VAT Group Stock

Ladies and gentlemen, welcome to the VAT Half Year 2026 Results Conference Call and Live Webcast. I am Mathilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The presentation will be followed by a Q&A session.

You can register for questions Webcast viewers may submit their questions in writing via the Relate field. For operator assistance, please press star and. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Urs Gantner, CEO.

Thank you. Ladies and gentlemen, and good morning, and thank you for joining today's webcast on our second quarter and first half 2026 results. Apart from this, I'm delighted to share an important milestone in VAT's long-term growth journey, our planned acquisition of Aton. Joining me today is our CFO, Fabian Chiozza, and members of our Investor Relations team. After Fabian's and my remarks, we will have a moderated Q&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. We will discuss the Q2 a record CHF 500 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 excites us. With the signing of the SBA, I'm delighted to share that we are bringing Atonarp 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. But let's start with the highlights in the first half of 2026. 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 chip that power them.

The key driver is the growing imbalance between demand for leading-edge semiconductor and the industry's ability to supply them. Advanced AI chips require the latest generation of semiconductor manufacturing equipment operating in the most demanding back 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 edge 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.

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 CHF 500 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 CHF 415 million by year-end.

To support this ramp, we focused on 2 key areas: people and supply chain. Over the past 6 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.

By 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 6 months of the year.

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 Aptina 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. Next slide, please.

Turning to Slide 6, 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.

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.

If you have met me over the past few months, you may have heard me compare our ramp-up to 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 volumes 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 united functions. Approximately half of these employees wearing higher in Malaysia where we continue to expand capacity close to our customers.

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 ET's growth. We will discuss Athena, which we believe will become an important new growth pillar for the company in more detail following the financial review.

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&D. Across the organization, more than 130 development projects and 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 6 months, securing 60 specification wins. This success demonstrates that our customers continue to rely on VAT as a key innovation partner.

The industry's technology road map remains highly compelling. While the 2-nanometer production is now being rolled out, development efforts are already advancing towards 1 nanometer class technologies, including CFET based architectures. This highlights an important point. The demand environment we are experiencing today is not a onetime event, but a part of a long-term technology cycle.

The past forward is currently defined. And VAT is well positioned to support our customers through each technology node and capture the opportunities that comes its way. This concludes my initial remarks for the H1 2026 review. And I would now like to hand over to Fabian for a more detailed look at our financials.

Thanks, Urs, and a warm welcome to everyone on the line. Let me take you through the truly remarkable order momentum we are seeing in H1 2026. On this slide, you see the order development of the second quarter and half year 2026.

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 with capacity for chip manufacturing fully booked into 2027, the buildup of new fabs, including 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 million of orders year-on-year. The order intake even more than doubled and grew by 102%. When 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, 2/3 of the order book currently will convert into sales in the next 3 to 4 months.

On Slide 10, we want to put the current demand momentum in historical context. Looking back, we would have seen the last peak in orders in Q4 2021 and the trough in Q1 '23. In Q4 '21, at the last peak, the order intake was CHF 434 million. We have surpassed that number by a good margin, and the record CHF 500 million order intake is now nearly 3x higher than the tough quarterly intake of CHF 134 million in '23.

Book-to-bill ratio rose again in Q2 versus Q1 to 1.7x on the back of sequential order growth outpacing sequential sales growth. With regards to the business units driving this momentum, it is no surprise that both semiconductor OEM wall sales for greenfield investments as well as the global service business and driving the robust growth.

With semiconductor new wall 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. Adjacencies are starting to slightly accelerate with growth at 5%.

As mentioned previously, this is in line with expectations in both in net walls 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 specked in or 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 growth demand for spare gates, fabs for minimizing downtime, resulting in slower growth in repairs and for retrofitting or operating activity.

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 12 to 24 months from now.

Let's move to Slide #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.

Overall, our gross profit for the first 6 months declined 7% year-on-year, which is slightly less than the reported 8% year-on-year decline in H1 sales. 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.

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 26 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.

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 the 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 #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 to bring their capacity online to support our manufacturing.

