VAT Group (SIX Swiss: VACN) Q2 2026 Earnings Call

0:00 Ladies and gentlemen, Gretz Vitanand. Good morning and thank you for joining today's webcast on our second quarter and first half twenty twenty six results. Apart from this, I'm delighted to share an important milestone in VAT's long term growth journey, our planned acquisition of Atanarp. Joining me today is our CFO, Fabian Kiotza and members of our Investor Relations team. After Fabian's and my remarks, we will have a moderated Q and A session to answer your questions. The first thing we want to cover today are the H1 results. Semiconductor markets are in a unique situation. There is a clear supply and demand imbalance.

0:47 We will discuss the Q2 record CHF500 million order flow and the successful start to our ramp up to support this demand. The second thing we want to share with you is an acquisition. Our press release this morning might have come as a bit of a surprise. We have been talking in the past years that we are always looking for technologies that excite us. With the signing of the SBA, I am delighted to share that we are bringing Atenarb's breakthrough molecular sensing technology into the VAT family. Together, we will create a powerful integrated offering that enables our customers to generate new value and opens exciting growth opportunities for the future.

1:37 But let's start with the highlights in the first half of twenty twenty six. Next slide, please. It is impossible to talk about our business without mentioning AI and the massive investments in data centers. To be precise, however, our products are not used inside the data centers themselves. Rather, we benefit from the industry's need to expand semiconductor manufacturing capacity to produce the advanced chips that power them. The key driver is the growing imbalance between demand for leading edge semiconductors and the industry's ability to supply them.

2:23 Advanced AI chips require the latest generation of semiconductor manufacturing equipment operating in the most demanding back home environments. Yet existing fab capacity is insufficient to meet this demand. As a result, more than 140 semiconductor fabs are currently being built or expanded and will be equipped over the coming years with advanced etch, deposition and EUV tools. These chip manufacturing tools incorporate VAT valves and adjacent technologies, creating not only significant near term demand in VAT products, but also a growing installed base that will generate service opportunities for many years to come.

3:09 As a result, we continue to see very strong demand for our products in the second quarter, leading to a record order intake of more than million. First half orders increased 75% year over year, reflecting the industry's confidence that this growth cycle is more than a short term AI driven search. In the first quarter call, we discussed how we were ramping capacity to meet customer demand and highlighted our target of increasing output by 20% to 30% per quarter. In Q2, we exceeded that commitment, achieving a 32 increase in output and keeping us firmly on track to reach a quarterly factory output run rate of more than CHF415 million by year end.

4:03 To support this ramp, we focused on two key areas: people and supply chain. Over the past six months, we have added more than 700 employees across Malaysia, Switzerland and Romania. At the same time, we invested in strengthening the resilience and security of our supply chain to ensure we can reliably support our customers' growth plans. While executing this rapid ramp up, we have also remained focused on the future. Moore's Law continues to be a fundamental driver of growth in our industry, and we are actively preparing for the next generation of semiconductor manufacturing equipment. Our innovation efforts are delivering results with 60 specification wins secured in the first six months of the year.

4:54 These specification wins demonstrate how we are extending our technology leadership within our core markets. At the same time, we are investing beyond our traditional boundaries to create new avenues for growth and deepen the value we deliver to customers. So, the acquisition of Aptunard marks an exciting step in this direction. It allows us to look beyond the current growth cycle and broaden our value proposition to customers. By adding advanced molecular sensing and analytics capabilities to our vacuum expertise, we are laying the foundation of our integrated system solutions that enhance process control, improve productivity and create new sources of value for our customers.

5:44 Next slide please. Turning to Slide six, we can see an overview of the performance of our business and market segments. Valves, our largest segment, accounts for about 79% of our sales, which are down from 84% a year ago. Global service has shown relative growth to 21% amid the overall high utilization rate in the fabs. With all the activity in the market, 81% of VAT sales were from semiconductor customers. Geographically, in line with the location of fab build outs, we now have 73% of our products and services being delivered to Asia.

6:30 And our direct China business accounted for about 28%, down from around 35% a year earlier. As anticipated, China sales as a percentage of total sales declined as rest of world sales accelerated. Next slide.

6:51 If you have met me over the past few months, you may have heard me compare our ramp up to an idle diesel engine starting up. A lot of noise, a lot of smoke, but not yet operating at full speed. With our Q2 performance, I'm pleased to say that the engine is now running smoothly. In the first half of the year, we welcomed more than 700 new colleagues to VAT. Consistent with our flexible operating model, the majority of these additions were temporary employees supporting our production ramp. Around 85% of the new hires joined machining, assembly, vulcanization and other manufacturing related functions. Approximately half of these employees were being hired in Malaysia where we continue to expand capacity close to our customers.

7:44 The second major focus area was our supply chain. Our teams worked closely with suppliers to secure the materials and components needed to support the ramp. This included targeted inventory buildup, both internally and at key suppliers, as well as selective multi sourcing initiatives to reduce risk and enhance flexibility. Next slide. Despite our intense focus on executing the current ramp, we remain equally committed to investing in the next phase of VAT's growth. We will discuss Atanar, which we believe will become an important new growth pillar for the company in more detail following the financial review.

8:32 At the same time, innovation within our core business remains central to our strategy. It is the foundation of our long term growth, strengthens our partnership with customers and enables the next generation of semiconductor manufacturing technologies. In the first half of the year, we invested approximately 7% of sales in R and D. Across the organization, more than 130 development projects are currently underway, creating a robust pipeline of products and technologies that will support future growth. Specification wins remain one of the most reliable leading indicators of our future business. We delivered another strong performance in the first six months, securing 60 specification wins.

