MKS Inc. (MKSI) Earnings Call Transcript & Summary

I want to thank you for joining us today, both in person and over the webcast. I'm David Ryzhik, Vice President of Investor Relations at MKS Instruments. And on behalf of MKS, I want to welcome you to our 2022 Analyst Day. Before we begin, I'd like to refer you to our safe harbor for forward-looking statement slide and remind you that various remarks made during today's presentations about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in this safe harbor and in our quarterly report on Form 10-Q for the quarter ended September 30, 2022. 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 today's presentation, references will be made to non-GAAP financial measures as well as pro forma and combined company financial information following our recent acquisition of Atotech Limited. Please refer to the slide and the appendix to our presentation for information regarding our non-GAAP financial results, reconciliations of our GAAP and non-GAAP financial measures and pro forma and combined company information. Our presentation, including the appendix, is available under Events and Presentations in the Investor Relations section of our company website at investor.mks.com. We have a full agenda today. First, John Lee, our President and CEO, will discuss the broad role we play as a foundational solutions provider for the connected world. Next, you'll hear about our industry-leading subsystems for the semiconductor market, which touch almost every key process in semiconductor manufacturing. Eric Taranto, Senior VP and GM of the Vacuum Solutions Division, will highlight our differentiation and growth opportunities. Next, we'll share our expanded capabilities into electronics and packaging. The same trends that drove semi in the past few decades are now playing out in advanced PCBs and package substrates. With Atotech, we now have all the critical pieces from laser drilling to chemistry to enable us to optimize the interconnect. Jim Schreiner, our Senior VP and COO of the Material Solution Division; and Harald Ahnert, VP and GM of Electronics, will highlight how we are foundational to the core building blocks of advanced electronic devices, and they'll touch on our growth opportunities. Following a 15-minute break, we'll round out our end market presentations on specialty industrial. Mark Gitin, Senior VP and GM of the Photonics Solutions Division; and Gertjan van der Wal, VP and GM of the General Metal Finishing Division, will highlight how these businesses leverage MKS' domain expertise and create new opportunities. We'll conclude with Seth Bagshaw, our Senior VP and Chief Financial Officer, who will discuss our operating model and how that's evolved to become stronger and more resilient. He'll also touch on our capital deployment strategy and close with an update on our long-term model. After that, we'll do Q&A. And for those in attendance here, Q&A will be followed by lunch in the Madison room. With that, I want to welcome John Lee, President and CEO.

Great. Thank you, David, and welcome everybody. This is great to see everybody in person. Unlike our last Analyst Day when it was all virtual and a lots happened since then. MKS today is a much more scaled company. Our core semi business has grown substantially. We've taken share. And MKS has evolved with the acquisition of Atotech. This adds critical chemistry capability. It really allows us to be much more important to advanced electronics. Also adds a large, resilient revenue stream to the company. And we're going to provide additional details on all these topics throughout the day. But first, let's go to the video. [Presentation]

Great. So hopefully, that woke you up, second time. Look, as you can see, we're critical to so many applications in semiconductors, lasers, chemistries for packaging, automotive, consumer products and the list goes on. But there's a common thread. We go where the hardest problems are. Solving hard problems is a core competence for MKS and problems are getting harder. And this trend towards miniaturization and complexity is creating opportunities for MKS. MKS is the foundational technology provider that enables advanced electronics. Advanced electronics needs advanced semiconductors as well as the advanced packaging that goes with it. Not only is nearly every semiconductor chip in the world made with MKS technology, but over 85% of all the thousands of steps needed to manufacture a chip, has multiple MKS critical subsystems in it. So 85% of those steps, you're going to see MKS in it. Our leadership is unique because it continues into lasers and chemistry for packaging and about 70% of all the process steps needed for advanced packaging has MKS, chemistries, lasers and equipment in it, 70%. So that's what we mean by a foundation. So we love advanced electronics, and we're in the pole position to not only enable the advancements in these products, but also to benefit from them. We are a technology-driven company. We're leveraged to powerful secular trends. And we're positioned for continued attractive growth, and we not -- and most importantly, we've demonstrated a long track record of execution. Here's MKS at a glance. We have many leading product categories that are built, that have a foundation of innovation behind them. My favorite number is, of course, the one on the upper right, 100%, almost 100% of semi chips are made with MKS. And because we're foundational to semiconductors and semiconductors are foundational to advanced electronics and advanced electronics are foundational to a connected world. We are foundational to the connected world. When you think about the connected world, it's how we communicate, it's how we drive our cars, it's how we monitor our health. It's how we make things, right? And it's how we actually think about entertainment and how we take in our entertainment. And not only are we part of this connected world and driving it, but we're intimately and deeply engaged with this digital ecosystem. If you think about MKS prior to about 2015, we were a single market type of company, and we had direct interactions, obviously, with our semiconductor capital equipment OEMs, the lower right bullet there. We've evolved since then. We now continue having those direct conversations with our semiconductor... We're also talking to their customers, the people who make the chips as well as the people who make the PCBs. And we talk to their customers, the people who are making the next-generation consumer electronics. And so this is really one of the areas where MKS is unique. We're talking to everybody in that entire digital ecosystem. I think we can all agree that the demands of a connected world are accelerating because of the demands on advanced electronics. That, in turn, is requiring that semiconductors and advanced electronic packaging continue to evolve and continue to miniaturize and become more complex. That requires that companies have a broad expertise in precision manufacturing. This is what MKS is built for. So you saw this slide in 2020 at our 2020 Analyst Day. The semiconductor market on the left and the electronics and packaging market on the right. Before we actually called that advanced electronics, today, we're changing that slide to electronics and packaging is really to highlight the opportunity we see in packaging. This is obviously much more top of mind now with the acquisition of Atotech. You'll hear from our team later who have been on the road talking to customers to enable and to look at how we can enable electronics and packaging. However, the trends have been the same, the secular trends, miniaturization, complexity, the need for chemistry. What's different today about our approach is that we're bringing a lot more chemistry expertise to bear on the problems that drive semiconductors and advanced electronics. We also leverage the expertise we have across many different technologies, such as chemistry, pressure measurement and control, plasma and reactive gas, optics, lasers. In order to solve key particular -- key problems with particular industries, we call that specialty industrials. So things like solar manufacturing, synthetic diamond manufacturing. And you'll hear about this a lot more throughout the day as well. But first, let me summarize MKS' evolution into this diverse foundational technology provider. So MKS is more than 60 years old now, but in the past 7 is when we have significantly evolved into this what we think is a unique foundational technology provider. Not only have we broadened our technology offerings, we now address a more diverse set of markets. Our revenue is more resilient. Our profitability has greatly increased. And more importantly, our opportunities to grow have also increased. In 2015, our addressable market was about $6 billion. Today, it's $25 billion. Now let's talk about each of these opportunities in a little more detail. First one is semiconductor, our historic core market. And when you think about semiconductor, there's some attributes about the market. Many of you understand it, many might be new to it. It's characterized by long design cycles, significant follow-on revenue, strong and deep customer relationships. You can see some of the applications on the left. Deposition, etch, that was the legacy vacuum Surround the Chamber type of business that MKS had. With the acquisition of Newport in 2016, we added lithography, metrology and inspection to the portfolio and those customers. And we continue delivering specific solutions to wet processing as well. We have leadership positions on the right, #1 and #2, in multiple product categories. And in 2021 pro forma, this business was about $1.8 billion. Next slide shows about electronics and packaging. And after the chip has been made, you got to connect it to the rest of the world. And this is where advanced packaging comes in. If you think about the electronics and packaging market, it has some very similar attributes to semi, long-design cycles, the need for precision, tighter integration and co-development with customers. You can see some of the applications here, electronics, chemistries and plating as well as laser drilling. And leadership positions as well in multiple categories on the right. You'll hear a lot more about this throughout the day. This part of our business was about $1.3 billion pro forma in 2021. So about 25%. Now I want to double-click a little bit on this and tell you a little bit about how the design of the chip, the semiconductor and the design of the package is now codependent. And here's a visual of a stack. The top of the stack is the chip, the semiconductor. Then you have different types of packaging techniques and technologies underneath, wafer-level packaging, packet and then regular printed circuit boards. And what's unique about this is that every one of these areas is also miniaturizing and growing in complexity, more layers, smaller features, more process steps. This is great for MKS. But the point is you can no longer design the chip without understanding what your packaging designs can be. So this is the idea of co-development of the semiconductor and the packaging together. And MKS is positioning to enable this technology trend. In other words, we are where the interconnect is. And finally, the third segment of our business is Specialty Industrial. And here, we're using our domain expertise in various technologies to address specific customer issues in specific markets. And you can see here, the markets and the applications are industrial, life and health sciences, research and defense. And this part of our business is also about 25%, about $1.3 billion pro forma in 2021. One of the areas of interest here is Automotive. So we have a lot more exposure to automotive now with the acquisition of Atotech. And you'll hear a lot more about that going forward as well. So I'd like to step back a little bit and share with you how we think about MKS and what's made us successful, what's unique about us. It's our DNA. I've talked about our breadth of process expertise and product expertise. I've talked about our deep and collaborative customer relationships and [ why ] it's so important to the digital ecosystem. Now these 2 attributes are critical and enable MKS to be able to accelerate our innovation engine, solving the most difficult problems and accelerating time to market for our customers. So what does this look like? As an example, our innovation in RF power we've talked about a lot in the last few years. This has really enabled an unprecedented evolution of 3D NAND stacking. Today, the industry is on the seventh generation of 3D NAND stacking in 7 years. So you just do the math, that's faster than Moore's Law, right? And in each of these generations, we've had to evolve the RF power delivery and control every year. Every year, it's gotten to -- has had to become much more powerful and much more -- have a much higher ability to control the power. So we did this 7x. And this kind of power growth has never happened before in the 60 years of the semiconductor industry. It just never happened before. And so this is what it looks like. When we say an innovation multiplier because of our breadth of products and domain expertise, because of our interactions and deep collaborations with our customers, seeing the inflections first and then revving up the innovation engine to solve these problems at unprecedented levels. So you might remember this slide from 2022. This is how we take DNA and turn it into strategy. We've talked about Surround the Chamber. We talked about Surround the Workpiece. And this really guides us into what products we should be developing and perhaps what products we might be acquiring. How's that changed now in 2022? Well, with the acquisition of Newport, we added lithography, metrology and inspection, as I told you. So we're no longer surrounding just the chamber, the vacuum chamber. We have to surround the wafer. 85% of all the steps, the thousands of steps needed to make a semiconductor chip, MKS is in. I think with only people can say that. We have surrounded the wafer, right? Now Surround the Workpiece continues as a strategy, but it's evolved, too with the combination of chemistry, equipment for chemistry and laser drilling. We're now involved, as I said before, in almost 70% of all the steps needed to manufacture leading-edge advanced packages or what we call Optimize the Interconnect. You can see that in terms of the laser systems, plating equipment process chemistries around the interconnect. So given these strategies and our focus on the Semiconductor Market, Electronics and Packaging and Specialty Industrial, our long-term strategic focus really hasn't changed. We will continue to execute with discipline while investing in long-term opportunities. We will continue to deepen these strong collaborations we have with everybody in the digital ecosystem. We'll continue to attract and capture opportunities in the attractive secular growth markets that we're already in. And of course, we'll allocate capital effectively. In terms of capital deployment, it's always focused on long-term value creation. It has 3 pillars, and Seth will talk about these in more detail. But overall, the first one is grow organically. There are so many opportunities where we can invest and grow organically. We will continue to do that, supporting our dividend as well. Top of mind today is debt management with interest rates where they are. We are focused on the next 12 months of deleveraging. M&A and buyback continue midterm in terms of our growth strategy. We'll always balance the payoff for long-term shareholder value between M&A versus buyback. And value creation extends to all our stakeholders, our employees, our customers, our suppliers and our communities. So over the past few years, we've evolved to a more formalized approach to environmental, social and governance initiatives, and this starts at the Board level, monitored by the Board. We've set in motion a number of initiatives that underscore our commitment to ESG. You can see them here. And I look forward to talking to you about them in the years to come. But what's really exciting is that sustainability also extends to products. Here's some list of some of the products that we make that address sustainability. We make gas analyzers to help people develop automotive emissions testing. We talked about making diamonds, right? Our microwave power sources are now used, so we can actually make synthetic diamonds instead of mining them. Our dissolved ozone delivery systems continue to be used in semiconductor manufacturing, replacing caustic chemicals. And then 50% of all the R&D projects in our Atotech portfolio are targeted towards reducing or replacing environmentally challenging chemistries as well as developing equipment to recycle them, reduce or treat the chemicals. So I'll wrap up where I started. Hopefully, as we go through the rest of today's presentations, you'll take away a few thoughts. First, MKS is a much more scaled company with a broader set of differentiated technologies. Our exposure to secular growth in markets -- to end markets has broadened. MKS provides more content to the semiconductor manufacturing process and the advanced packaging manufacturing process than anyone else in the entire ecosystem. That's what we mean when we say we were a foundation. And we have multiple exciting opportunities for sustainable and profitable growth. And therefore, I believe we're well positioned to grow EPS at greater than 10% CAGR through 2027. Thanks for your attention, and let me introduce Eric Taranto, Head of our Vacuum Solutions Division, to talk about semi. Eric?