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. 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 Opto Nor, an important future driver of growth for VAT in the future. You're 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: as mentioned, just prior to the expenses in H1 are investments for our ability to deliver profitability in H2, and I'm confident that we will achieve the 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 are 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 1 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. 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 off in Malaysia in H1, growing our team there by nearly 40%. The unforeseen effect of geopolitical developments as in commodity prices, which have been impacted by the global uncertainty in which we are also monitoring closely from our side. That's it for me, and looking forward to a further exchange with you in the Q&A. But in the meantime, Urs will take you through the strategic rationale of this exciting acquisition of Optonor.

Yes. Thanks, Fabian. So let's talk about this new acquisition and tenor. I am truly excited about this company. and even more about the 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 vacuum intensity. And we want to expand our share of wallet through our adjacent components and subsystems.

Until now, we have been cautious in 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 back environments, but also on providing the technologies that allow customers to precisely 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 2-nanometer, 1 nanometer and beyond our customers require even deeper processing side and control at the molecular level.

That is the strategic rationale behind Atonarp. The acquisition expands VAT'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 customers to solve some of the most critical challenges in next-generation semiconductor manufacturing.

The next slide, Atonarp was founded in 2009 to develop a new generation of miniaturized spectrum in red. 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 2-nanometer architectures, this capability becomes increasingly important. Many of the new manufacturing steps required for these advanced nor 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 decisions based on actual molecular conditions and process outcomes, enabling higher precision, greater consistency and improved manufacturing performance. Through this acquisition, VAT's capability beyond the vacuum solutions into advanced process sensing and control. Next slide, please.

Our customers will benefit from the combination of the stent 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 with the deployment of the latest generation of semiconductor tools. And in purple, Estel adds a critical new capability real-time process sensing, effectively providing the eyes into processes that today remain largely been visible. Next slide, please.

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

This is about positioning beyond the next 3 years. We have identified a critical future need in semiconductor manufacturing and are investing in technology that will help our customers continue pushing militarization towards its physical limits.

For Atonarp, VAT is the ideal partner to accelerate commercialization. The first Estel 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 Atonarp developed their breakthrough technology, VAT's global manufacturing expertise across Switzerland, Romania and Malaysia provide the scale, quality and operational excellence needed to support broader market adoption.

So in short, Atonarp 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 on long-term loads. Next slide, please.

Let me close this section with a brief note an overview on the transaction terms. We are excited to move forward and we'll provide updates as we progress towards 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. Finally, I would like you to take away 3 key messages from this transaction. First, Athena is a continuation of the strategy we presented at our 2025 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. Atonarp spectrometry capabilities are exactly the type of differentiated innovation that will become increasingly important as semiconductor manufacturing advances beyond the 2-nanometer node.

This acquisition brings us technology and expertise that would be difficult and time-consuming to build ourselves. And third, the success of this transaction should not be measured by near-term accretion, dilution or cost synergies. 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. 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 USD 145 billion 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. To address this gap, more than 140 fabs are currently being built or equipped through the end -- 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. Capacities being added at high pace and the pace of semiconductor innovation remains as compelling as ever. Next slide please.

The latest surveys indicate that approximately 140 semiconductor fabs are currently under construction or being equipped worldwide. Current wafer fab equipment forecast already highlight a federal path towards USD 200 billion annual wafer fab equipment market that many industry observers anticipate for 2028 and beyond.

Assuming an advanced logic, a memory fab requires approximately USD 10 million to USD 20 billion of equipment investment, the fabs currently planned represent a cumulative fab equipment opportunity that exceeds USD 1 trillion over the next few years.

In addition, we expect new semiconductor manufacturers and 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 on outlook. Based on the positive market backdrop and our strong operational execution, we remain firmly on track to achieve our 2026 target and to reach our planned quarterly factory output run rate of more than CHF 450 million by year-end.

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 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, EBITDA margin and net income compared to 2025. For the third quarter of 2026, we expect sales in the range of CHF 355 million to CHF 385 million.

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 indications point to 2027 being another good year of growth for VAT, we do not yet have sufficient visibility into customer ordering patterns to quantify the magnitude of debt growth this 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.

[Operator Instructions]

Two questions. So first of all, AC's growth is expected to grow at 24% according to your consensus, but your orders have been clearly outgrowing that number. So just wondering, are you seeing any double ordering pattern from your customers?

And the second question is if we're looking into 2027, when are we likely to get an update given that your lead time is still probably around 3 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, it's 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?