9:22 This success demonstrates that our customers continue to rely on VAT as a key innovation partner. The industry's technology roadmap remains highly compelling. While two nanometer production is now being rolled out, development efforts are already advancing towards one nanometer class technologies, including CFED based architectures. This highlights an important point. The demand environment we are experienced today is not a one time event, but a part of a long term technology cycle. The path forward is clearly defined and VAT is well positioned to support our customers through each technology node and capture the opportunities that compensate.

10:11 This concludes my initial remarks for the H1 twenty twenty six review. And I would now like to hand over to Fabian for a more detailed look at our financials. Thanks, Horst, and a warm welcome to everyone on the line. Let me take you through the truly remarkable order momentum we are seeing in H1 twenty twenty six. On this slide, you see the order development of the second quarter and half year twenty twenty six. Very clearly, the order patterns reflect the above mentioned demand from our customers and from the fabs for new manufacturing equipment. This is, as far as we can tell, based on configurations arising from the demand for advanced DRAM and logic chips.

10:58 With capacity for chip manufacturing fully booked into 2027, the buildup of new fabs, including the latest chip making tools from our customers are the main source of our growth in the quarters to come. Reported Q2 orders were up 40% sequentially and we hit the record CHF 500,000,000 of orders. Year on year, the order intake even more than doubled and grew by 102%. And we look at the order book, it increased by 50% since last reporting and was over 120% versus last year. And while we are increasing factory output constantly, two thirds of the order book currently will convert into sales in the next three to four months.

11:46 On Slide 10, I want to put the current demand momentum in historical context. Looking back, we would have seen the last peak in orders in Q4 twenty twenty one and the trough in Q1 twenty twenty three. In Q4 twenty twenty one, at the last peak, the order intake was CHF434 million. We have surpassed that number by a good margin. And the record CHF 500,000,000 order intake is now nearly three times higher than the trough quarterly intake of CHF 134,000,000 in 2023. The book to bill ratio rose again in Q2 versus Q1 to 1.7 times on the back of sequential order growth outpacing sequential sales growth.

12:33 With regards to the business units driving this momentum, it is no surprise that both semiconductor OEM valve sales for greenfield investments as well as the global service business are driving the robust growth, with semiconductor new valve sales increasing by 134% year over year. Also, Advanced Industrials is showing orders up 36% year over year, which includes demand from scientific applications, industrial applications and power related growth. Moving on to Slide 11. But it's not only the OEM business that is contributing to growth. As we can see also adjacencies and global service are contributing meaningfully to the H1 results.

13:22 Adjacencies are starting to slightly accelerate with growth at 5%. As mentioned previously, this is in line with expectations. In both gas inlet valves and motion components, we are seeing solid double digit growth in products. In our advanced modules, order growth is still a bit sluggish as the advanced tools that we have been spec in are starting to be deployed in volume with the fabs. So we can expect more growth to come through there. In Global Service, growth was seen across all product groups as semi spending picked up. Consumables saw solid growth as high utilization drove demand for spare gates. Fabs were minimizing downtime resulting in slow growth and repairs and for retrofitting or upgrading activity.

14:15 Finally, as a reminder, the potential of Global Service is not fully visible yet as the growth we are seeing in OEM was really only start converting into service sales twelve twenty four months from now. Let's move to Slide number 12 and let's look at our profitability starting with gross profit and the gross profit margin. For those of you who I met in the past weeks, you will remember that I have mentioned there are a number of effects that will impact our margin, making it difficult to predict H1 numbers.

14:52 Overall, our gross profit for the first six months declined 7% year on year, which is slightly less than the reported 8% year on year decline in H1 sales. The gross profit margin however went to 66.6% compared to 65.5% last year. You will remember our mention of net working capital reductions last year impacting our margin, which reversed again this year. Further tailwinds to the gross margin came from our continuous improvement programs. As headwinds, we experienced mix effects in combination with unfavorable FX, especially from U. S. Dollar, Japanese yen and Korean won impacting our net sales.

15:40 Let's move to Slide 13. As mentioned to you in our meetings in the past weeks, we expected EBITDA margins to reflect the stage of the ramp we are currently in. We achieved 29% in H1 twenty twenty six compared to 29.6% last year. The main reason that we are below our target bank currently is the front loading of the ramp costs, which is personnel expenses and other ramp related expenses in the first half of this year.

16:11 Combining this with the lower sales, we see lower cost absorption in H1 despite all our efficiency and cost saving initiatives. However, as we have proven in prior years, H2 can show a different profile and given we are expecting further sales growth, operating leverage will materialize in H2 this year. Let's move on to Slide number 14, please. Taking a step back and reviewing H1, we were quite busy at VAT this year. We transitioned our organization from ramp ready into ramp mode, adding more than 700 colleagues, especially in the production sites, Switzerland, Malaysia and Romania. We work with our suppliers to have them bring their capacity online to support our manufacturing.

17:01 We also have been continuously optimizing our setup and equipment across our sites, While adding 22% new colleagues and increasing our sales by more than 30% quarter over quarter, we have maintained a margin in line with prior years.

17:22 We have the same proven recipe that applies here, our ability to drive efficiency gains from our Darwin program. This capacity expansion is not without costs. In addition, we are mitigating the impact of any cost inflation where we can. And for us, these are not expenses, but investments in our ability to deliver profitability and free cash flow as the operating leverage materializes. Finally, in H1, we have been preparing the acquisition of Atonorc, an important future driver of growth for VAT in the future. We are excited about bringing in this additional growth pillar to the VAT Group and that we have been able to secure an attractive financing package for this asset. For the second half, I foresee the following.