Thanks, John. I'm excited to be here today to talk about our critical subsystems in the semiconductor market. While most people, outside our customers, don't recognize the products and technologies that we provide. I'll tell you why they're foundational and powering the connected world. John also mentioned that we like hard problems. And I'll talk about some of the challenges we're seeing and how we're solving them. And finally, I'll talk about some new opportunities we're seeing ahead. But first, let me talk about the key messages that I hope each of you walk away with today. First, MKS is a leading critical solutions provider to the semiconductor industry. Semiconductors really don't get made without MKS somewhere in the value chain. Second, we see strong secular trends driving sizable investments in semiconductor capital equipment. And third, we are well positioned to outperform. This is through our product portfolio as well as our deep customer relationships in the ecosystem. We talked about the key attributes, the processes and the applications and our leadership position in the semiconductor market. This business is $1.8 billion in 2021. And in deposition and etch, this is our largest segment. And in lithography, metrology and inspection, it's our fastest growing segment. And here, we're engaged across the OEM ecosystem. In wet processing, we're delivering our dissolved gas solutions directly to the semiconductor fabs. We are leaders in a broad array of products. We are engaged with the OEMs and semiconductor fabs, and we are in more critical process steps than any other company in the semiconductor ecosystem. This is a unique position that MKS has. And here, we see compelling evidence on how semiconductors have really become commonplace in our everyday lives. They're helping us drive our cars, keeping us in between the lanes. They are monitoring our health. They're allowing us to work remote and they're keeping us all connected. The continued growth of applications and the growth of content per application is a [ force ] multiplier on demand. Over the past 2 decades, we've seen semiconductor sales double to over $500 billion in 2021. And industry forecasts are saying that semiconductor sales is going to double again in half the time by 2030 to $1 trillion. Semiconductors are a vital component to the growth of GDP. When we talked about the massive demand for semiconductors driven by electronic devices and growth in applications, but also there's a demand to make semiconductor's performance faster and logic. And then add more bits in memory and to lower the overall cost. This is requiring our ecosystem to continuously innovate which is ever increasing and difficulty and complexity in scale and in precision. These are the problems we're solving today. And this is good for our business. It creates opportunity, and it strengthens our competitive position. Now let me talk about the market we serve, wafer fab equipment or WFE. This is really just the equipment that goes into the fab that manufactures a semiconductor device. And here, I'm showing on the bars the annual WFE over the years, and we're overlaying that over the semiconductor sales that I just talked about to show you how strong they're correlated. And we're giving you the 5-year rolling average of WFE to kind of show you the trends through the cycles. In recent years, we've seen kind of an inflection in WFE driven by vertical scaling, EUV and atomic layer processing. We see these trends continuing in the future. In fact, simple math says that WFE will be $135 billion to support the industry forecast of a $1 trillion annual sales of semiconductors. And that's just using a conservative estimate of the 5-year average capital intensity. This is a powerful statement about the long-term demand for the equipment that MKS is a critical enabler of. And John said, every semiconductor device, virtually every semiconductor device is produced using one or more of our technologies. So whether you're talking about physical vapor deposition, chemical vapor deposition, atomic layer deposition, dielectric etch, conductor etch, deep ultraviolet lithography, extreme ultraviolet lithography, metrology or inspection, we are integral to more process steps than any other company in the ecosystem. We address more than 85% of what comprises WFE. That means by 2030, our served WFE should be well over $100 billion. Again, semiconductor devices don't get made without MKS at the ecosystem. John talked about our strategy, our surround strategy and how it has evolved from Surround the Chamber to Surround the Wafer. Simply said, this is really about us providing the critical systems that affect the process on the wafer. So when our customers need to deliver new chemistries at 200 degrees C and above, they call MKS. When our customers need to directly measure pressure in the chamber at the sudden [ military ] level, they call us, MKS. And when our customers need to deliver more power into the plasma, they call MKS. And then when they need state-of-the-art manufacturing for optics, for lithography, they call MKS. As you can imagine, the closer we are to the wafer, the more critical we are to the process, and this gives us an intimate dynamic with our customers and our customers' challenges. As we've outperformed, not only we have grown with WFE, we've outperformed WFE over the last 10 years by, on average, 200 basis points. Of course, this outperformance isn't a straight line, and it varies. At times and years, we'll tend to outperform typically when latest generation nodes, capacity is being added for latest generation nodes. And then in some years, we'll underperform and kind of balance it out. But over the years, we tend to outperform by 200 basis points. We do this because of what we already talked about, our technology differentiation. We do it because we're exposed to higher growth segments like EUV and 3D NAND. We do this because we're able to deliver solutions at accelerated cadence. And we have the R&D scale to continuously innovate through the cycles. This is what makes us a preferred collaboration partner with our customers. And we expect to continue to drive outperformance. When we talk about some of the products that we are leaders, are in the critical vacuum solutions and systems, pressure measurement and control is a core business unit to us. Actually, it's -- it goes back to MKS' initial innovation, the Baratron. Here, the Baratron directly measures pressure that is critical to the process performance and the device yield. Here, we can measure pressure 10x more accurately than similar products. Our plasma and reactive gas business is providing remote plasma sources and ozone generators, enabling our ability to deliver these reacting chemistries at precise concentrations, is enabling advanced logic nodes at 3 nanometers and below. And we are a leader in providing RF power solutions that form the plasma and that control the plasma to etch holes that are 50x taller than [ they are wide ]. This is absolutely critical to manufacture the latest 3D NAND devices. And while we've been a leader in vacuum solutions since the early days of MKS, our 2016 acquisition of Newport has allowed us to provide photonic solutions into the semiconductor market. Our world-class optics initiative has allowed us to secure new design wins for both optical components and optical assemblies that enable high-precision optical imaging in advanced nodes. In fact, we're able to image features on a wafer that are 10 atoms across. And similarly, our Motion products are offering -- has allowed us to target inspection and metrology markets. Here, they need to be able to position the wafer down to the precision of less than [ 1 100 ] of the width of a human hair. Now let me speak a little bit about our engagements and our relationships. First, it starts with the technology inflection. When the current approaches need to be advanced or even reinvented to manufacture the device, and these lead to a host of new problems to be solved. It could take up to 2 years to develop the solution, develop the product and get it qualified in the fab. While we typically self-fund this effort, the payoff comes when it goes into production. Here, we see an annuity-like revenue stream that can last 5 years or even longer. And it puts us in a pole position when this process needs to be enhanced or even reinvented and restart that cycle. And you can imagine, we're running this cycle across our entire portfolio that we're are in . This is why our product portfolio matters. This is how we're gaining an understanding of device challenges and new technology inflections and it's how we're building deep collaborative relationships. Let me give you an example in RF power. John talked a little bit about this earlier. Here, the inflection was NAND moving to 3D NAND structures. The problem was how do I etch the high aspect ratio features, including the channel hole in that structure. The need for us was to develop RF generators that had the power and the control algorithm [indiscernible] to form those dielectric etches. And as layer counts increased to 128 layers or so, so did the aspect ratios and so did the need for higher power RF generators with more sophisticated control algorithms. As John said, we iterated our engagement cycle 7x, and we delivered at an accelerated cadence using our modular designs. And as layer counts continue to scale 200, 300 or more, they'll need higher power and they'll need more chambers to deliver same amount of wafers. We also see opportunities in conductor etch. Here, we're a relatively small position today, but it's a large market and it's growing fast. We have several design wins that are going into -- are scheduled to go into production. This will significantly expand our position and grow our share. And our investments in Photonic Solutions has positioned broadly across lithography, metrology and inspection. The advances in DUV and EUV processes is enabling device makers to achieve smaller feature sizes, increase their throughput and improve their yields. Our customers are adopting a large range of our differentiated optical designs particularly in EV applications. Here, you can see on your left, the 30% CAGR in order rates over the last 4 years. And we're seeing even higher growth rates in our precision motion systems. In this case, the smaller feature sizes are driving increased precision and wafer positioning and alignment for metrology, inspection and advanced packaging. So we're well positioned to address the future inflections that would drive attractive growth opportunities for us. Vertical scaling will continue. As I mentioned, as layer counts increase and more intricate revise structures for logic are created. This will be good for our RF Power business, our Vacuum Solutions business and our Optical Solutions, which is used in these advanced etch and deposition processes. Horizontal shrink enabled by EUV will scale logic and DRAM. And this will require more precise, more precision in our optics and in our motion as well as our packing solutions. And in advanced packaging, new techniques like TSV, chip stacking and chiplets will draw upon our broad capabilities across our portfolio, including our lasers in our chemistry, which you'll hear more about later today. So to conclude, I convey today the critical position we occupy in a dynamic industry with powerful secular trends. In the market, where incredibly challenging innovation is required every day, we, MKS, are among the few that have the portfolio, the understanding of process and product and the relationships to deliver. That's why we've outperformed through the cycles for years. And that's why we expect to outperform in the next 5 years. Thank you. With that, let me welcome Jim. Here you go.