Well, thank you for the questions. I can take the first one. the outgrowing about the 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 when it was traditional, let's say, there's 3 to 4 months, it goes now more to the 3 to 6 months. And of course, this has a huge impact in the one of the quarter. So it's more that they get more visibility, and they prepare everybody is preparing the supply chain for the ramp-up and the delivery is the same.

We are doing with our suppliers as well that also we are opening up the order we know that they can bring in the material time.

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 feedbacks 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 CHF 450 million quarterly run rate then you can calculate roughly where this could end up in 2027.

And then let me just maybe complement on your third question on the margin expectation for the second semester. So with our current consensus seating at around CHF 1.3 billion. We're looking at a sales increase of more than 50% with the 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, 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 of the full year EBITDA, I would expect that EBITDA for the second semester will be in the upper half of the upper half of our margin band.

My first question is going back to the orders. Just curious, some companies in the supply chain, we're talking about potential price increases. So is this something that may potentially be seeing in terms of order activity as customers potentially prebuying 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 really see the demand of wafer fab here. And everybody wants to secure the supply, and that's why often the orders.

Got it. And my second question is on the $450 million run 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, $1.8 billion the year, that's kind of your capacity.

Where do you -- I know it's early, but like what would you expect kind of demand to be in relation to that for next year?

Need going into the 2027. And then, of course, we will see later this year how this will evolve into 2027.

Yes. So what do you expect so 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?

The run rate, I think it will be roughly at that level, and this is the factory output. Normally, we always can add some nonfactory 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 CHF 45 million run rateSP-5.

We now have a question from the line of Sebastian from RBC Capital Markets.

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 CHF 450 million run rate. You say you expect more growth next year.

So what from base perspective, would you say you will add more people in production in 2027. So we ended at, I don't know, CHF 500 million, CHF 550 million by the end of next year in terms of

Certainly, at the moment, if you look more in the midterm, into 2028, plus then the industry is at the moment, pointing to growth. But I think you 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 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's CHF 450 million by end of the year. This is what is needed now for the start of 2 -- and I don't -- today, I would say that's not the end. But of course, we are watching out carefully how the market will evolve.

And maybe just to complement that, you need to remember that when we talk about CHF 450 million, that's our factory output. So we have between 10% to 15% of sales that's nonfactory out with 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 your qualinopolist in the market, you want to deliver to your core customers, very big OEMs.

They are your priority. If now a Chinese smaller player comes along and said, I need 150 wells by the end of next month or maybe 6 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 into my production schedule, you have to talk price. I mean do you see price opportunities now in the next 6 months or 12 months, is a key question.

Now we're talking about the bottler. Now certainly, we have with all these large customers in semiconductor. We have long-term relationships with the Western and also with the Chinese. Everybody is ramping. 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 situations. 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 down.

So 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, that's very intense for the -- in the last weeks, and also will will be very intense going forward for the rest of the year.

And that's how you manage the business. It's less about putting money on the table, then you get that preference.

The next question comes from the line of Jon Iffert from UBS. .

I would have 2 and then a follow-up, if I'm allowed. The first 1 is coming back on your capacity planning. What would be with the current infrastructure setup you have in the 3 sites?

What is the total revenue output you can handle when you would, for example, also institute niches and weekend work? I mean what is really the absolute max you can squeeze it out and the crush is directing to if semi-warm CapEx is really approaching the CHF 300 billion by '29 or 2030, how fast could you also ramp in your production side? And are you preparing for this already? This will be the first question, please.

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 2 quarters that all us 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 a CHF 2.5 billion to CHF 2.6 billion. we can do. But of course, the operations team, all this all this finds ways to optimize. So probably it's not the complete at the end.

And as you know, we still have also -- we can still expand in Malaysia. We have the A and the B, and we have not used the land on the C. So we would have kind of room to expand there as well.

On the second one, the more the short term, yes, the order intake and the growth continues. But I think the level where we are will be around this number also for the Q3.

And then yes, thanks that you're allowing me a quick follow-up. And this comes back to your '27 outlook, totally I understand you don't want to quantify it. But just when I make a little bit the math, to also see the rising usage and the production steps. I mean let's assume FX adjusted your midpoint for the 2027 guidance was around CHF 1.4 billion billion in terms of sales based on the simulator equipment CapEx of CHF 125 billion.