18:09 As mentioned just prior, the expenses in H1 are investments for our ability to deliver profitability in H2, and I'm confident that we will achieve the

18:19 target I mentioned in the full year conference call of being in the upper half of the lower half of our guidance band. But this requires continued discipline and monitoring and then working closely with our operations to understand their needs around capacity, the output they can achieve and cash. This is a truly unique ramp environment we are in and one that is likely to persist. And as they say, it's not a sprint, it's a marathon. We have to pace ourselves. Finally, the wildcard is the geopolitical macroeconomic environment, which remains unpredictable and volatile.

18:59 Not only does this impact our supply chain, but also on our sales and foreign currencies. We are always thinking about creating additional resilience against the FX impact. For example, we added the most staff in Malaysia in H1 growing our team there by nearly 40%. The unforeseen effect of geopolitical developments has been commodity prices, which have been impacted by the global uncertainty and which we are also monitoring closely from our side. That's it from me. I'm looking forward to a further exchange with you in the Q and A. But in the meantime, Urs will take you through the strategic rationale of this exciting acquisition of Aperolok. Yes, thanks Fabian.

19:47 So let's talk about this new acquisition and Athanarb. I am truly excited about this company and even more about their people and the technology. Let me first remind you on the strong results we have delivered over the past years, increasing our market share, expanding our share of wallet and driving sustained revenue growth. Our ambition through 2029 is clear. So we want to grow our core valve business by further increasing our share on wafer fab equipment tools, while benefiting from the rising number of process steps and increasing backroom intensity. And we want to expand our share of wallet through our adjacent components and subsystems.

20:36 Until now, we have been cautious when discussing our growth opportunities beyond 2030. Today, we can be more specific. As semiconductor manufacturing becomes increasingly complex, success will depend not only on enabling advanced vacuum environments, but also on providing the technologies that allow customers to precisely

21:02 monitor and control their processes in real time. Feed forward pressure control and gas flow control are areas where we already have a strong presence. But as the industry moves to two nanometer, one nanometer and beyond, our customers require even deeper process insight and control at the molecular level. That is the strategic rationale behind Atonar. The acquisition expands VLT's technology scope from vacuum solution into advanced process sensing and analytics. It creates a new avenue for growth beyond our current portfolio, and it will enable customer to solve some of the most critical challenges in next generation semiconductor manufacturing.

21:55 The next slide. Aptanar was founded in 2009 to develop a new generation of miniaturized mass spectrometry. The key advantage of the system is its ability to measure gas composition in real time directly within the process environment, which means integrated in the chamber. This gives customers visibility into what is happening during critical process steps and enables them to make proactive adjustments to process receipts, improving both yield and process stability. As the industry moves to sub-two nanometer architectures, this capability becomes increasingly important.

22:45 Many of the new manufacturing steps required for these advanced nodes cannot be effectively monitored with existing technologies. With the Aston product family, customers will be able to transition from conventional time based process control to adaptive chemistry based control. They can make decision based on actual molecular conditions and process outcomes enabling higher precision, greater consistency and improved manufacturing performance. Through this acquisition, we are gaining a differentiated technology platform protected by a strong portfolio of patents and deep R and D expertise. It extends VAT's capability beyond vacuum solutions into advanced process sensing and control.

23:37 Next slide please. Our customers will benefit from the combination of the Aston sensor family with VAT's existing technology portfolio, as illustrated on this slide. In green, you see our established OEM valve solutions, which continue to evolve and support the most advanced semiconductor manufacturing processes. In blue, you see our adjacencies, where demand is now accelerating

24:07 with the deployment of the latest generation of semiconductor tools. And in purple, Aston adds a critical new capability, real time process sensing, effectively providing the eyes into processes that today remain largely invisible. Next slide please.

24:32 Based on this, we believe this transaction represents a major step forward for both E and T and Atonorg, with each company bringing highly complementary strengths to the partnership. We gained access to a unique technology platform what would have been difficult and time consuming to develop internally. And we can prepare the next chapter of the VAT growth story.

24:59 This is about positioning VAT beyond the next three years. We have identified a critical future need in semiconductor manufacturing and are investing in technology that will help our customers continue pushing miniaturization towards its physical limits.

25:18 For Atonar, VAT is the ideal partner to accelerate commercialization. The first Aston systems are already deployed and VAT's deep customer relationship, strong market position and proven specification win track record provide a powerful platform to scale adoption across the semiconductor industry. VAT also brings world class industrialization and manufacturing capabilities. While Atanarp has developed a breakthrough technology, BET's global manufacturing expertise across Switzerland, Romania and Malaysia provide the scale, quality and operational excellence needed to support broader market adoption.

26:04 So in short, Atonar brings unique technology and VAT brings customer access, manufacturing expertise and industrial scale to unlock its full potential. Together, we are creating a stronger platform for long term growth. Next slide please. Let me close this section with a brief note and overview on the transaction terms. We are excited to move forward and will provide updates as we progress toward closing in the coming months. Given the nature of the transaction, we do not anticipate any significant regulatory hurdles and expect a straightforward approval process.

26:53 Finally, I would like you to take away three key messages from this transaction. First, Atanar is a continuation of the strategy we presented at our twenty twenty five Capital Markets Day. We will continue to drive organic growth through our core valve and adjacency portfolio. Second, we recognize that not every critical technology can or should be developed internally. ATNOab's mass spectrometry capabilities are exactly the type of differentiated innovation that will become increasingly important as semiconductor manufacturing advances beyond the two nanometer node. This acquisition brings us technology and expertise that would be difficult and time consuming to build ourselves.