All right. Thank you, Eric. Well, it's great to be with you here today to talk about how MKS will be innovating at the interconnect. My name is Jim Schreiner. I'm the leader of our newly formed Material Solutions Division, which we created from the acquisition of Atotech. I'll refer to it as MSD occasionally through the presentation. John mentioned Electronics and Packaging as being a very specific renaming of our segment. And I believe you'll see as we talk through today why that's so crucial, especially now that we brought in the electronics portion of our Atotech business. Now we're tag-teaming here, we have lasers and laser solutions folks who know a lot about that. But the key addition of Atotech brings proprietary chemistry to our broad portfolio. And that really puts us deeper into the value chain of Advanced Electronics and Packaging. Now I'm happy to be partnering today with Harald Ahnert. He'Il come up in a few minutes. Harald is -- I become one of Harald's new travel brothers. We've been to customers together. Harald's been to many in the last 4 months. He's got 25 years of experience in this chemistries and plating industry. And once I give you an overview of the target of our business and how we stack up in that, Harald will bring a technical differentiation to that story. So you can see how MKS is uniquely positioned to provide that solution. Three key takeaways for today from this section of electronics and packaging. First, next-generation electronics are demanding an ever-tightening integration of the semiconductor processes and the advanced printed circuit board processes. John touched on this. As semi pushes up continuously against Moore's Law with miniaturization and complexity requirements for new novel materials, the demands on the printed circuit board layers have continued to increase, and this is where innovation is really needed to unlock the full capability of the power of the new semiconductor chips. Secondly, we're bringing a novel approach to this by bringing together our laser and laser solutions with the chemistries needed to achieve that. And that's going to give us an opportunity to bring faster, better solutions to our customer and reduce time to market. And finally, with those technical [ technical difficulty ] , combined with our MKS business model for equipment and a consumables business with chemistry, we're uniquely positioned to bring market outperformance for MKS in this area. So as we've shown, pro forma value of this electronics and packaging world for us in 2021 terms was $1.3 billion, just below 30%. The largest part of that is the electronics chemistries and plating and that's where that vital important part of Atotech comes in. Applications on the left, clearly, in the chemistries that we bring and the processes we bring, where Harald and his team have been innovating for decades as well as our laser drilling performance from our laser solutions tool [indiscernible]. And that is really the second largest portion of the revenue pie is laser drilling. And that's built on leadership positioning and performance we've gained from nanosecond pulse lasers as well as emerging capabilities in ultrafast UV lasers for via drilling formation and next-gen advanced packaging. Now really, the key message here, there's two of them. One, our leadership positioning with our broad technologies are very well matched to the growth opportunities in this space. And secondly, the theme that you'll hear throughout the day is that the same attributes and trends that we've seen in semi advancement and innovation over the last decades, we're now seeing in advanced packaging electronics. In fact, much like subsystems that we sell into the semi toolmakers that are key mission-critical to yield performance improvements, lasers and chemistry are mission-critical enablers of [indiscernible] in advanced printed circuit board and packaging solutions. So there's a lot of analog there we'll talk about through the day. Now we're into the secular trends. You've seen this chart. The real news here for this year is the addition of the proprietary chemistries. This puts us uniquely in a play where we can bring novel solutions for materials in combination with our equipment. Now others have recognized the value of materials in this space, but we are now uniquely positioned to bring that to market quickly and help provide faster time to market for our critical customers. So John talked about the surround strategy, how it differentiates us and how we've used it to build the company. Here, we build on the idea and expand the context of our Surround the Workpiece strategy. And that's really what led us into advanced electronics, but also has broader applications in Specialty Industrial which you'll hear about a little bit later this morning. But very specifically as it applies to electronics and packaging, we think there's 4 attributes that are at play here for the key to this strategy. First is customer and ecosystem intimacy. Now not only do we have great relationships with our customers, and that's true at the MKS legacy business, but also our new Atotech business, create customer relationships. We have relationships with key customers, suppliers and even the end device manufacturers across this ecosystem of electronics and packaging. And that really allows us to provide insights to see early inflection points and to be seen as an early collaborator. We're brought in as a collaborator to help solve the next-generation design problems. Secondly, we can do that only because of our broad integrated technology platform, whether it's lasers, photonics, motion and now chemistries that earns us a seat at the table. And it's this very leadership and differentiation and performance that really exposes us in this space to the highest growth opportunities. We're invited early to help develop the next design platforms. And that's how we get stickiness with our customers. And finally, the fourth, what customers really are rewarding us for, is improved yield. That's been true in the semi world. It's equally true in the electronics and packaging world, more productivity at lower total cost, and that really leads us directly to the interconnect. So Optimize the Interconnect is effectively a specific realization of our Surround the Workpiece strategy. And in that, we are bringing a unique set of capabilities in our laser systems, our plating equipment and our process chemistries that are unique to the world and allow us to literally innovate at the interconnect in the PCB space. So let's talk about this stack up a little more. You saw an earlier chart on. This is really a story of the building blocks of today's advanced electronic devices. Starting at the semiconductor layer, what we're really working through with customers is the fanning out of these ever increasingly dense interconnections and I/O points out to the real-world devices through PCBs. At the semi layer logic and memory chips, we're dealing in the nanometer scale, it's a very small. And we've got to fan those out, often done first through a wafer-level package layer and this brings us from the nanometer world to the micron world, single-digit micron world. And then further expansion to the package substrate where we translate from micron measurements to conventional printed circuit board layers, whether it's HDI, flex or conventional multilayer. And the real story here is that at every layer in this stack, we're seeing an increased complexity, a shrinking of form factor, higher density interconnections that put new demands for innovation on laser drilling and plating. And our job really now is to help our manufacturing partners navigate through this ever-changing complexity and miniaturization. And that really requires a strong technical capability and very high precision. And if you think about it in a smartphone example, at the introduction of smartphones, we had a set of functionality available in that handy package. And you think about all the additional features and capabilities that have come to bear in the last 15 years with more cameras, larger battery, faster processing, et cetera, and yet it remains in that same package. And that's been achieved through this continued miniaturization and increased complexity in these layers. And that's where we're set to play and that's where MKS likes to play. So what are the market drivers that excite us in this space. I'll talk about them in terms of these layers because that's where our technical expertise comes to bear in electronics and packaging. At high-density interconnect and flex PCB that's really being driven by this increasing complexity from end devices like augmented reality, virtual reality, wearables, driving assistance systems and the like and foldable smartphones even, are all putting pressure on this part of the layering to be more complex, more dense to minimize battery consumption, expand power life, et cetera. And we play very well in this market today. So we're well established here. In package substrate, where we're returning our attention now with new focus, it's really being driven by this heterogeneous integration that's happening in the advanced packaging layers. And that's being driven primarily by the high-speed demands from high-performance computing for artificial intelligence, machine learning, but also cloud data center servers, all of which need high-speed close connections in the electronics layers. And then wafer level packaging, likewise, the applications that are driving demand there are really rooted in smartphone application expansions. And while we have a smaller play today with our chemistry plays there, we're well positioned for growth in this area, too, to meet the needs of those growth drivers. So MKS is also known for -- looking at high-value growth drivers. So in this space, where are those, and again, referencing this stack up to highlight where we see those. Prior to the acquisition of Atotech, we are playing in the advanced printed circuit board space with our laser drilling solutions for high-density interconnect and flex PCBs. With the introduction of Atotech to the family, we've now captured the chemistry play in that segment as long as -- as well as bringing along our chemistry to support standard multilayer PCBs. The advanced PCB is growing at 5%, and this is where a lot of innovation is happening. And as you move on the right on this chart, more and more innovation because the ever-increasing complexity and shrinking feature size in each layer. In the package substrate, we see growing at a higher rate of around 7%, and at the wafer level packaging, even higher growth at 9%. So our exposure to these secular trends of miniaturization and complexity is very much applicable here in this area of innovation that we've identified. And that really brings us to the interconnect. So really, how are we growing our share in this space. So today, we size our electronics and packaging SAM at around $5 billion. The lion's share of that is in chemistry, which is what we now have with our Atotech offering and electroplating equipment and laser drilling equipment comprised the rest. Now again, with that comprehensive combination of plating drilling and chemistry process, we have a faster, more superior offering to anyone in the ecosystem. And truly, many of our customer visits were also seeing enormous opportunity for cross-selling synergies. Our HDI customer base, our flex customer base and our Atotech customer base, all are interested in the alternatives now as we bring all of that message to the table. And as I've talked with some of you this morning already, we've seen consistently on these customer visits in presenting the new offering of the new MKS, great interest, which opens many doors at our customer base. But invariably, during the conversation, we'll watch the customers have their aha moment when they see the opportunity that we're now bringing to the table, and they stop looking at us and they start looking at each other. So we've seen great validation in the customer base for this opportunity for their business. You've seen this slide, I'll only make the comment relative to electronics and packaging. It's especially true that with the device, digital device proliferation driving new demands on semiconductor and advanced printed circuit boards that require greater and greater precision to enable that performance, our combination again of lasers, systems and chemistry puts us right at the point of where semiconductor space and the printed circuit board worlds are coming together, and that's at the interconnect. So we're uniquely positioned to take advantage of that today. We are also referenced how the advanced printed circuit board world is a lot of analogs to the innovation cycles we've seen with semi. And on the left, the semiconductor story is well known by many of you, as that has advanced in 3D NAND layer counts that have grown exponentially and the reduced feature size and node sizes in the advanced logic transistor world, we've seen innovation opportunity after innovation, that's been very good for MKS. We're seeing the same trend happening in advanced printed circuit boards. So as you think about those layers getting more and more complex shrinking in size, the average vias or holes in these panels of interconnects are moving from about 0.5 million poles per panel layer to over 3 million poles per panel layered by 2025. So a rapid progression and compression of the number of poles in the panel. Likewise, as the line space requirements to do all that in the same real estate is shrinking from about 40 microns to 20 microns. We're seeing a very similar transition trend happening. And while the numbers in the whole size may not seem that great, at each one of these steps of evolution, a whole new set of demands come through for both drilling and our chemistries used for the plating. So huge opportunities because of this innovation cycle we're feeling that's very much like semi. And as that complexity increases, what we're really seeing now is this blurring of what, as John said, we're kind of independent design cycles that are now becoming codependent. And that blurriness in those markets are really at the advanced packaging layer and the interconnect player. Previously, these 2 are independent. Now with interconnection layers packaged in between them, these worlds are getting blurry. And they're now codependent on each other and have to work together. And in fact, as such, requiring increasingly integrated design approaches between the semi, the substrate and the print circuit board design. I'll spend a few minutes on this slide. It's busy, but semiconductor design, better known having been driven by this miniaturization, complexity and novel materials as the industry presses up against Moore's Law. But that's created a whole new set of functional requirements in the advanced packaging world. And this heterogeneous integration I mentioned of bringing all that chip capability together at these layers of connectivity create challenges that we have to address and a few of them listed here, which Harald will give some technical detail to next, electrical performance. Imagine that as we increase the density and the proximity of all these traces and lines, managing the power through that distributed stack becomes challenging. Likewise, as you do that, you have to manage the thermal issues that are created. There's a lot more energy and a lot smaller space, how do we manage thermal issues. And equally important signal integrity with 5G signal frequencies, with high-speed, high-performance computing, the signal integrity of these traces becomes more and more important and Harald will touch on some of the attributes we have to be able to achieve in order to ensure signal integrity. But most importantly, that really creates innovation opportunities and changes at the package substrate and advanced printed circuit board layer. And that's true across a number of fronts like the structures themselves whether it's the flex PCB, whether it's high-density interconnect PCB or substrate-like PCB, all are going through a compression and miniaturization and complexity increase. Materials are being challenged. Core materials that were used before may not be sufficient enough for these new high-density structures, whether it's ABF, the Ajinomoto Build-up Film. It's going through its own iterations of advancement that we need to stay tuned with. High-frequency materials to better handle these high-frequency signals. So a lot of demand on the materials plays, each one, creating new opportunities for novel chemistries and drilling. Via formations, the geometry. We've talked about whole size. There's also a whole depth as these layers get deeper in these micro structures. We have new challenges with aspect ratio, not only from drilling, but also from the plating technologies. And new shapes and sizes, some of which Harald will example in his examples. And then process chemistry itself, the actual chemistry is used to plate and treat these layers in the advanced printed circuit board material. Atotech has been an industry leader in this for a long time. And Harald and his team bring a lot of innovation expertise to that, whether it's in new ways to treat surfaces, to bond these multiple layers together to prepare the board for laser drilling or to be able to plate thinner and ever thinner layers of copper so that the stack thickness isn't too much for the device you're trying to use. So incredible innovation across a number of attributes as our ecosystems come together, and that integration needs fast innovation and high yields. And that, again, is where MKS shines. And then finally for me, not only are we targeting high-growth opportunities. But within those opportunities, we see content expansion for us in our play. So again, I'll talk about it relative to the stack. In HDI and flex, with their ever-increasing complexity and more and more use in some of the market driving applications like wearables and things, we see the opportunity for an over 15% increase in the PCB dollar content per smartphone as that area matures and advances in innovation. In the package substrate world, likewise, larger multi-die substrates, more multilayer, more dense features. We see an over twofold increase in our package substrate dollar content as that area of the market matures. And equally in wafer level packaging, where I mentioned we have a smaller play today with our chemistries, even there, we see a greater than 10% increase in chemistry value per year in those layers. So not only are we targeting growth markets, we're looking at areas of growth that have content enrichment for our business as well, and we think this is what gives us an amplification of our opportunity in this space. So with that, overall position outlined where we're targeting, how this world of electronics and packaging builds up for us, I'd like to turn it over to Harald. Like I said, Harald is my new travel brother. I've probably seen Harald more than my wife in the last four months. I've had the pleasure of traveling with and watching him present our technical message to customers to great effect. So you're in good hands with Harald as he takes you into some of the more technical details of our opportunity. Harald?