I mean, shall we say we take this CHF 1.4 billion, and that's, for example, CMF equipment CapEx would grow 60%. And from the CHF 25 billion towards CHF 200 million, for example, that we also should take the CHF 1.4 billion to crore 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. 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 how you take it.

Yes. And then you're always distinguish please between what is demand and what is the revenue recognition because we know that the industry will have, it's 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, Urs just confirm that, but it's not equally translate in any given fiscal year into revenue.

We always also capacity constraints out there as well. in output for our customers.

We now have a question from the line of Craig Abbott from Kepler Chevreux.

I just want to focus my question, please, on the acquisition of Atonorp. I mean, you didn't provide any financial metrics, excuse me, 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 what kind of revenue can we expect that kind of margin? And secondly, do you have an M&A pipeline beyond the Atonorp acquisition?

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 the next year, we 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 try to point out that for a lot of the gate all around CFET process steps, there is no sensing technology available.

So basically, they are like in a dark room, they are operating in the dark room. And with this technology, we can add like eyes into the 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.

And 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 this 1 nanometer, the industry will need such kind, and we adopt such kind of technologies if it helps them to add value and the increased yield, productivity and so on for the chip manufacturing. I think that's the underlying thinking we had for this acquisition.

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 with all our adjacencies, it is at least within the margin rate, obviously, with some accretive potential beyond that.

Okay. And my question on the pipeline beyond -- and before we move to that, please, to follow up. I mean you say you're quite confident that the industry will adopt this technology.

But I mean, do you have any visibility or you guys joined -- do they have joint R&D projects ongoing with some of your major customers? And then the second question was on the M&A pipeline beyond.

Yes. Yes, of course, we our ongoing qualification product development with major customers and end users out there. And the M&A pipeline is, well, 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. And in the end, always something that is unique in the market where we can add value to our customers. But this is ongoing.

The next question comes from the line of Sandeep Deshpande from JPMorgan.

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, sir.

Yes. Thanks for that question. So we are always pointing out adjacencies and -- we also show that especially also in sequins, our share of adjacencies is growing as well, even also in the sales number, the adjacencies did grow faster than above.

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. So 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 2-nanometer, a lot of process steps can be done also with the existing legacy tools. So there is always the 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, you talked about China has declined as a percentage of sales, I think -- 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 though China 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 a couple of quarters, but right into is going to be time non-China related from here?

Yes. So in the first half year, yes, the number was a little bit lower in percentage because -- the rest of the world was kicking in again. If we just would compare the orders then we are still at about 1/3 or 35% orders are coming from China.

So this did not decline at all. So China is keeping the pace very high as well and just anticipating as well going forward, more and more Chinese fabs built by Chinese tools.

And this will certainly be a growth for -- the growth there will continue. So it's more and more is decoupling self-sufficiency in chip manufacturing, self sufficiency in the wafer fab equipment all and this decoupling is taking place.

We now have a question from the line of Martin Husler from BNP Pariba.

Actually, just 1 quick follow-up on my end. -- just on margins and pricing in terms of raw material input costs and 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 the customers yet? Or will those be conducted as usual in the fourth quarter to offset the input cost inflation?

Yes. On the aluminum, I think when you just follow the LME that spiked as high as 3,800 in June, we've now seen a recovery to 31, 32 million. If you go back to the start of the year, it's about 5% off. 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 I said before, I do not expand any further negative pressure on the margin beyond what we have already observed in the first half. Notably, though, that our continuous improvement program was able not just to compensate, but really to outpace deflation.

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.

So I wouldn't see why we should now to wait for another round in autumn. You always have also -- 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 gross profit margin you've seen in the indication that we do monitor and also adjust as we see necessity.

The next question comes from the line of Nabil Aziz from Roche and Koeter.

So the first 1 is just on capacity. So you've hired 700 people in that. I think Fabian, if I misfire you then apologies, but you mentioned adding 10% to 15% more people, so about 340 people in the second half of this year. So is people your major bottleneck for VAT ramping further?

Because obviously, you took up the guide from CHF 400 million to CHF 450 million 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. Yes. Thanks for your question, and let's clarify after the benefit of everyone on the call. And as a 10% to 50% more, that's based on the 700 million that we already had, 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 would 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 the added people that's somewhere between 10% to 15%. This said, people and the 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 2025, plenty of people following closely the scale up with our suppliers.