27:44 And third, the success of this transaction should not be measured by near term accretion, dilution or cost synergies. This is a fundamental this is fundamentally a technology and capabilities acquisition. It strengthens our position in the semiconductor value chain and expands the opportunity available to VAT beyond 2030. Ultimately, the true measure of success will be our ability to translate these new capabilities into future specification wins. That is what investors should watch in the years ahead. Next slide please. The outlook section.

28:31 The best proxy to start the outlook section is always the estimates for wafer fab equipment spending, which in both 2026 and 2027 have continued to move higher. This is confirmed by our customers, which are providing increasingly positive signals regarding demand visibility over the coming quarters. Current market consensus points to a wafer fab equipment market of approximately US145 billion dollars in 2026. This growth is being driven by the massive investments hyperscalers are making in data centers, creating extraordinary demand for high performance chips. The challenge remains that semiconductor manufacturing capacity has not kept pace with demand.

29:22 To address this gap, more than 140 fabs are currently being built or equipped through the end of the decade. At the same time, the industry is progressing rapidly along its technology roadmap. While the first gate all around architectures are now entering production, the next node transition including 1.6 nanometer and 1.4 nanometer technologies are already on the horizon. These trends reinforce our conviction that the growth story we have been discussing for several years is now unfolding. Demand is strong, capacity is being added at high pace and the pace of semiconductor innovation remains as compelling as ever.

30:11 Slide please. The latest synthesis surveys indicate that approximately 140 semiconductor fabs are currently under construction or being equipped worldwide. Current wafer fab equipment forecast already highlight a gradual path towards a US200 billion dollars annual wafer fab equipment market that many industry observers anticipate for 2028 and beyond. Assuming an advanced logic or memory fab requires approximately 10,000,000,000 to $20,000,000,000 of equipment investment, the fabs currently planned represent a cumulative wafer fab equipment opportunity that exceeds US1 trillion dollars over the next few years.

31:00 In addition, we expect new semiconductor manufacturers and chip initiatives to enter the market. These new entrants will require substantial manufacturing infrastructure creating an additional source of demand beyond the expansion plans of today's leading chip makers. These factors give us confidence that the current investment cycle is supported by strong structural drivers and that the long term growth outlook remains highly attractive. Coming to the last 1,000,000,000 outlook. Based on the positive market backdrop and our strong operation and execution, we remain firmly on track to achieve our 2026 targets and to reach our planned quarterly factory output run rate of more than million by year end.

31:59 Growth will continue to be driven primarily by our semiconductor OEM valve business, supported by strong contributions from our global service segment, benefiting from high fab utilization rates as well as from semiconductor related markets within ATV, including our semiconductors and inspection. As a result, we expect 2026 to be another record year for orders, sales and free cash flow with higher EBITDA margin and net income compared to 2025. For the third quarter of twenty twenty six, we expect sales in the range of CHF355 million to CHF385 million.

32:49 Looking further ahead, the continued increase in wafer fab equipment forecast has strengthened our confidence in the market outlook. As a result, we are currently reviewing our 2027 targets. While all indication point to 2027 being another year of growth for VAT, we do not yet have sufficient visibility into customer ordering patterns to quantify the magnitude of that growth with the precision we require. We will provide an update as soon as visibility improves and we can do so with confidence. With that, moderator, please open the line for the questions. The first question comes from the line of Neehan Yang from Goldman Sachs.

33:44 Please go ahead. Hi, good morning. Thank you for taking my question. I just have two questions. So first of all, WFE disc growth is expected to grow at 24% according to your consensus, but your orders has been clearly outgrowing that number. So just wondering, are you seeing any double ordering pattern from your customers? And the second question is, so if we're looking into 2027, when are we likely to get an update given that your lead time is still probably around three months? So how would you feel comfortable about guiding your 2027? And if you could help us break the bridge of second half margin? If I listen if I get it correct, is the upper half of the lower half of the full year guidance in terms of operating leverage and FX? And are you planning to do any further ramp up? Thank you very much.

34:40 Well, thank you for the questions. Certainly take the first one. About the outgrowing at the amount of wafer fab equipment market. If you are in a ramp phase, the order patterns is also changing over time. So the customers are more open to open their order windows as well. So it was traditional, let's say there's the three to four months, it goes now more to the three to six months. And of course, this has a huge impact in one of the quarters. So it's more that they get more visibility and they prepare everybody is preparing the supply chain for the ramp up and the deliveries. The same we are doing with our suppliers as well, that we are up the order window that they can bring in the material in time.

35:34 And the second question was about the 2027. As mentioned, well, I think all the vectors are very, very positive. So we have a very good feedback from our customers, but it's still quite challenging to say how this will turn then into the sales in 2027. For sure everything points into a growth year, similar magnitude we have this year. And if you see now where we want to go with the run rate of four fifty quarterly run rate, then you can calculate roughly where this could end up in the 2027. And then let me just maybe complement on your third question on the margin expectation for the second semester.

36:28 So with our current consensus sitting at around 1,300,000,000, we're looking at a sales increase of more than 50%. With more than 700 people that we already added into the system, I do not expect any significant additions somewhere between 10% to 15 maybe in the production environment. And based on that, the fixed cost absorption will significantly increase and then also the operational leverage overall will kick in. I do expect that the negative effects such as inflation, for instance, will stay around the level where we have seen it in H1.