Thank you, Jim. It's my pleasure now to show a little bit more detail how we actually optimize the interconnect. In my presentation, I will first try to remind what we think of the interconnect, what it is, what we mean by that, then walk you through the process steps of creating the interconnect, showing you some of the solutions that we can bring to the table. And finally, to remind you why we think we are unique there. So what's the interconnect. The interconnect we think of is a microscopic network, connecting all the chips and all the components like the display or maybe the camera. Creating this interconnect, this microscopic network requires many, many process steps. And these process steps are today delivered by many different vendors. What we are doing is we are trying to consolidate the most critical steps under one roof in order to provide better solutions and provide those solutions faster to the industry. So let me show you on a very high level how an advanced printed circuit board or a package substrate is produced. So on the left-hand side, you can see three main pieces. Let's start with pressing lamination. That is where you take the base material and put it together to form this multilayer structure. Then the next piece is the via formation and plating and that's where we are concentrating. That's we are trying to pull together all these solutions to create something better and faster. Starting off, by having a cup of oil on top of the material, we do an LDD pretreatment with our chemistry. We are preparing the laser direct drilling, blackening of the surface, so the laser can penetrate easier. Then we do the laser drilling using the unique tools that our colleagues, my colleagues of the [ ESB ] division are providing to drill very small holes very precisely and very fast. After that, there might be some splash left over from the drilling process. And again, we have unique chemistries that are designed to remove that splash without touching the rest of the via. And we have the desmear process, a critical process to clean the whole walls and make them prepared for the next step, which is the electroless copper seed layer deposition. That's a very thin layer of copper deposited in order to make the whole conductor. And then finally, we have the electrolytic copper plating process that is creating the actual conductors or is filling these blind micro beers with copper. After that, you have the photo process that's actually defining the conductors. Now you need to imagine that these processes are just like in semiconductor ongoing repeatedly and repeatedly. And the more layers we have, the more times all these processes have to followed up. In addition, we are not only able now to drive all the process chemistries and the laser process. We're also bringing the plating equipment to the table. So we are able to offer a complete production solution for many of these process steps and that creates not only a better solution to the customer, it also creates a lot of stickiness for our chemistry business running in our own equipment. Over here, that will show the process that I just explained. Again, it made a little bit easier to follow. [Presentation]

So please remember, as John said earlier, we are covering some 70% of these process steps to make an advanced printed circuit board or a package substrate. What you just have seen here, do you imagine the blind microbe that you saw that has about 50-micrometer diameter. So that's half of a human hair, and that keeps scaling and becoming smaller as we go. So let me now walk you through some of the solutions that we bring to address the challenges that Jim showed on the slide where he showed that semiconductor and PCB and package substrate technology needs to come closer together. So one of the challenges that he mentioned was thermal management. More powerful, more advanced semiconductors create more heat and that heat has to go away. And that's a real problem for designers of complex semiconductor packages. You can see here on the right, two solutions we can bring to the table. One is with our unique laser technology, we are able not only to drill round vias, we can drill all kinds of shapes. We can drill even square vias. Such square vias increase the copper surface area by that support the heat dissipatation. In addition, we bring something more to the tool set. On the right-hand side, you can see our unique through hole-filling technology. We are using our equipment and our plating chemistry to force a copper to plate inside of a through-hole is, for example, in the core layer of an advanced IC substrate or might be in the core layer of the next-generation consumer device. When we do that, we're able to fill it all these copper without creating too much copper on the surface so we can still define very fine lines. That's a unique technology, again, very powerful to dissipate heat. So we're increasing the toolset that designers have to create these kind of solutions. The next one is addressing the electrical performance question. In this example here, we're talking about scaling the interconnect, trying to create smaller and smaller vias or smaller, smaller lines. The typical challenge that our customers and their customers are facing as they want to do that, yield goes down. So we need to drive solutions that can preserve the yield. Give you an example. You just saw all these process steps. So on the left-hand side, you see a poor result. You probably -- somebody tried to make a smaller hole, but that you increase the aspect ratio, the plating result would be bad. What we can do now and our combined set, we can optimize the whole process. We can start to have a laser pretreatment that helps the laser to drill that smaller hole. We can have a laser that is providing a hole shape that helps the plating process to plate better. We can have a better desmear process that is working better on the new shape of hole that is created for the next generation product. And the thing continues. We are right now introducing new electroless copper solutions, which are able to plate the same sickness, all down to a very, very high aspect ratio behind via. And by that, allowing productivity to then do the full copper fill up. So this is the kind of combined solutions that we are thinking of when we are combining the laser and the plating technology. Some of you did ask me how we think about it and how that is answering the question. The last one is signal integrity. There are a lot of new high-frequency applications for electronics devices, be it in the high-performance server application or be it in 5G HF applications. How do we address that problem. On the bottom, you can see two conductors. One looks ugly as it is very rough. Roughness is bad in high frequency because that's causing the skin effect problem. What we are doing with our chemistry is we are innovating the way how you create adhesion between the conductor and the dielectric layer. We are creating chemistries that can create chemical adhesion rather than mechanical adhesion doing this roughness. So that's a solution to this issue. And then on the top, you can see our Geode laser solution which allow us to drill multiple diameters of vias in one pass. The diameters are important because as designers can design the right diameter for the right signal, we can go around the problems of signal interference and signal integrity in general. We have a very short video that shows the effect here. On the left-hand side, here it goes. Do we need to push one more time. Okay. Left-hand side, you can see we are on the way able to change the diameter of the via being drilled. And that's very powerful because we do that in one pass, we can do that with speed. When you show these kind of solutions to the end designers, they're getting really excited. They say, okay, that's opening new solutions for us. That's something we can design in. And of course, that's been very powerful for MKS because we can qualify a combined solution set. Changing from the technical functional requirements that Jim addressed to the time-to-market question that he also highlighted. Time to market is very important in this industry. We have new product cycles coming out more or less every year, and we need to enable our customers to participate. Now in the old world, our customers would send a panel, PCB, substrate panel. They will send it to a laser company to drill the laser hole, get it back, send it to a chemistry company like Atotech to do the plating. Send it back again, watch the results. The result might not be perfect. So they would do the whole circle around again and again and again until they feel comfortable to announce that they found a solution to the next-generation product. This might take more than three months. We are able to bring this down to less than a month. The customer can send us one panel, multiple panels, and we do the integration in our own technical center. We already brought the Geode lasers and the CapStone lasers in our technical centers around the world. So with that, we can really improve the speed of the innovation. We do the turnaround in our own house, returned a good sample with all the parameters that is needed. And that is when Jim talked about the aha moment where our customers go, "Oh, that will have a lot of value for us, because they can participate in time and catch the next job. Yes. And then I want to finally come back to the question, what we think is it that we are unique in this market. So on the left, you can see, I think we are really unique by having the deepest relationship to everybody making printed circuit boards, whether they're HDI PCBs, whether they are flex PCB, whether they are multilayer PCBs. We know each and everybody as a combined company, making this package substrate. We are deeply embedded in this ecosystem. And of course, you will believe us with MKS and together with a form Atotech, we are deeply embedded in the semiconductor ecosystem, being able to speak to these people who are defining the design of next-generation packages. And then it's not only the direct customers, it's also their customers. As a combined company, we are a really strong partner to speak to the people making the end user consumer device but also the people who define next-generation automotive electronics, which is another strong area for us. Our GMF business is deeply embedded in the automotive industry, and we are deeply embedded in the people who drive the automotive electronics. And then our comprehensive solution set. Of course, I was just explaining all the process steps that we can approach and all the tools we have. But let me walk you through. So we have the chemistry for all kinds of process steps now. We have the lasers, which is an integral part of this production process. As Jim explained or kindly introduced me, I'm 25 years in this industry in the PCB and package substrate industry. We did a lot of work to try to have a full production solution by combining the equipment and the chemistry, having best local service. It always has been a dream to think, could we also have the one critical step that is just in the middle of all the process steps that we are covering, which is a laser. Now we have it. So the dream has come true. It's really a very powerful combination. Customized equipment. I'll walk you through that already before, global service, and we even have a comprehensive software solution to drive value, not only with the equipment that we sell, not only with the chemistry, but even with more modern software solution. And then last but not least, let me remind you on our powerful combination of equipment and chemistry. About 50% of the sales we do towards PCB companies is coming out of our own equipment. We provide market-leading equipment to the market and the chemistry goes with it. You can see that by the other number, which is that more than 85% of these lines that we ever sold are still running Atotech chemistry. So when you put this all together, I think we really bring the whole package to the advanced packaging market. Thank you very much. And with that, let me hand over to Jim again.

All right. Great. Thanks, Harald. So wrapping up, I think by now, you can see that MKS is uniquely positioned to optimize the interconnect. We're a critical enabler of collaboration early to get tighter integration between the semi and advanced printed circuit board worlds. Our novel mix of capabilities are really targeted at high-growth opportunities in this segment with the expanded addition of content increase. And that makes us uniquely positioned to deliver growth of 300 basis points or more over GDP over the long term. So with that, we're going to close the electronics and packaging session, and I'll turn it over to David. Thank you.

Thank you, Jim. So now we'll take a 15-minute break, and we'll come back with specialty industrial. Thank you. [Break]

Welcome back. So now we're going to talk about our specialty industrial opportunity, where our Senior VP and GM of the Photonics division will talk, Mark Gitin.

