MKS Q4 Earnings Call Highlights

MKS (NASDAQ:MKSI) said it closed fiscal 2025 with “impressive execution” in a gradually improving demand environment, delivering double-digit sales growth, higher earnings, and expanding free cash flow while continuing to reduce leverage, according to management’s remarks on the company’s fourth-quarter and full-year earnings call.

President and CEO John Lee said demand across semiconductor and electronics and packaging markets is strengthening as the company enters 2026, citing “ambitious CapEx plans announced by large chip manufacturers.” CFO Ram Mayampurath added that the company made additional progress on its deleveraging goals, including a $100 million voluntary term-loan prepayment in February and several financing moves intended to reduce interest expense and extend maturities.

Fourth-quarter results topped guidance midpoints

For the fourth quarter, MKS reported revenue of $1.03 billion, up 5% sequentially and 10% year over year. Gross margin was 46.4%, and net earnings were $168 million, or $2.47 per diluted share, which management said was above the midpoint of its guidance range.

Mayampurath said gross margin performance came despite “ongoing impact from higher tariffs,” higher palladium prices that are passed through at “zero margins,” and a higher chemistry equipment mix. Operating expenses were $263 million, slightly above the company’s guidance range, primarily due to higher variable compensation tied to stronger-than-expected results. Operating income was approximately $217 million (a 21% operating margin), and adjusted EBITDA was $249 million (a 24.1% margin).

Liquidity at quarter-end was about $1.4 billion, consisting of $675 million of cash and cash equivalents and a $675 million undrawn revolving credit facility. Net debt ended the year at $3.6 billion, with a net leverage ratio of 3.7x, based on full-year 2025 adjusted EBITDA of $966 million.

End-market performance: semiconductors, electronics and packaging, specialty industrial

MKS reported growth across all three end markets in the quarter.

• Semiconductor: Revenue was $435 million, up 5% sequentially and 9% year over year, driven by strengthening demand in DRAM and logic/foundry applications. Management highlighted subsystems serving etch and deposition, along with continued momentum in plasma and reactive gases. Lee said NAND-related activity was stable sequentially, “as expected,” while orders remained robust in dissolved gases for advanced logic and in back-end applications tied to high-bandwidth memory.
• Electronics and packaging: Revenue was $303 million, up 5% sequentially and 19% year over year, primarily reflecting increased flexible PCB drilling and chemistry equipment sales. Mayampurath said chemistry sales were up 16% year over year in the quarter excluding foreign exchange and palladium pass-through.
• Specialty industrial: Revenue was $295 million, up 4% sequentially and 5% year over year, with improvement in research and defense and certain industrial applications, partially offset by softness in automotive.

Lee said MKS outperformed estimated wafer fab equipment (WFE) growth for full-year 2025 and argued the company historically outperforms in rising spending environments because many products are “designed in” and because customers tend to build inventory during ramps.

Full-year 2025: growth in semiconductors and electronics/packaging, softer specialty industrial

For full-year 2025, MKS reported revenue of $3.9 billion, up 10% year over year. Semiconductor revenue was $1.7 billion, up 13%, led by plasma and reactive gases and vacuum products, with the service business described as a steady growth contributor. Electronics and packaging revenue was $1.1 billion, up 20% year over year; total chemistry sales increased 11% excluding FX and palladium pass-through.

Specialty industrial revenue was $1.1 billion, down 4% year over year, which the company attributed primarily to industrial softness, including automotive.

Gross margin for the year was 46.7%, down 90 basis points year over year, driven by tariff-related costs and mix, including record chemistry equipment sales. Mayampurath said the company mitigated tariff impact “largely” by the fourth quarter on a dollar-for-dollar basis, though tariffs are still expected to pressure gross margin by about 50 basis points. Operating margin was 20.7%, down 60 basis points, while operating expenses as a percentage of sales improved to 26%.

Cash flow, debt reduction, and financing actions

MKS generated operating cash flow of $645 million in 2025, up $117 million year over year. Free cash flow was $497 million, up 21%, despite increased capital expenditures.

In 2025, MKS made $400 million of voluntary term-loan prepayments and followed with another $100 million prepayment in February. Mayampurath said that since February 2024, the company has paid down over $1 billion of debt.

Mayampurath also outlined financing transactions completed in recent weeks, including a term-loan repricing (reducing spreads by 25 basis points on the U.S. loan and 50 basis points on the euro loan), an increase in the revolving credit facility size to $1 billion, and issuance of EUR 1 billion of senior unsecured notes. Based on current interest rates, he said the combined actions are expected to reduce annual interest expense on a run-rate basis by approximately $27 million.

The company paid a quarterly dividend of $0.22 per share (about $15 million) and said its board authorized a 14% increase in the next dividend, payable in early March.

First-quarter outlook and key themes

For the first quarter, MKS guided revenue of $1.04 billion ± $40 million, including:

• Semiconductor: $450 million ± $15 million
• Electronics and packaging: $305 million ± $15 million
• Specialty industrial: $285 million ± $10 million

The company projected gross margin of 46% ± 100 basis points, with management attributing the sequential step down largely to mix and Lunar New Year-related seasonality, including lower chemistry sales. In response to a question, Mayampurath said mix should improve in the second quarter and further in the third quarter.

MKS guided first-quarter operating expenses of $270 million ± $5 million, adjusted EBITDA of $251 million ± $24 million, and earnings per diluted share of $2.00 ± $0.28. The company expects a tax rate of approximately 21% in the first quarter and 18%-20% for the year, and it expects capital expenditures to average 4%-5% of revenue through 2026.

During Q&A, Lee said customer commentary suggested WFE growth could range from the “mid-teens” to about 20% year over year, while emphasizing visibility remains imperfect. He also discussed memory dynamics, pointing to heavy DRAM investment tied to AI demand and suggesting NAND could become a bottleneck, with potential upside from tool upgrades. In electronics and packaging, management said AI is driving higher PCB complexity and layer counts, noting that AI-related chemistry revenue in electronics and packaging grew from about 5% of chemistry revenue in 2024 to about 10% in 2025, with sequential increases through 2025.

Lee also said the company plans to ramp its new “supercenter” factory in Malaysia in the second half of the year, describing it primarily as a business continuity initiative built in phases that will add future capacity and resiliency, while noting that supply chain execution—rather than factory space—typically determines constraints during industry ramps.

About MKS (NASDAQ:MKSI)

MKS Instruments, Inc (NASDAQ: MKSI) designs, manufactures and markets technology solutions that enable advanced processes in a variety of high?technology and industrial markets. The company’s core offerings include vacuum and gas delivery systems, pressure and flow measurement instruments, optical metrology tools, photonics subsystems and critical components for manufacturing processes. These products support the precise control and monitoring needs of semiconductor, industrial manufacturing, life and health sciences, and research applications.

The company’s product portfolio features mass flow controllers, pressure transducers, vacuum gauges, gas purity monitors, laser-based metrology systems and photonic devices such as lasers and detectors.