37:25 And then also our continuous improvement program usually has a steeper contribution in the second half. So bottom line, whereas we will end up in the upper half of the lower half for the full year EBITDA, I would expect that EBITDA for the second semester will be in the upper half of our margin band. Got it. Thank you very much. The next question comes from the line of Oliver Wong from Bank of America. Please go ahead. Hi, guys. Good morning. Thanks for taking my question. My first question is going back to the orders.

38:15 Just curious, some companies in the supply chain were talking about potential price increases. So is this something that you may potentially be seeing in terms of order activity as in customers potentially pre buying a bit ahead of potential price increases? Thanks for the questions. No, at the moment the demand is here. It's not driven by the threat of price increases at all. So we should receive the demand of wafer fab coming this year and everybody wants to secure the supply and that's why they opened the order of those.

39:01 Got it. Thank you. And my second question is on the $450,000,000 run rate, I guess we can presume that that will kind of be the capacity run rate for the entirety of Q4 and then going into and then extrapolating that into next year, let's say $1,800,000,000 for the year, that's kind of your capacity. Where do you kind of I know it's early, but like what would you expect kind of demand to be in relation to that for next year? What was the last part of the question? The $450,000,000 it's kind of our best estimate what we will need going into the 2027.

39:52 And then of course, we will see later this year how this will evolve into 2027. Yes. So what do you expect I guess we have a good sense of capacity, where would you kind of expect demand to kind of be in relation to that capacity number for next year? Well, the run rate, I think it will be roughly at that level and this is the factory output. Normally, we always can add some non factory output sales as well on top of that. So that's if the wafer fab equipment numbers will certainly evolve that as forecasted at the moment. I think I'm sure we need this $450,000,000 run rate.

40:40 Okay. Thank you very much. We now have a question from the line of Sebastian Kuhner from RBC Capital Markets. Please go ahead. Yes. Thank you for taking my questions. I want to again ask on the and it's still not quite clear whether you plan to increase your capacity also in 2027. You say you end the year at €450,000,000 run rate. You say you expect more growth next year. So what from today's perspective, would you say you will add more people in production in 2027, so we end up at, I don't know, 500,000,000, $550,000,000 by the end of next year in terms of output.

41:30 It's not quite clear yet whether you see incremental ramps in next year. Maybe you can clarify that first. Thank you. Yes, certainly at the moment, if you look more in the midterm, right into 2028 plus, then the industry is at the moment still pointing to growth. But I think we all know that's quite far out. But we have certainly want to make sure that we have enough capacity to manage if this is materializing. So yes, you can expect if the positive momentum remains and what we hear from our customers that they also want to double their companies by 2028 and beyond that. So we have to add capacity. I think there is four fifty by end of the year. This is what is needed now and for the start of 2027.

42:30 And I don't today, I would say that's not the end. But of course, we are watching out carefully how the market really evolves. And maybe just to complement that, you need to remember that when we talk about four fifty, that's our factory output. So we have between 10% to 15% of sales that's non factory output that comes on top of that. Understood. Then the other question is, again, on pricing. You say for this year, pricing is not the issue. At the same time, you are well, as we know, you're the quarter monopolist in the market. You want to deliver to your core customers, the big OEMs, they are your priority.

43:22 If now a Chinese smaller player comes along and says, I need 150 valves by the end of next month or maybe six months out now. What are you saying to them? Are you saying, well, we can definitely deliver and let's not talk about price? Or do you say my priority is the big OEMs, this is the long term relationship I have, If you want to squeeze in into my production schedule, we have to talk price. I mean, do you see price opportunities now in the next six months or twelve months? It's a key question. Thank you. No, no, we're talking now at the bottom, all right. No, certainly we have with all these large customers in semiconductor, we have long term relationships with the Western and also with the Chinese.

44:13 Everybody is friendly, we also have commitments to them. And on pricing, we remain committed always on value based pricing as well, long term relationships. So a ramp is always a hectic situation, you always have to balance and what we always say is most important is that we do not create the supply chain should not create any line downs. Though they don't have to have a lot of products on stock, of course you want to have that, but it's not necessary, so that's why you're always balancing close collaboration, alignment with customers and that's very intense for the last weeks and also will be very intense going forward for the rest of the year.

45:00 And that's how you manage the business, it's less about putting money on the table then you get a preference. The next question comes from the line of Johan Effert from UBS. Please go ahead. Hello and thanks for taking my questions. I would have two and then a follow-up if I'm allowed. The first one is coming back on your capacity planning. What would be with the current infrastructure setup you have in the three sites, what is the total revenue output you can handle when you would, for example, also institute night shifts and weekend work? I mean, what is really the absolute max you can squeeze it out? And the question is directing to if semi wafer equipment CapEx is really approaching the SEK 300,000,000,000 by 2019 or 2030, how fast could you also ramp a new production site? And are you preparing for this already? This would be the first question, please.

46:11 And then the second question, I know you don't have a crystal ball, but what you saw on exit rates of order intake in Q2. Would you say this was maybe the peak in terms of order intake for the next one or two quarters that orders are more flattening now? Or do you see a decline or further increases? Just what is your best guess would be helpful. And afterwards, I would have a quick follow-up, please. Not sure if you get that, but okay. So the capacity today is for us at 2,500,000,000 to 2,600,000,000 we can do, but of course the operations team always finds ways to optimize, so probably that's not the complete at the end. And as you know, we still have also we can still expand in Malaysia.