Okay. Thanks, David. Hello, everybody. My name is Mark Gitin, I'm the Senior Vice President and General Manager of our Photonic Solutions division. I've been with MKS for about 5.5 years now, and I've been in the laser and photonics industry for about 30 years. Today, I'm going to discuss our third end market category that we call specialty industrial. Now this is a group of many smaller businesses that leverages our domain expertise across our vacuum, photonics, materials and the general metal finishing that Atotech brought to us. I'd like to think of specialty industrial as an organic outgrowth of the technology capabilities that drive our semi, electronics and packaging businesses. We've essentially extended what we do best into leadership positions to dozens of attractive markets. I'll update you on the broader MKS Industrial businesses. My colleague, Gertjan, will dive into GMF. Now the various businesses that we'll discuss today may seem disparate, but there are some very important common themes. The first is that we hold leading market positions in each of these businesses. We enjoy these leading positions because we're leveraging our domain expertise and our proprietary technologies that we developed over the years through our surround strategies. And the specialty industrial businesses help us to reach broader end markets beyond semi and electronics but feature the same types of deep customer intimacy that's really core to the DNA of MKS. And finally, these are all really good businesses, the resilient GDP type growers with good cash flow and margins that together both support and diversify our financial performance. Let's take a closer look now starting with this overview slide. Essentially, what we've done is to apply the learnings from our core innovations over the years and deploy them into new applications and new markets like research and defense, the life and health sciences and the broad industrial markets. If you look in the center there, with GMF, our specialty industrial is about 1/3 of MKS' total revenue. And that brings incremental stability from the broader customer and end market exposures. And we get leverage from these businesses because we're using technologies that we've already developed across the company. On the right, you can see areas where we're an applications leader, and I'm going to talk about some of those in a bit. And just a little note in the revenue breakout there, GMF is in the big block of the industrial block at the bottom and it's about half of it. I'm going to dive into a few examples now in each category, starting with research and defense, where we have thousands of customers and many applications. In advanced research, our vacuum products, photonics and lasers enable cutting-edge work in new materials and new applications, new manufacturing techniques. Also key to space science and satellite imaging applications. And then our nanosecond lasers, our optics and photonics enable mapping of terrain and looking at chemical signatures, mapping chemical signatures at very long distances. And in quantum computing, our lasers, our optics and photonics are core to enabling the reading and the writing of the quantum signals. This is an interesting new market that has the potential to make computers millions of times faster. In life and health sciences, let me highlight another three areas where we're a leader. For any of you in the room that have had LASIK surgery, you might be surprised to know that we were right there in the room with you because MKS' ultrafast lasers actually enable LASIK surgery as well as cataract surgery. And then in medical diagnostics, our optics, our photonics, our components like grading instruments that measure blood and genetic materials in hospitals and labs and clinics. And then in neuroscience, our ultrafast lasers and photonics enable researchers to see billions of neuronal connections in live animal brains in a 3D video. And this gives some insight into neurodegenerative diseases like Alzheimer's. And lastly, I'll cover the industrial applications. Now I told you that GMF is the largest in specialty industrial. It's leadership in chemistry is very strategic to MKS. And while surface finishing is a very different business than MKS has been in historically, it's actually much more synergistic than meets the eye. And I'll introduce you to Gertjan in just a couple of minutes, and he will go into the details of this really valuable and well-positioned business for us. So turning now to solar, our ozone generators, our advanced lasers and proprietary chemistries, these are core to manufacturing solar panels. And then for those of you that have known us a while, you've heard us talk about enabling synthetic diamond manufacturing with our microwave generators. And these diamonds are not just for jewelry and gem stones. In fact, they have core industrial applications in oil and gas and mining and machine tools. Now you might ask yourself, how did MKS get into the diamond business. So the synthetic diamond business is a really good story that actually highlights the optionality that specialty industrial gives us. In 2013, we bought a small company called Altair and based in Italy. Now this is a company with a couple of million dollar run rate bought them for their strong capabilities in microwave power as a tuck-in acquisition really fit into our surround the chamber strategy for semi. Now because we're well known as experts in our core technologies, we get a lot of calls asking if we can apply our capabilities to unique problems. And this was the case with a manufacturer of synthetic diamonds. And when we see a good business opportunity, we'll wrap a small team around it and we'll really bet it out. And as it turns out, that microwave source is really a great solution to enable gem quality diamond growth cost effectively. And now that small acquisition is generating 10x the revenue it was at acquisition and a great deal of that is coming from this industrial application. So when we invest in an industrial application, it's because we see the optionality. Finally, now I come to GMF. Now just an interesting sidelight about Atotech, is the electronics part of Atotech, the electronics business, it helps to drive our optimize the interconnect was actually born out of GMF. In fact, before that, Atotech was only GMF. And it was GMF chemists that saw the opportunity for chemistry to apply in the electronics business. And there was a team put together of R&D and marketing and sales and ultimately, they were able to enter that electronics business. And today, the electronics component of Atotech is the largest part. So it's just another great example of the optionality that specialty industrial provides us. With that, let me introduce Gertjan.

Thank you, Mark. Good morning from my side as well. Gertjan van der Wal, I'm working with this company for 33 years now. I'm very happy that we joined MKS. We are working closely together with the different teams, identifying future options, possibilities So, so far, the first months are running very well. So let's talk about GMF. You don't know it, but you encounter GMF every day. Some of you visit us in the showroom next door where we could demonstrate already something, and I will try to do this in the next minutes here as well. Our technology is evident all around this, and we are involved in a broad range of various applications with various technologies. Starts in the morning when you enter your bathroom with plated faucets, plated shower heads, and it continues in principle during the full day. On your phone, in your car and a lot of examples you see on the slides behind me. But not only that, also with the energy we use generated by wind or solar, these are applications where we are involved in. GMF offers perfectly matched processes for each and every step in the entire spectrum of decorative and functional plating, this from pretreatment starting to final sealing. Our product portfolio consists of corrosion resistance, decorative, wear-resistant coatings as well. Not only in chemistry, but also equipment is an important part of our business, a cornerstone of the model and our service capabilities. And I will show you more on this later on as well. Best local service, service on-site at our customers, supported by 49 service sites is highly recognized in the market. Our sustainable development, green development road map, an initiative which we started a decade ago is differentiating us absolutely from our peers in the markets. We have a market share of a bigger 20%. Number two, worldwide, we are servicing roughly 6,600 customers in 40 countries. We are an industrial supplier in a business which is undergoing a lot of changes, modernization as well as secular growth trends. The move to environmental sustainable solutions are key to meet new industrial standards. And that is what we are facing each and every day. Already some examples giving with renewable energy, solar and wind. Also, the shift to electrical vehicles is creating demand for new solutions for lightweight metals and new plastics, which are used. This is also valid for electrical vehicle battery applications where we also demonstrated you in the showroom, what we can do there. 50% of our business is related to automotive. We have long-term relationships with our customers in the supply chain as well as with the OEMs. And especially today, when consumer markets are weakened due to macro pressures, automotive is a very interesting long-term market. To dive in a little bit more in the car, what we all do there. Our deliver superior service finishing and corrosion protection solutions, broadly applicable from bumper to bumper and from front grill to a number of parts you see on the slides. To highlight a few brakes, shock rods, fasteners fittings as well as decorative streams. The global transition from combustion engine to electrical vehicles accelerates. This results for us in an increase of the value of chemistry used by 50%. So huge opportunity for us to switch from combustion engines to electrical vehicles. You see some components which are transient sitting out in the combustion engine on one side of the slide. But on the other side, you see a lot of new components coming, which is giving us great opportunities. Main importance are the parts around the batteries, which require an extensive amount of plating. And to highlight the forecast for electrical vehicles in the year 2030 is 40% to 45%. Today, the share of electrical vehicles in automotive is around 11%. We have excellent relationships with OEMs, and we're working in principle with key OEMs around the globe. MKS is known as a sustainability leader. We briefly discussed this before. Not just focused on our customers and our own environmental proofings, but on quality of sustainable chemistries we provide to our customers. Two parts of these slides. On one hand, you see a lot of substances listed. This is only a part of it. This is an example. All these substances are on watch list, they are banned or will be banned soon. What we are doing is developing alternative processes, not using these substances anymore. Investment in R&D, time and effort to be prepared in the market in time and also gaining competitive advantage with that. The ones highlighted in yellow, by the way, are the materials of which are also used on the electronics side of the business. On the other side chrome 6, replacement. Chrome 6, as you might know, is a hazardous material. And it's clearly on watch list, on the --------- Reach list in Europe and will go out. Also here, we developed new alternative processes not containing any more chrome 6. We did this for decorative as well as for functional plating. So for plating on plastics, the shower heads, but also for shock which is functional plating alternatives developed. In this case, not only chemistry, but we do this in combination with axillary equipment to regain the chemistry, we are using to process the parts. And with that, have a cost of ownership for our customers which is still competitive versus what they have today. As you might know, we have quite some competitors in this market as well. So where do we stand? How do we win? Where do we differentiate? First of all, our global local service where we are working together with our customers. Not only solving problems in their facility, now we are working with our customers and the OEMs and tie the whole process from A to Z, starting in R&D using our tech centers demonstrating what we are capable to until final introduction in their plating line. We do R&D at scale. We have 140 R&D specialists looking to sustainability as well as technical requirements. And last but certainly not least, equipments. We are still building full plating lines for our customers. We are the only one who is still doing this in this market. And next to that, auxiliary equipment, small equipment placed next to a plating line in order to improve yields, reduce costs, reduce waste. This creates for us customer intimacy and high stickiness. So we are very happy with this successful approach. As you might know, we have the 50 service sites around the globe, as I highlighted before. In some of them, we installed the so-called tech center. The tech center is a plating line as it is running at our customers. This plating line that our customers can be 100-meter long, 5 meters wide, 2, 3 meters deep. So huge lines where we have small ones installed in our tech centers, but there we can 100% replicate what's happening -- what is happening on the customer side, within our own facilities. And the other way around. So everything we develop goes first in the tech center lines before we finally introduce it in the market. We started this approach for GMF in 2007 with high investments in these tech centers and in these lines. And today, that is something which is difficult to replicate. We also test everything which is new coming out of R&D in these tech center lines before we introduce it into the market. So when we go into the market, 90% of all the things are fixed, solved and the customer can start in a very reliable way. Also the chrome 6 alternatives, I briefly discussed before, are all brought into in the market this way. The OEM visitors in our tech centers, we work together with them as well as the customers to demonstrate the capabilities with that. Last but not least, on that, in these tech centers, chemistry service laboratories as well as material science service laboratories. So if we see something with the chemistry with the process itself, we can react very fast, we analyze, we correct and that's several times until we have it fixed. Material science, the final part, plated can be checked if it's fulfilling all the specifications which customers and OEMs are requiring so we can do corrosion test, adhesion test and so on. So that is all very well set up, and I'm very happy with that. So in short, to summarize, we are very well positioned for circular growth trends to switch to electrical vehicles, expansion, renewable energies, sustainable solutions, as mentioned before, and best local service, which is absolutely key in this market. So if we put this all together, I think from A to Z, we have a very good possibility and that with the long-term relationships with our customers. We have all the opportunities in the future. I'm very happy to work together with the MKS colleagues because it will come up some future nice things. Thank you very much. Mark?

All right. Thanks, Gertjan. Atotech overall and the GMF business not only complement MKS, but they're tremendously additive to our capabilities. It's really great to have Gertjan and his team as part of the family. So now wrapping up. We hold leading market positions across a broad range of specialty industrial applications. And we command these positions because we're leveraging our domain expertise and the proprietary technologies that we've developed over the years with our surround strategies. And specialty chemistry now adds a vital new pillar to our domain expertise, arming us to solve many complex challenges, including how to make the world more sustainable. And the breadth and depth of our technical expertise as customers coming to us to solve their most complex problems. And we're really proud of the relationships that we have with customers across all of these industrial industries. And while many of these businesses are small individually, we do make bets on markets that we believe will be material contributors in the future, and that gives us optionality. And for our shareholders, this all adds up to a diverse, resilient group of businesses with great cash flow and margins that together are poised to grow at better than GDP. Thank you very much. And now I'll introduce you to CFO, Seth Bagshaw.

