catch up and replace Entegris?

So our solutions are very, very sticky. So it's very, very hard to replace us. And likewise it's very difficult for us to replace our competitors in existing applications. So our focus is really the next new thing. And that's why our focus is really about the road map of our customers. Their problems at the next node and the 1 after that. And we tried to go back and displace existing competitive products in mainstream fabs, but it's really not worth the efforts very often. So we're constantly looking ahead, and that's why we measure our success in terms of design wins at the new nodes, and that's how we run the business really.

Got it. Would you be able to share some ballpark estimate of the difference in margin profile for your solutions in leading edge versus trailing node?

So I mean, typically, the new products have higher margins. And then you see -- you usually have to make some pricing concessions over the life cycle of a product. And life cycle can be 10, 15 years. But if you look at the operating income level, it's actually fairly similar because we don't invest a lot in R&D for the -- I mean we have some sustaining engineering, but it's very minor. And frankly, there's not a lot of selling effort for the older products. Once you're qualified into a fab, you're just going to get the orders as long as that fab is in operation and the consumption is going to be a function of their wafer start.

Got it. Do you compete with semicap vendors such as AMAT who've talked a lot about like materials development when selling your deposition materials, for instance.

No. So Applied Materials, I mean, I know that they have the word materials in their name, but they are not a material supplier. So we collaborate with them. We collaborate with all of the equipment vendors. We need their tools to deposit the materials. We need their tool to deliver the cleaning chemistries and the etching chemistries that we develop. And they need us to develop those chemistries. So a lot of collaboration with the toolmakers and of course, with the device manufacturers.

Can you update us on the competitive landscape now that you've acquired CMC, [ part of inverse ] and which competitor is relevant in the space?

So let's focus 1 second to that trifecta here, the deposition materials, the polishing step, and the post CMP clean. So in terms of deposition materials we compete with Merck and we compete with a French company called Air Liquide. For the polishing, we compete with a number of Korean companies which compete with Fujimi. We compete to some extent with Nippon. And then for the post CMP cleans, we compete with DuPont and [ Disev ], mostly. So we -- again, no company really has the breadth of capabilities, and we believe that nobody is going to be able to offer that integrated material solutions that we believe will be critical to our customers down the road.

Here's a question that kind of get -- maybe it's not fair to ask you, but I'm going to ask you anyway. So basically, it's getting at -- does Versum need to acquire something like DuPont's CMP business to be competitive with you?

I'm sure you can find the right person to ask that question.

I mean more broadly, it sort of gets to that point, maybe the right way to ask it is, are there ways that competitors could build up a portfolio that more resembles what you have?

Look, I mean, I think that -- I'm sure that -- I mean, our competitors are looking very carefully at what we're doing. I'm sure they're going to try to emulate what we're doing if they believe it's working. I think right now, the real question is, is the hypothesis that having those 3 sets of capability going to be enabling the road map. We have yet to demonstrate that. That's why when asked the time horizon, when we're going to be seeing those, the evidence of those synergies, we usually say 3 to 5 years, right? So I think our competitors will likely also be watching whether it's [ way too hard ].

Got it. Do you think material should be more or less cyclical than semi equipment or the same?

But it has been less cyclical. I think it has been less cyclical. I mean, historically, if you look at the last 20 years, the amplitude of the cycle is less, right? And this is the case again this time around. And I think it will continue to be the case simply because before semiconductor maker starts making new investments in capacity, they're going to need to actually fill up the existing capacity. And so I think that -- that's 1 of the reasons why you have that buffering effect.

Yes, this is [indiscernible]. Again, I think you used to talk about 70% kind of unit-driven and 30% CapEx driven. I don't know what -- where those numbers sit now?

It's 80/20 now.

80/20. Okay. So I guess the unit piece obviously is units [ roll off line ], but I guess, to your point, utilizations can come back, units can go up without CapEx going up...

[ That sounds good ].

So we've got about 1.5 minutes left. I will give you your soapbox. Why should these investors buy Entegris stock?

Well, I would probably end the way I started. I think there's been a lot of consternation around the shape of the balance sheet, a lot of questions about our ability to outperform in a downturn. I think that we're starting to provide elements of Entegris. I think that more will become visible as the year goes on. So I think the stock has been in a penalty box -- for the last several quarters. And I think that now it's the time to invest. I really believe that -- I mean, right now, it's true that there's not a lot of visibility in the cycle. So I'm not going to tell you that there's an imminent recovery. I don't know, and nobody knows, frankly. But it will come. And from experience, I can tell you that the longer the recovery, the shopper, the ramp up. It has been the case for the last 30 years, and I have no reason to believe it's going to be different, especially given the emergence of a number of new demand drivers for semiconductors. So we're going to have to be patient collectively in terms of when the recovery comes, but we're going to be ready. We are making good use of this downturn. We are investing to stay ahead of our competition to actually build the capacity ahead of demand, and we will be ready when the ramp shows up.

Got it. I think that's as good of a place to leave it as any. Thank you so much. I really appreciate you coming.

Thank you, Stacy. Thank you.