47:04 We have the 1A and the 1B and we have not used the land on the for the 1C. So we would have kind of room to expand there as well. On the second one, the more the short term, yes, order intake was of course fantastic this Q2. It's a typical ramp that everybody now tries to secure. I do not expect that this growth continues, but I think the level where we are will be around this number for also for the Q3. Thank you very much. And then, yes, thanks that you are allowing me a quick follow-up. And this comes back to your 2027 outlook. Totally understand you don't want to quantify it.

47:50 But just when I make a little bit the math to also see the rising vacuum usage in the production steps. I mean, let's assume FX adjusted your midpoint for the 2027 guidance was around $1,400,000,000 in terms of sales based on the semi wafer equipment CapEx of $125,000,000,000 I mean, shall we say we take this 1,400,000,000 and that's, for example, semi wafer equipment CapEx would grow 60% from this CHF125 billion towards CHF200 billion, for example, that we also should take the CHF1.4 billion to grow 60%? Or is there anything wrong in this approach? It's a good model, yes. But I don't want to speculate now on the number, but certainly the wafer fab equipment growth will help dramatically.

48:44 And then also which kind of equipment is going out, that should also be in our favor at the moment, that we say more leading edge is going online. So yes, it's not completely wrong, but you're how you Yes. And you're always distinguish, please, between what is demand and what is then revenue recognition because we know that the industry will have its constraints and how much it can digest in any given year. So when you do the math, I think where you're heading with your thoughts on underlying demand, yes, Orest just confirmed that, but that's not equally translate in any given fiscal year into revenue. All these are a lot of capacity constraints out there as well, maximum output for our customers.

49:33 Thank you very Next much for question please. We now have a question from the line of Craig Abbott from Kepler Cheuvreux. Please go ahead. Yes, hi. Good morning all. Yes, I just wanted to focus my questions please on the acquisition on to Narva. I mean, didn't provide any financial metrics for the business other than the acquisition price. I understand it's more about preparing for your future growth beyond 2030. But I just wondered if there's any light you can shed on for our modeling purposes on like kind of revenue contribution can we expect, what kind of margin? And secondly, do you have an M and A pipeline beyond the Altena acquisition? Thank you.

50:20 Yes. As you pointed out correctly, it's really a technology and capability acquisition and it's not a revenue. But as we see that this technology is unique, It's not a me too product in the market. I think that's very important. So we just don't want just to add technologies that are already existing in the market. So we want to differentiate and we see an inflection point. I think we will plan a Capital Market Day in next year and can go a little bit more in details as well. But it's kind of an inflection point out there in the market as I tried to point out that for a lot of gate all around, CFED process steps, there is no sensing technology available.

51:12 So basically, are like in dark room, they are operating in a dark room and with this technology we can add like eyes into their room that they can see what's happening. I think that's not existing in the market and this is the exciting part of that. We don't know today fully what is the potential, but knowing that semiconductor processes are getting more and more complicated, node size is going down to this one nanometer. The industry will need such kind and will adopt such kind of technologies if it helps them to add value and increase yield productivity and so on for the chip manufacturing. I think that's the underlying thinking we had for this acquisition.

52:05 And again, then from a financial perspective, this deal is primarily technology and IP acquisition rather than an earnings accretive transaction in the near term. Once the product scales to high volume as with all our adjacencies. It is at least within the margin grid, obviously, with some accretive potential beyond that. Okay. Thank you. And my question on the pipeline beyond and before we move to that, please, just to follow-up. I mean, you say you're quite confident that the industry will adopt this technology. But I mean, you have any visibility, I. E, are you've got have you guys joined do they have joint R and D projects ongoing with some of your major customers? And then the second question was on the M and A pipeline beyond. Thank you.

52:58 Yes, of course, there's ongoing qualification product development with major customers and end users out there. And M and A pipeline, I can just repeat what we have done in the past. Yes, that's now for us a big step that we add this technology, but it's not the end of course. We will keep screening, scouting where we could add on again technologies in the end always something that is unique in the market where we can add value to our customers. But this is ongoing. Okay. Thank you very much. The next question comes from the line of Sandeep Deshpande from JPMorgan.

53:48 Please go ahead. Yes, hi. Thank you for letting me on. My question is regarding the growth you're seeing in the orders at the moment. You've been talking about the adjacencies for a while. Are you seeing growth? Is it primarily valve growth? Or is the adjacency growth also now similar to the valve growth? Or is it higher at this point? And I have a quick follow-up as well. Yes, thanks for that question. So we are always pointing out adjacencies and we also show that especially also in spec wins, our share of adjacencies is growing as well, Even also in the sales number, the adjacencies did grow faster than the valves.

54:38 And yes, we see the momentum. So as you might recall, it's highly dependent on what kind of configuration of wafer fab equipment tools or the products from our customers go into the market. So adjacencies are mainly qualified on the latest generation, but of course also here if you talk about two nanometer, a lot of process steps can be done also with the existing the legacy tools. So there is always then kind of blended how these adjacency will grow. But yes, we see positive momentum in adjacencies going forward and I expect that this will be like that also in the near future. And then quickly following up on your regional exposure, I mean, talked about China has declined as a percentage of sales, I think 28%.

55:32 How do you see that playing forward? I mean, is the growth or if you look at your order book today or your backlog, is the backlog also now less China going forward? And is China growing going to grow accelerate from here? Or is it that now the growth in the next couple of rather not just couple of quarters, but right into 2027 is going to be extra in the non China related from here? Yes. So in the first half year, yes, the number was a little bit lower in percentage because rest of the world was kicking in again. If you just would compare the orders, then we are still at about one third or 35% orders are coming from China. So they said they did not decline at all. So China is keeping the pace very high as well.