Thank you, Mark, and good morning, everyone. So what you heard today through the presentation is, obviously, MKS evolved substantially in the last number of years from a product perspective, market perspective and a capability perspective. What we do now is talk about MKS evolved from a financial perspective and how we manage the company for long-term shareholder value creation. So I'll start off with three key messages here. Obviously, the company has, I mentioned before, evolved quite a bit. We were initially levered to one major industry, semi-cap equipment for a number of years. You saw in Eric's presentation, we substantially increased our capabilities and our content in that industry as well. So we're very much driven by the semi industry in terms of growth opportunities. However, we've got opportunities in specialty, industrial as well as electronics and packaging markets. Again, about a $1.3 billion segment each. So much more broad-based and more foundation for markets we serve. We have a long track record of strong profitability in cash flow generation. That's been our core DNA since we were a private company over 20 years ago. It's how we've run the business. We become very good at it in the semi cap industry, it's very important to be disciplined and thoughtful in how you allocate resources and drive the business. And we have a long track record of capital allocation being disciplined, both for internal opportunities as well as M&A opportunities. M&A has been one of our core growth drivers for over two decades. We bought 24 companies. And I'll show a slide that shows we're #1 and 2 in all the markets -- most markets we play in, and most of that came through MKS through acquisitions and strong organic growth rate as well. So what do I do here? I'm comparing some data -- financial data from 2015 to 2021 on a pro forma basis. So we picked to '15 because that's the last year we're primarily a semi-cap company. So great metrics, $800 million of revenue, good non-GAAP gross margin, good adjusted EBITDA margin and $200 million adjusted EBITDA. In 2021 pro forma, what's in those -- in that -- those financials for 2021 is Photon Control acquisition, Electro Scientific acquisition, Photon Control, both on we did in 2021 and obviously Atotech acquisition we closed last year. Plus a very strong organic growth rate in that same period. So in 2015 to 2020 on a pro forma basis, we grew revenue by 5.5x multiple. We expanded non-GAAP gross margin and EBITDA margin by 400 and 500 basis points each. Adjusted EBITDA has gone up 6.5x. So a much different financial profile, more broad-based company, much more substantial profitability and strong cash flow generation, I'll walk through in a minute. So I'm going to do a little bit deep dive here in how we evolved the company in 2015. So we talked about the overall growth in the business. By end market, again, in 2015, we were a semi-cap leveraged industry company. And now again, we've got much more broad-based revenue by end markets, much larger SAMs, good segment growth opportunities. By revenue stream, we are primarily an equipment company in 2015. And now we brought in consumables in a service business that are more resilient and more stable over a long time. So much more stable profitability profile and cash flow profile. And then lastly, the top five customers going down from 42% down to 27%. So again, more broad-based customer base. We'll do now a double-click on that revenue stream concept, stability in consumable business. And this is a snapshot of gross profit dollars by those markets. With Atotech, you'll see some palladium pass-through pricing on revenue and some foreign exchange fluctuations. We think gross profit dollars really carves that out and shows a real impact that stability message in our profitability profile. So over 40% of our gross profit dollars are tied to those, again, more stable, unit-based utilization markets. So as you heard today, we've levered a number of very good high-growth opportunities. From my perspective, these markets and our positioning is strong gross profit dollars, strong EBITDA margins and strong free cash flow generation. Also, in the markets we're in and our positioning, we get the positions, again, very good secular growth rates in these markets. Within electronics and packaging and semiconductor market, we're levered to the higher growth portion in those markets as well. So all those factors drive our view to outperform the markets that we play in. So this slide is one of my favorites. It goes back a number of years. You can see the strategy across the top, surround the wafers, surround the workpiece, upside the interconnect, divisional view as well. But if you look at the boxes at our products business, unit products in those boxes, we're usually #1 or #2 in the markets we serve. If you go back to the IPO date about 20 years ago, on those first three categories was MKS back at the IPO date. Everything to the right of that was brought through MKS through acquisitions and very strong capital allocation to drive organic growth opportunities. So 24 acquisitions is the IPO and again, #1 or 2 in the segments we play in. It's a very strong defensible position. So I want to talk about how we manage the company internally. We think, again, financial discipline is our core competency. It's a trade we've had for a number of years, again, going back from your private companies. There's three major platforms here, pillars, if you will. Profitability management, we have a monthly cash optimization program in place that meets on a monthly basis. John Lee's, got executive sponsorship. Been very effective to drive continuous improvement in our operations and develop opportunities to invest in other parts of the business. A good target of R&D investment, internal investment allocation process across the whole platform across each division and decide which opportunities have the best value for MKS and shales in the long term. And by continuing products in place, I'll talk about more in a minute. When you go up to the semiconductor industry, you develop a very flexible operating structure, so we have a highly variable cost structure, an asset-light capacity model, capital-intensive business. And we have multiple low-cost regions we lever in Asia, North America as well as in Eastern Europe. And about 80% of our consolidated cost of goods sold is variable in nature. So you can really manage the business very well for many cycles we see. For M&A execution, we have a long track record of good integration, generating cost savings ahead of schedule, hopefully above expectations. We look at M&A as a critical growth enabler to drive long-term opportunities. And we, again, have 20 segments that we have #1 and 2 market share. For Newport Corporation and Photon Control substantially driven the profitability of those two acquisitions as well. So again, this is kind of our core discipline across the whole organization. So I'll touch very briefly here. This is our continuous improvement process in MKS. And one of the key points here is typical MKS fashion. It's well engineered. It's well thought through. It's highly focused. It goes deep in the organization, and the fact we have 1,000 products in place right now up from 400 two years ago tells you how engaged the employee base is to really challenge how we run the business, how to be more efficient going forward as well. So I'll talk about Atotech integration status and update in cost synergies here. The integration is going extremely well. You heard today the culture is very much similar across both organizations, a very motivated team in Atotech, excellent depth in the organization. The cost 80 targets are on target for both cost and time. And the MSD team has been very engaged and very helpful in that process. We also heard today, there's opportunities for cross-selling going to market with laser and chemistry capabilities to generate revenue synergies. On the cost side, these are all the classic things to look at the integration. Duplicate costs, public company costs are easily things you can work on. We're going to work on leveraging spend across the whole organization and look at both sides with MSD and MKS, what's the best value and the best pricing. So we've done this before in other acquisitions, very comfortable where we are in the integration and cost synergy update. So this slide here gives you -- you might saw this two years ago. This is our unlevered free cash flow generation for MKS going back to 2005. And you'll see a step function in 2017. We added Newport Corporation. Again, the other acquisitions we've talked about, grow substantially in organic in that period as well. Even in 2009, the worst downturn I've seen, we were cash flow positive. So a long track record of generating cash through all cycles. You'll see in 2019, it was a soft semi cycle. The cash generation was higher that year than any previous year. The blue bars is rolling in the Atotech unlevered free cash flow. So you'll see with Atotech's model on top of MKS' cash generation model, it's a very compelling cash generation platform on a consolidated basis. So John talked about capital management or capital deployment, it's all focused on long-term value creation. So obviously, we'll grow organically. That's our first order of magnitude for allocating capital internally. We'll grow dividend over time in our historical model, and that's our model going forward. And then CapEx is a relatively modest piece of our internal requirements, a very CapEx-light model. The next year, year plus, the real focus is on deleveraging the balance sheet. I'll talk more about that in a minute, but that's been our historical track racing acquisitions. We've done a rinse repeat a number of times. We will look at potential build to reprice the debt. We've done that again in the past. Based on market conditions and our execution, that's an option on the table. We'll always maintain strong liquidity. At the end of September quarter end, we had $1.4 billion liquidity on the -- of $90 million that on the balance sheet as cash and investments and $500 million is an untapped revolver. So we'll always maintain that type of structure. Then for M&A and buybacks, again, we look at long-term value creation, anything we do either buybacks or for acquisitions. We'll compare those two opportunities together. They're always in the mix of a discussion point. Our track record has been very good in acquisitions, integration, growing and obviously gaining market share over time. It's all designed to maximize long-term shareholder value. So in deleveraging, on the right-hand side of this chart, this is the history of post Newport acquisition and post ESI acquisition. You'll see net leverage ratio with the acquisition date down to zero. [Technical Difficulty] We know how to do this. It's very important for us. On the left-hand side, our goal is to get to a long-term gross leverage ratio of 2x by 2027. Again, deleveraging. We already started that journey already. We've just paid off $100 million ahead of schedule and voluntarily is term loan A this month. That's about 90-plus days after deal close. So again, that's our style, that's our strategy. In terms of leverage ratio, right now, at the end of the third quarter, about 3.3x our net leverage ratio. Again, we'll focus on paydown the next 12 months plus. But more importantly, the capital structure is designed to work for us in terms of the industries that we play in. So there's no major maturities due to 2027. Half of the debt has been hedged already, so that's fixed in nature. We talked about a higher mix of consumables and service revenue, which affect profitability, which affect cash flow, which help us to delever the balance sheet. Again, we can reprice the debt or pay off early without any problem. So this is our strategy, our historical views and our goals going forward. So before I get the long-term model, I do want to acknowledge what we all know what's happening in the market today. There's some near-term headwinds, higher inflationary environment. Interest rate, obviously, well aware of I mean there's always geopolitical [Technical Difficulty] general view in the marketplace and you could have a recession as well. We can't control all that or any of that. What we can do is respond to it. And so over a number of years and decades being in the semi industry and through acquisitions and developing a more broad-based platform, we've got a much broader markets we play into, capabilities, customers and opportunities. When I was here in 2009, we did $75 million a quarter, the first two quarters of '09. Now we're running at a $4.4 billion in 2021 pro forma, a much larger scale business. Again, a more stable revenue stream, cost structure is flexible. We've been through many cycles over the years. So we've done this before, been rinse repeat. We've got a playbook we'll use and we've got a history of doing that. We don't have full realization right now in our run rates of all the Atotech opportunities or cost perspective as well as from a revenue perspective. As I mentioned before, we'll always maintain strong liquidity. So we are well positioned for any cycle, and we've got that track record of managing strongly through those cycles. So in terms of long-term revenue model, we've talked about outperforming the markets we play in. That's the key message on the slide right here. We put in some estimates of we think semi spending will be next five years on our annual CAGR basis, about 4% to 7%. There are different estimates out there. We're not making a view on that. But the key point is whatever estimate we consider, add 200 basis points on top of that. We'll talk to packaging, GDP plus 300, industrial GDP plus growers. When you run the weighted average on that, you get at least a 5% CAGR from '22 to 2027, at least a 5% CAGR. The end markets become stronger growth, we'll overachieve on that for sure. And then you roll that into a long-term profitability model. Again, these are 2027 year views like get to year five. Non-GAAP gross margin at least 47%. Non-GAAP operating margin, adjusted EBITDA margin, at least 26% and 29%, respectively. And we're seeing a tax rate based on current regulation between 25% and 27%. So over the 5-year period, there could be years where it's higher or lower growth rates, look a bit more of a 5-year CAGR. So in 2027, when you bake those assumptions into a long-term model, we'd expect revenue to be north of $5.6 billion. Adjusted EBITDA north of $1.6 billion and non-GAAP earnings per share north of $13 per share. So to wrap up, I hope with today's presentation here are our consistent year [indiscernible]. Again, we've changed the company quite a bit on an evolutionary basis across all the platforms we've talked about and financially. Again, a very strong track record of profitability. And the capital allocation is a long history of being disciplined, looking at generating long-term shareholder value. So again, the '22 through '27, based on the model we presented we're projecting at least 10% growth of -- on a CAGR basis and non-GAAP earnings per share. So with that, I'll turn it back to David for Q&A.