And that will certainly continue to happen now as we ramp this run rate that we predict for the end of the year. I would not 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 or even beyond what we are requiring.

Okay. Great. 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?

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 1 A factory somewhere between 80% and 85%.

We now have a question from the line of Michel SudomTube.

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 you plan to expand further in this market in the future what sort of market size overall you have in mind for that market? And also, I mean, you didn't give any specifics on the time frame that those acquisitions or those investments should create value

Yes, thanks for that question. You can be sure 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 out, there will be new processes. There are new processes out there for the gate all around the CFET technologies that do not have today sensing technologies available. I think it's -- you can see that quite similarly to what we have done organically with the gas inlet valve at the time the ALD.

This was also a project that started meanwhile, more than 7 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. 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 cheaper manufacturers like big fabs who are going in this direction of the gate all around these. So that's kind of how we see that.

That's why it's not that easy to quantify a market are no market studies out there that this market is CHF 0.5 billion, CHF 1 billion in size, 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 how we see the value creation out of that. So we estimate that we will spend about 0.5% of revenue in additional R&D in this platform that we are going to build.

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&D.

But other than that, we're going to stay course.

I quickly have 2 questions. We can answer from the webcast. One easy, 1 we don't have a crystal ball, but do you expect the book-to-bill ratio to stay above 1 for the remainder of the year? The answer is yes. Thank you. And then Urs Beck is asking about the factory output number that we have discussed, whether this is shifts or what is the underlying model here?

And whether we can -- if it's not 24/7 if increasing into that level, it's part of the output increase?

Yes. So we are already on such a pattern in Malaysia and in Switzerland but also move there for the course of the second half.

And then our last 1 here that I said from the web is the supply chain, how is this evolving Europe versus Asia, how fast the this is?

Yes. I think the 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.

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 West 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 2 last questions from the phone.

The next question comes from the line of Timothy Lee from Barclays. Please go ahead.

I just have a follow-up on the capacity expansion. So now we have the expected run rate of CHF 150 million by the end of this year. So that means an annualized output around CHF 1.8 billion. And then if I am not mistaken, your water capacity will be around CHF 2.1 billion. So that means still like a mid-teens growth compared with the annual 1 raise 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 this year?

I think it was very difficult to understand your questions here in the room. -- or maybe if you talk about the capacity, I think I can summarize a few key numbers here. We always committed that we can run 20% to 30% quarter-over-quarter, right?

And we have proven that in earlier ramps. And normally, we have had to do that maybe 2 or 3 times in a row. But this ramp now is really completely different animal year and very positive, of course. The market is growing. So we are preparing internally that we can grow 20% to 30% for a few more quarters ahead. I think that's what's the challenge we are facing.

And internally, we can manage this pretty well. what means our capacities, there's a lot of optimization, productivity gains, which we -- 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 that the teams have to move out of the way.

We now have a question from the line of Martin Maranon Carlin from ABH please go ahead.

No, I'm sorry. I wasn't. 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 sales.

So I understood it's not about production capabilities. So is it more about component availability? Or it's more customer readiness at this stage?

Well, for me, the backlog or I call it autos on hand, that's a fantastic to have. And normally, I would say I want to have orders on hand for at least 3 to 4 months. And of course, if you want to go up then to a CHF 2 billion scenario going in the future, you have to have roughly 500 million to 600 million orders on hand now.

That's now in a ramp, of course, maybe this is in the beginning, a little bit higher because you get the visibility, you get new orders, the order windows, as I mentioned, are opening up. And then when kind of you reach that level more stable output, then it goes back to this 3 to 4 months in order backlog.

Okay. Understood. And a very quick follow-up on Ana. You said from what I understood that sensing control technologies will be key drivers after 2030. So I think your 2 targets for adjacencies 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 in 2030, we can also say this is our Horizon 2 story, right? What we add new technologies, new products into the market. beyond the 2030.

[The adjacency -- that adjacency for us means more and 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.

I thought you should not mix it up at the moment. I 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 insight how we think that the market and the growth with this technology will evolve. And this is a typical topic then for specific capital markets.