56:26 And just anticipating as well going forward more and more Chinese fabs will buy Chinese tools. And this will certainly be a growth for the growth there will continue. So it's more and more decoupling self sufficiency in chip manufacturing, self sufficiency in the wafer fab equipment tool and this decoupling is taking place. Thank you. Next question We now have a question from the line of Martin Jungfleisch from BNP Paribas. Please go ahead. Yes. Hi, good morning. Actually just one quick follow-up from my end. Just on margins and pricing.

57:14 In terms of raw material input costs on aluminum and so on, are you expecting any headwinds on gross margins there in the second half as the hedges run out? And just to confirm, have you announced any price increases to your customers yet? Or will those be conducted as usual in the fourth quarter to offset the input cost inflation? Thank you. Yes. On the aluminum, I think when you just follow the LME that spiked as high as 3,800 in June, we have now seen a recovery to 3,132. If you go back to the start of the year, it's just about 5% up. So I think even with some of our hedges running out, we have been able to extend those. And therefore, I can just reiterate what said before, I do not expand any further negative pressure on the margin beyond what we have already observed in the first half.

58:17 Notably though that our continuous improvement program was able not just to compensate, but really to outpace the inflation and we still achieved about 150 to 200 basis points net positive contribution to that. And then again, on pricing, I wouldn't see that as a static exercise. As Urs mentioned before, we are committed to value based pricing and are constantly reassessing where the current pricing fully reflects the value delivered by VAT. And so you can assume that whenever there are pockets for adjustment that we tap into them and then also drive these selective adjustments.

59:21 So I wouldn't see why we should now just wait for another round in autumn. You always have also tendencies from the FX or other elements that are just unique to VAT. And therefore, we're constantly monitoring that and also how we have sustained the gross profit margin gives you an indication that we do monitor and also adjust as we see necessity. Okay. Makes sense. Thank you very much. The next question comes from the line of Nabil Adfit from Rothschild and Co. Redburn.

1:00:10 Please go ahead. Hey guys, thanks for taking my question. So the first one was just on capacity. So you've hired 700 people and I think, Fabian, if I misheard you then apologies, but you mentioned adding 10% to 15% more people, so about three hundred and four hundred people in the second half of this year. So is people your major bottleneck for VAT ramping further? Because obviously, took up the guide from 400,000,000 to $450,000,000 for the exit rate for this year. And would you so would you say that people is really your major bottleneck moving forward? And then I've got a follow-up. Thanks. Yes. Thanks for your question. And let's clarify that for the benefit of everyone on the call when I said 10% to 15% more, that's based on the 700 that we already added, not on the full kind of workforce that we have. So that already gives you the indication that from a people perspective, basically have in place what we require obviously in these times, not so much in Switzerland, but especially in Malaysia, you also deal with attrition as the whole industry is ramping. So the hires might go beyond that, but if we just go by the net, so sort add people that's somewhere between 10% to 15%.

1:01:29 This said, people and assets are certainly not a constraining factor as we have 75% of our components in the supply chain. That's also where we put most of the focus on. That's also where we have basically since Q4 twenty twenty five plenty of people following up closely the scale up with our suppliers. And that will certainly continue to happen now as we ramp towards run rate that we predict for the end of the year. I would not call that as a constraining factor, but obviously it's always a challenge when you have this multitude of suppliers and you need to make sure that they are also capable to ramp at the same pace or even beyond we are requiring.

1:02:29 Okay, great. Thanks for that question. And then I guess the follow-up is just on your capacity utilization rates in Switzerland and in Malaysia. I know you provided those percentages last quarter. Have those changed materially Q on Q? Thanks. No. As we are also constantly adding utilization rates to also develop. So right now, in Switzerland, we have around 70 utilization. And in Malaysia, for the 1A factory, somewhere between 8085%. Great. Thank you. We now have a question from the line of Michael Sood from Vontobel.

1:03:15 Please go ahead. Hi, good morning gentlemen. I have a question or a few questions on the acquisition because I really believe it's a major strategic milestone. I think the process monitoring market is quite vast. And my question is whether plan to expand further in this market in the future? What sort of market size overall do you have in mind for that market? And also, I mean, you didn't give any specifics on the financials, I understand that. But can you remind us what your capital allocation criteria are when you do such acquisitions and over what time frame that those acquisitions or those investments should create value?

1:04:05 Thank you. Yes, thanks for that questions. Can be assured that we have some ideas where we think that this technology will be adopted and needed. We see there is an inflection point out there in the market. As I tried to point it out, there will be new processes. There are new processes out there for the gate all around the CFED technologies that do not have today sensing technologies available. I think it's where you can see that quite similarly to what we have done organically with gas inlet valve at that time, ALD.

1:04:53 This was also a project that started meanwhile more than seven years ago and at that time nobody was thinking about ALD gas inlet valves will be a bottleneck in the market from the technology. There were solutions out there, but we identified a field where there will be a bottleneck and the current technology is not good enough anymore. And I think that's the way we are thinking if you see technologies, we want to enter in a field or create a field and a market that we believe will add value to our customers. Of course, it's always a very close collaboration in the end with our customers, with the OEMs, but also with the chip manufacturers like the big fabs who are going in this direction of the gate all around at the CFAP. So that's kind of how we see that. That's why it's not that easy to quantify a market. There are no market studies out there that this market is $05,000,000,000 $1,000,000,000 in size.