Thank you, Seth. We're going to take a brief five minute break and then kick off our Q&A session. [Break]

All right. Well, let's kick off the Q&A session. We'll take questions. Maybe we'll do one question and one follow-up. We'll be passing mics around table.

Yes, Sidney Ho. If you can introduce yourself and affiliation and then go ahead.

Yes. Sidney Ho with Deutsche Bank. Thanks for doing all the presentations. That's super informative. My question is you didn't call out revenue synergies explicitly in your presentations. But I'm hoping you can talk about that more either quantitatively or qualitatively? And can you break that down a little bit between the various segments that, that might be impacting? And how do you think about the linearity of those synergies?

Yes. Maybe I'll take that first, Sidney. So we kind of look at it as it's -- as we talked about these markets are long design cycles, lots of co-development. And these meetings that Jim and Harald have had are very, very positive. So the way we want to look at it is design wins. And so I think over the next 12 months, 24 months, et cetera, just like with our power. As we get these kinds of synergy design wins, things that might not have happened without having us both together, that's when we will share that with you. When you get a design win similar to semi, it could take 12 to 24 months before, obviously, revenue and people's ramp up in production. So that's the kind of the way we're looking at it. And the way I look at it is design wins. And that's really the great sign of progress. The same with RF power. I think you know we talked about design wins for three years, and our competitors said, no, we're getting the design wins and eventually, the market showed that difference with the design wins that we got.

Okay. Great. Then maybe a follow-up question. If I think about Intel recently talked about their interconnect kind of density increases like 10x with hybrid bonding. First of all, can you help us understand whether you are involved in that process? And my understanding is hybrid bonding is probably still a few years away. Are there anything in the near term that will drive the growth of that packaging business? And maybe just to follow up, can you talk a little bit about the competition in the package substrate area in terms of product offerings or go-to-market strategy?

Yes. Hybrid bonding, I think, if I got that right, is really about putting chips on top of each other and together. And that's what we would probably call the category of wafe1r level packaging. As we said, we play in that, but we're not as strong there as regular package substrate and MLB. But it's an opportunity for growth. And so the competition there is the two big competitors, North American competitors. But the difference between us and everybody else is that we provide equipment as well. And I think that's a real important differentiator going forward because I look at it as semi 35 years ago, I was talking to Jim about it. 35 years ago, you just offered equipment, right? And that was the process engineering, you ordered equipment, you got equipment. Now though the optimization, the co-optimization of semi equipment with process so intricate and so intimate because the solution set is so narrow. And I believe that's what's going to happen as well going forward as the challenges for packaging continue to miniaturize and get more complex. You're going to need to have both the equipment and process chemistry together or where else you can't find a solution. And that's what's unique about us.

Yes. Joe Quatrochi at Wells Fargo. Maybe just on the electric -- electronic and packaging growth CAGR. I just wanted to kind of understand, I think you talked about a CAGR of GDP plus 300 basis points. How does that break down in terms of the 300 basis points? What's from the secular trends that you've talked about in terms of everything today? And then how much of that is from marrying the two companies together in terms of the revenue synergies that you talked about?

So Joe. First, congratulations on getting the model out, MKS model out first before anybody else. I saw it before we even got to the Q&A. So well done. We didn't give them a model ahead of time, right? So the way we look at it is, you saw that chart where we had the different kinds of package -- of substrates, package substrates, HDI, MLB, wafer-level packaging. That's what Jim showed in his slides. And you saw the growth rates, 4%, 5%, 7%, 9%. What we try to focus on is obviously the higher growth rate parts of it. Atotech already brings a lot of business in multilayer standard PCBs. That's the 4% grower. But all of our R&D and all of our customer focus and all the synergy work is really being pulled into those advanced package products. And those are growing much faster. So the 300 basis points is our -- we think we can do that. Breaking it out in detail, we have that, but it's probably not worth sharing all that right now. But I would say that it's a number we're comfortable is with how I'd say it. And maybe, Jim, you can talk about a little bit more of those customer discussions you've had and what kind of substrates are they really pulling for.

Yes. I think, as I mentioned, the customer business has been very positive, and they're very complete in the people we've seen. So depending on the design solutions they're proposing, they all seem very intrigued by the new combination we're bringing to the table with lasers and chemistry because it does provide a more holistic, fast-to-market solution set somewhat irrespective of what their -- what particular option they're trying to use. I think from the technical details, I'd look to Harald, if he wants to polish that at all, maybe for approaches the different -- some of the different customers were using what we can talk about anyway.

Yes. Maybe just to mention, we believe very strongly about the growth for the package substrate market. You can see that in various publication of our customers and their customers. We think they are integral to heterogeneous integration. So if you see that road map, the volumes that these people are announcing and also the technology constructions that they are designing that involves more complex, more complex substrates. As we have these discussions, we are looking at all the process steps that you need to address in order to make these packages better and better. And the laser is an integral part. It's a matter of this higher hold densities that we enable, and we're able, like I explained, to do the smaller wholesome features. So we feel very strongly about that segment.

Perfect. And then just as a follow-up. You talked about the consumables for Services business being roughly 40% of the pro forma business. And maybe I missed it, but what -- how do you see that mix in 2027? And then maybe on top of that, how do you think about the consumables driving free cash flow, especially as we look into next year where maybe in demand slows to some extent?

[indiscernible], Joe? Yes. So we didn't forecast that by market in 2027, so there could be some variations in that market. But with the chemistry growth and if you look at electronic packaging, you look at the specialty industrial, which has that chemistry component, you can kind of get a sense of that growth rate over the long term. So I think that's the way of looking at it. And then if you look at kind of the cash flow coming off that business, and again, you saw kind of the Atotech element free cash flow historically speaking, it's a very cash-generative business, which is excellent place to be, but more importantly, that stability, I think, would be there as well. So I wouldn't say that we're immune to all the potential inflationary or macro headwinds that we were all would experience and it's something that's geopolitical or macroeconomic level. But it will -- we believe it will be more stable than our equipment revenue. So it should help on that cash flow generation. It's a higher proportion, if semi does soften. So it's a pretty robust model we talked about. We're pretty happy kind of our positioning. And again, our goal historically speaking, is to always kind of improve on that as time [indiscernible] is on.

I wanted to go back to the point you made earlier, and you made it several times during the presentation about addressing you're involved in nearly 75% of that advanced packaging segment of the market. If we think about that, are there some areas that you would anticipate increasing your share over time? And is that something you think you can accomplish organically or down the road, does inorganic play into that?

I'll start there, Jim. It's only 70%, but we aspire to 75. I think there's a lot of opportunity just within that 70% because that's 70% addressable, not our share, obviously. We have the highest market share in electronics chemistry, but there's still so much more opportunity there. So that's the first point I'd make. The other major categories are kind of resist the development and deposition and optical inspection. Those are obviously areas that we interface with. And as we talked about in our M&A, there's always potential tuck-ins that would make sense. But right now, I think we're going to be focusing on the opportunity, the 70% opportunity right in front of us. There's just so much more that we can get of that 70%.

And John, you got the team here, so I don't want to -- maybe I'll put you on the spot. But if we think about the target growth rates that you've signed or looked at for the three markets, let's assume a relatively stable economy, whatever it's going to look like over the next year or so. Are there areas that you see the potential for over-deliver?

Yes. No, I think every time semi turns back up, we tend to over-deliver. You can see our market share and the profitability there. But I think really packaging is going to be this area where there's a huge amount of focus right now. I think Harald talked about IC substrates or package substrates. Everybody is talking about that. You see all the big chip companies. And they're doing it because it's enabling. If you don't do that, you don't have data centers. And if you don't do that, you don't have the most advanced electronics. So I think even if the economies were stable, there are a couple of secular growth areas that we talked about, the advanced packaging and, of course, semi that I think would allow us to outperform. And as Eric said, we have outperformed in semi. And that's not easy, right? Because some of our products are very high market share. So we are the market in a few of those #1 product categories. So what we're talking about is gaining share on other product categories and moving into certain other secular subsegments of semi.

And last question I had, if I may, just on automotive. You gave some nice color, and I appreciate that on segments of the market. But I'm wondering if -- and this may be a tougher one to answer. But automotive, as it cuts across your business, do you have some sense when you include the different pieces, semi is going to be very hard, I realize. But just what your overall exposure might be for automotive?

Yes. I think Gertjan mentioned automotive is 50% of his business, right? And he talked about EVs having 50% more content, just if we don't do anything differently, just ride the wave. That's just GMF. That didn't include -- we didn't talk about it, but Harald, maybe you could talk a little bit about what you expect for electronic content in that transition from combustion engines to EV.

Yes, sure. We didn't highlight that in this presentation. We're actually quite strong in automotive electronics. That includes the printed circuit board as well as the semiconductors. And what we think is right now in the transition, we see a doubling of content for us. Electronics content will double in the transition to EV. And then moving forward, we still have more and more opportunities on the ADAS side, autonomous driving system. So automotive electronics is already a substantial part of our business, and we see that as one of the fastest-growing ones.

All right. Next question we'll go to Steve Barger there.

Steve Barger from KeyBanc. Seth, just thinking about the historical cash flow walk you showed, can you talk about how you're thinking about free cash flow in 2023? Or just in general, how you're thinking about free cash flow conversion from revenue or net income?

Yes. So I'm not going to comment on 2023, since we'll talk about -- we guide out only 1 quarter. We'll talk about Q1 when we do the Q4 call. But to kind of give you color on your question, I think the free cash flow generation in that model is kind of in that mid- to high-teen level, I would say. Now what could change that a little bit, right now, today, we have elevated working capital. We have higher inventory levels, like the rest of the industry. So I think over time, the supply chain constraints get worked out, I think that will help on the cash flow generation. We've not baked that into the model, by the way. But that's an opportunity, for sure. And there's always leverage that you can pull to kind of drive opportunities and generating more cash in the business. Profitability is certainly the one major level -- lever. But we're looking at capital -- CapEx spending, for sure, making sure that makes good sense and very efficient. And then there are other tweaks you can probably do to working capital requirements and kind of work on that as well. So all those levers are in play. We're kind of looking at those right now. But generally speaking, it depends kind of with the working capital size, up and down, has a reasonable size impact on the free cash flow generation any one period. But I think if you look at the kind of mid- to upper-teen level, mid-teens is probably pretty good ZIP code to be used in the model, frankly.

And then a GMF question. On Slide 77, it said you're #2 with more than 20% share. How much share does the #1 player have? How fragmented is that market as you go down? And do you expect those shares will be stable?

Yes, maybe Gertjan, you could take that?

The #1 has a share of approximately 26%. We are around 22%, 23%, to be precise. Going to be stable, but we have strong programs in place to catch up and to become the #1 again.

I would also add, Steve, that last year, we were #1. So the reason we're not #1 is because 2 companies got together.

All right. Any other questions. Let me just actually just take 1 online. We have a question from Krish Sankar at Cowen. And I think Krish is asking, a bit surprised by the specialty industrial growth outlook of GDP plus, despite the electric vehicle opportunity. Synthetic diamond looks like it grew amazingly, and solar is also an opportunity. Why is there not more growth potential in this segment?

Maybe I'll start. We certainly wanted to be thoughtful about putting up long-term models. So plus means plus, you can plus whatever you want with it. Certainly, if there are opportunities to outgrow that like diamond, we did, we invested in it. I think we are talking a lot about automotive, and that is a potential area where the specialty part of our business could outperform, to Jim's earlier question. So we wanted just to be thoughtful about the model.