1:05:56 But we believe that we can create this market with such a technology and a demand in the market because it adds value to the chip manufacturing. I think that's the road we try to go. So it's to model and all that, it's not that easy. But from a technology point and creating value in the market, it's a really exciting journey where we want to shape and give a legacy in the end to the chip manufacturing. And then Michael, maybe some color around capital allocation and then how we see the value creation out of that. So we estimate that we will spend about 0.5% of revenue in additional R and D in this platform that we are going to build.

1:06:46 Currently, I do expect that this acquisition will generate meaningful bottom line contribution by the end of the decade. And as such, the capital allocation principles will also not change. So the only thing that we will see is a step up in R and D. But other than that, we're going to stay course. Okay, great. Thank you. Okay. Thank you. I quickly have two questions we can answer from the webcast. One easy one, we don't have a crystal ball, but do you expect the book to bill ratio to stay above one for the remainder of the year? Yes.

1:07:31 The answer is yes. Thank you. And then Ursberg is asking about the factory output number that we have discussed, whether this is 20 fourseven full shifts or what is the underlying model here? And whether we can if it's not 20 fourseven, if increasing into that level is part of the output increase. Yes. So we are already on such a pattern in Malaysia and Switzerland will also move there over the course of the second half. Then our last one here that I take from the web is the supply chain, how this is evolving, Europe versus Asia, this is how fast and then this is?

1:08:20 Yes, I think the evidence is given by a very steep ramp that we have now accomplished in Malaysia, which was heavily supported by local independent supply chains. And always discussed that also in previous calls that this is one of our key focus areas to build independent supply chains also around the Malaysian flagship factories. And as such, I'm actually pretty confident that we will continue to see them ramping up.

1:09:05 On the other hand, we also are scaling up our new Romania factory, which also comes in handy now as we scale the company. And overall, the best cost country sourced material will further increase and will also help us to reduce the exposure of the Swiss franc going forward. Thank you very much. So we are already quite a bit past the hour. So operator, I guess we take the two last questions from the phone. The next question comes from the line of Timothy Li from Barclays. Please go ahead.

1:09:55 Hi, thanks for taking my question. I just have a follow-up on the capacity expansion. So now we have expected run rate of $150,000,000 by the end of this year. So that means an annualized output around $1,800,000,000 And then if I am not mistaken, your theoretical capacity will be around $1,000,000,000 So that means still like a mid teens growth compared with the annual run rate by the end of this year. Can I assume this will be like the mid teens growth per quarter that you will be able to achieve next year to be kind of the capacity or manufacturing output ramp up run rate for next year? Thank you.

1:10:43 I think it was very difficult to understand your questions here in the room. But maybe if you talk about the capacity, I can summarize a few key numbers here. We always are committed to the weekend ramp 20% to 30% quarter over quarter, right. And we have proven that in earlier ramps and normally we have had to do that maybe two or three times in a row, but this ramp now it is really completely different animal here and very positive of course, the market is growing. So we are preparing internally that we can grow the 20% to 30% for a few more quarters ahead.

1:11:30 I think that's what's the challenge we are facing and internally we can manage this pretty well. What with our capacities, it's a lot of optimization, productivity gains, which we can what we can achieve. And the second part of course is that the whole supply chain globally and also even going down to raw materials like aluminum or elastomers and chips again, they also have to ramp up at the same pace and kind of serve this global market. So ramping up is an exciting story, it's a challenge with a lot of hurdles where the teams have to move out of the way.

1:12:22 Okay. And the last question please, Neff. We now have a question from the line of Martin Marandan Carlihan from ODDO BHF. Please go ahead. No, I'm sorry. I was on mute. I'm sorry. Yes. So my first question was on the backlog conversion. So looking at the record backlog today, I'm trying to understand what is currently the main constraint you can face on converting demand to say the So I understood it's not about production capability. So is it more about component availability or it's more customer readiness at this stage?

1:13:13 Well, for me, the backlog or I call it orders on hand, that's fantastic to have. And normally I would say I want to have orders on hand for at least three to four months. And of course, you want to go up then to a 2,000,000,000 scenario going in the future, you have to have roughly 500 to 600,000,000 orders on hand now. And now in a ramp, of course, maybe this is in the beginning a little bit higher, because you get the visibility, you get the orders, windows as I mentioned are opening up. And then when kind of the you reach that level, more stable output, then it goes back to this three to four months in order backlog.

1:14:02 Okay, understood. And a very quick follow-up on Anno at Anap. You said from what I understood that sensing control technologies will be key drivers after 2030. So I think your 2019 target for AllureSense is up to 20% of sales. So I guess my question is, do you think that after 2030, you can actually exceed that target? Well, as you mentioned 2030, we cannot say this is our Horizon two story, right? What we add new technologies, new products into the market beyond the 2030. The adjacency that adjacency for us means more kind of technologies that are already close to our valves, close to what we have done in the past, like the advanced modules, motion component, the gas inlet, so stuff we developed organically.

1:14:59 I thought that we should not mix it up at the moment. Think let's now work with this great team in Japan to have the first spec wins to adopt that to the market, and then later maybe next year we can give more insights how we think that market and growth with this technology will evolve. Think this is a typical topic then for a specific capital markets team. Okay, very clear. Thank you very much. Okay. Thank you very much. I think with that, we would conclude today's call on the results and the acquisition of Optonorb. Our next point is the Q3 results that will be published on the October 16 fifteenth, sorry, October 15.

1:15:58 There again a trading update and of course, yes, we're looking forward to talking to you then again with exciting news about the markets, our developments and so forth. So thank you very much for joining us today and have a good rest of the day.