Okay. Next question. Actually, why don't you go over here. I think this gentleman had his hand up, he's trying to get earlier. You can introduce yourself and...

Bernie Horn from Polaris Capital. Just I know you talked a lot about Moore's Law and then even exceeding Moore's Law. But generally speaking, when we talk about Moore's Law, we talk about prices going down. And I would expect that your prices would also go down to sort of follow that in order to stimulate demand. So I guess the question is, can you parse out, you've got some pretty aggressive growth numbers, but can you try to parse out how much you expect prices to decline and therefore, how much volumes would have to increase? And therefore, do you have any comments about whether you need to increase capacity to sort of meet that volume demand?

Yes. No, I think it's -- when we talk about Moore's Law, you're right, it's about cost, right? Cost halving. That's really Moore's Law. But remember, that's been happening for 60 years, number one. But the way the industry has been able to remain highly profitable while we're lowering the cost of the chip is the efficiencies that we bring, the equipment, critical subsystems that we bring. So that's why we're always continuously innovating. Now one interesting thing is if you were to look at profitability of chip manufacturers in the '90s, not everybody was making money. The equipment OEMs always did, and the critical subsystem companies always did because of the technology they were bringing. So while the price of the chip was going down by half every 2 years, the people making and enabling that, because of the technologies we were bringing, we were certainly continuing to enjoy the profitability that we deserve because of the technology we've got.

So essentially, you're saying that you can maintain or increase price because you're value pricing.

Exactly.

But I guess, is there any price declines that you're expecting to see in -- across your lines that would imply you need to have more volume in order to get your revenue and then EPS targets?

Yes. No. And if we saw it, we would realize that, that product line, for whatever reason, has become commoditized, and we will take some actions on that because we do not want to be in a commoditized market. If you look at all of our markets, every one of our product lines, we call it critical for a reason. Not a lot of people can do it. And therefore, you will get paid for it. And if it becomes noncritical, then we'll probably exit.

I want to add to that as well. So total gross margins in our legacy MKS business, you'll see those margins have been pretty healthy over a number of years. So to John's point, when you have value-added products and you keep innovating and you have a supply chain that you can kind of leverage and do all the right opportunities, you kind of -- that's what maintains those gross margins. The margins today have a little more inflationary impact on that because we're going to work on that going forward. But I think the best way to answer the question, look at our historical gross margins and the things we've done, we'll do that again in the future. So we're very confident that we can maintain the margins and that growth profile we've talked about.

I think we have a question, a gentlemen over there.

John Fox from Fenimore Asset Management. It's been a great program, by the way, thank you. For Seth, you mentioned very quickly about your R&D process, how you evaluate things, and I wonder if you could elaborate on that? How do you fund projects? When do you cut them off? How do you think about the end market and the return? So it's a great topic that you just touched on very quickly...

No, happy to add to that. It's a good question. Yes. So let's begin a number -- so we've always had R&D funding, obviously, for 60 years. But I would say, starting back with John and Jerry Colella's leadership, we looked at a planning process that was more robust. Now I'm a finance guy, so look at kind of my view of the world. But R&D funding, you put a kind of a financial structure to kind of start the conversation, but fundamentally, you're making estimates on future trends, and that's really important. And so we look at how we allocate internal R&D dollars. We've input from the sales team. We've got an experienced management team here that's very close to the customers and collaboration. We've talked about that. We have a strategic marketing team that does a lot of external work and kind of validates what we're thinking for assumptions. And then last of all, we've got a scale today. We can put a lot of chips on the table, no pun intended. And you can have a couple of dry holes and a couple of home runs and you can kind of balance that all off. And the way our culture works internally is we'll look across all of the platform. And every year, the divisional lead comes in with what they think the top funded projects are, and kind of their industry and their markets and their products. And we're able to rank and stack that across the whole company and the whole portfolio. So someone's number 1 may be number 2 for a division or a business unit, might be #3 when you roll across the whole organization. So -- and the team is very mature about that. Everybody sees the same presentations, have the same dialogue. The team is very cohesive, all the same compensation projects. So there's not a political issue about who gets what funding. Everybody is kind of looking at the right data. And so I think that's a unique cultural change. I'm glad you brought it up because I only had 20 minutes for presentation, but I've been in some high function organizations, and that's a pretty unique animal. I mean I don't see that too often. And then you step back and say, well, how has that worked in real life? Well, then you look at the number 1 and number 2 in the segments we play in, well, that is the proof statement. Ultimately, if the customer likes the product and we're in the right markets and the right secular growth rates and have enough chips on the table, good things happen. That's exactly what we've seen historically speaking. Now we had the first strat plus with the MSD, the ad tech team, they're very engaged. Jim is well versed on the MKS process, Harald and Gertjan as well. And we'll be able to -- we start rolling out as well through MSD. And every company who've done that through integration and acquisitions, they actually see the value of it. It's not a difficult sell, quite honestly. So I think it is a little bit unique cultural change. And I think the last point I said before is with bigger scale, bigger opportunities, you can make bets you couldn't make 5 years ago because you can live with a couple of things that don't pay off. But the ones that do, it's like they pay off really well.

We get a question from Scott Graham.

Scott Graham from Loop Capital Markets. I have 2 questions. One about the long-term model, and mostly for Seth and John, I guess. So the over 5% revenue CAGR, are you assuming in that another WFE decline after the current one?

Yes, I can take that. So what we did in that model, we kind of looked at a 5-year CAGR. So we didn't get into like what '23 or '25 looks like. So we looked at kind of where we were in 2022, looked at the data we saw and our internal views on like WFE estimates, for example, and kind of used that in our long-term model. The key point there is we have outperformed WFE, historically speaking. Not every year, you have some permutations there, for sure. Nothing in our industry is linear, by the way. When we looked at kind of a 5-year CAGR, that's what kind of informed us on that 2027 kind of target, if you will. But again, the key point there is whatever assumption on WFE people want to make, our goal is to outperform that over the long term.

That's constructed.

I have 1 more question on that, and then I have a separate question altogether. The 47% gross margin, so we were getting near there as a core company before supply chain, and here comes ad tech with a higher gross margin. So just sort of wondering what's holding you back on that?

Well, I think the key point on all of the metrics I gave is greater than. So we were very thoughtful on the metrics we published here. It's a model we feel very, very comfortable about. And as you know, our DNA is to always -- internal goal is a little more aggressive to kind of obviously do more and faster and better. But we want to put a model out there that, frankly, people are comfortable with, it was thoughtful and it was a little bit on the conservative side. Doesn't mean we're going to not manage above that and do more. That is not our DNA. That's not our track record. So rest assured, that is how we're thinking about this. But that was our thought process behind publishing a 5-year model.

Last question is for John and Eric. So one of your largest customers, about 1.5 years ago, started this pivot to sort of stretch out Moore's Law and structures and architectures and materials solutions in 4 or 5 different buckets. To what extent have they involved you in those discussions? And are any of those trends moving more toward you? Are any of them moving away from you with this customer?

Yes, maybe I'll start and invite Eric, too. I think when you think about Moore's Law, it was about the semiconductor chip, but it's really a Moore's Law for advanced electronics, I think. It's not called Moore's Law because there isn't a name for it. Because you and I don't buy a new electronic device because the chip is better, we buy because the device is twice as better or half as cheap. And our whole vision is that that's moving beyond just the semiconductor. So you can even look at Moore's Law, it used to be about just size, horizontal shrink. So realize it was about cost. It's not about horizontal shrink by itself anymore. You're going vertical, you're going new structures, you're going new materials. But more importantly, you're going into advanced packaging to get the value into the advanced electronic. And so as we said, we have deep customer relations, and we talk about all these things with all of our customers all the time. I can't comment on any specific topic with any specific customer, but I think the R Power example I gave was an intimate discussion with a key customer and kind of agreement that we're all going to -- we're all-in together, and we delivered, right, 7 times in 7 years, and the story continues. So I think it's -- other people are focusing on maybe different areas, but I look at it much more globally as MKS. It's about the entire electronic device and everything that needs to make it cheaper.

So there's nothing that's moving away...

No, I think I actually think much more of it towards us because vacuum and verticality requires more RF power and atomic layer deposition, just semi, that's coming towards us. Now with our chemistry capability, everything is coming towards us.

I think we have time maybe for 1 more question.

John, you've all explained very well the revenue synergy opportunity in that advanced packaging and interconnect space. I think you described a strategically addressable market of about $5 billion, and your business is about $1.3 billion. How much of that is sort of traditional 4% growing PCB versus those more advanced opportunities? If there's any way you could help us think about how that splits?

Yes. I don't know if, Harald, you have some view. I think -- I don't know what the percentage is, but I would say this, the fastest-growing part of it is that package substrate part. It's not a 5% of our revenue kind of thing. It's a significant part of our revenue today and growing the very fastest.

Do I see -- I'll squeeze in 1 more from TJ, and then we'll bring it back to John for closing remarks.

TJ LaBarge with Frontier Capital. My question was on the HDI opportunity. It seems like for any individual product within your company, that particular product might be the largest swing factor and what market share you get, what revenues come out of it. So with the value proposition of the combined company, what types of penetration and market share do you think are possible in the range of outcomes? And what sort of penetration and market share are you embedding in your 2027 targets?

Yes. HDI is our laser drilling tool for rigid and Geode. We certainly wish it was going faster, but we have dozens of tools running in production, making money for customers today. We've talked about other additional design wins. I think when Jim and Harald talk to customers, and as Harald said, he's been in this 25 years, and he always needed that laser because it's in the middle of his process steps. We thought that we'd characterize that market as $500 million to $700 million for HDI drilling equipment. We started with 1 product that was targeted towards some subset of that, obviously. We're developing new ones for other parts of that. But you're right, it is -- I don't think it's the biggest swing factor. There's certainly a lot of opportunity there because we're not anywhere near the kind of market share we'd like to get at. So I think I'm patient. I think the signs are still very positive. The tool is right. Tool is the most flexible. The productivity is there. And I think with Atotech there and having codeveloped, as we work together, co-developing solutions that involve the laser, specifically, and the chemistry, I think there's a great opportunity to leverage that, for sure. It's a great opportunity for growing.

How much of that would be upside to your model?

I think the way I look at it is it's kind of built in. We have certain assumptions on what that will be. We didn't publish it because it's really assumptions right now. But as Seth said, all those numbers in our model are greater than, and we're going to work hard to make sure that we are greater than everyone. But the model is, as I said, thoughtful, we're conservative, whichever adjective you like to use.

I think that's it. I want to thank everybody. I'll pass it to John for maybe just some closing remarks, and then we can all head to lunch at the Madison room. And I want to thank everybody on the webcast as well. John?

Yes. First, thanks for coming and the interest in MKS. I think some of the main messages, I think we've hammered home. MKS is just different now. We're different and we're unique. The way we look at the growth opportunities, no one else looks at this way. It's about semiconductors, it's about advanced packaging, it's about the advanced electronics, right? And I want to be, and I want to lead MKS to every part of that supply chain that makes sense. And then the optionality of specialty industrials, you saw a lot of things. There's 1 big optionality coming out today, right? It's automotive. We haven't called it out, right? You saw that picture that Gertjan said, that certainly looks like a surround strategy, doesn't it? Just has a card in the middle, instead of a wafer, instead of a workpiece. So we're really excited about Atotech joining the company. We're happy to give you guys a little more view of Atotech, why we did it and the potential together. So again, thank you, and again, appreciate you being here.