Thank you very much. I think with that, we would conclude today's call on the results and the acquisition of Atonarp. Our next point is results that will be published on the 16th of October 15, sorry, 15th of October. There again, a trading update.

And of course, we're looking forward to talking to you then again was exciting you about the markets, our development and so on. So thank you very much for joining us today, and have a good rest of the day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the VAT Q1 2026 Trading Update Conference Call. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Urs Gantner, CEO. Please go ahead.

Thank you. Ladies and gentlemen, [Foreign Language] and welcome to VAT's Q1 2026 Trading Update Conference Call. With me this morning are Fabian Chiozza, CFO; and Christopher Wickli from our IR team. After my introductory remarks, we will start a moderated Q&A session.

We are pleased to connect with you again after our full year results in March and the following roadshow. A lot has happened around the world since then. But the one thing that has not changed, and I can reconfirm today, is that on this year, we are seeing very strong demand for our products from our customers across the semiconductor industry. Q1 orders of CHF 356 million represents a 17% increase in the previous quarter -- on the previous quarter and full 47% increase on the same quarter last year. This is the second highest order intake that VAT has ever recorded.

At constant currencies, orders would have been up 19% sequentially and up 67% year-on-year. The conflict in the Middle East has been a big topic in the past weeks, and we have not been completely immune to it. While we do not source components or commodities from the region, its important position in global shipping, including air freight, temporarily challenged our activities. We shared these challenges and their impact already in our short press release on March 31.

Overall, we achieved Q1 sales of CHF 221 million. This means sales were down about 14% quarter-on-quarter and down about 20% year-on-year. On a constant currency basis, sales would have been down 13% sequentially and 9% year-on-year. The resulting book-to-bill ratio amounted to around 1.6x, and our order book increased by 42% to CHF 431 million compared to the end of 2025. The Q1 sales impact due to the disruption in the supply chain amounted to roughly CHF 20 million.

Let me provide you with some additional color on it. We had both our own components and components from our suppliers blocked in transit in the region for a limited period at the beginning of the conflict. As mentioned before, we do not source materials or components directly from the region.

So the main challenge was to figure out where exactly our goods are located and then to find ways to get these components to our factories. As the global supply chain in semiconductors works with tight schedules and just-in-time deliveries, already small and unforeseen disruption can have a meaningful negative impact in the short term.

This Q1 situation was a logistics challenge, but not in any form a sign that the ramp is in danger. All orders placed for shipping in Q1 that got delayed will be manufactured and delivered in Q2. As a result, we do, at this stage, not expect any negative impact on our full year results from these disruptions, barring any further escalation of the conflict, which we hope will not be the case.

Within our business units, Advanced Industrials continue to see good demand for semi-related end markets such as metrology or inspection tools, but other project-related businesses remain subdued. Global Service saw a slowdown quarter-on-quarter following some restocking in Q4, but overall orders are higher on a year-on-year basis. The high utilization rate in the fabs will further fuel the Global Service business in 2026.

Over the past weeks, we have been very closely engaged with all our major semi customers and everyone agreed on the strength of the current trend. Wafer fab equipment spending is estimated to amount to approximately USD 130 billion to USD 135 billion in 2026. And in 2027, this is expected to increase even beyond USD 150 billion. This wafer fab equipment spending is a result of the build-out for the artificial intelligence infrastructure, especially driven by the hyperscalers. Consensus expected to over USD 750 billion this year.

The overall value of the semiconductor sales might even exceed the USD 1 trillion mark in 2026, which is certainly driven by higher average sales prices, but also reflects the increase of units produced. So thinking about the next quarters, we expect that the market is continuing its strong structural growth phase with demand for advanced logic and memory chips outpacing the industry's ability to provide supply. 110 semiconductor fabs are currently planned or under construction for completion in the coming 2 to 3 years.

But the very steep ramp environment is also tricky as challenges can emerge from unexpected geopolitical events and their impact on the supply chain. Our globally diversified manufacturing footprint and its flexible operating model provides a good level of resilience.

The ramp environment we are in requires adjustment of the staffing levels, and we are in the process to hire over 450 colleagues globally to support this ramp. We have discussed this with you in the past, our flex model is capable to increase our factory output by 20% to 30% quarter-over-quarter.

Our operational [Audio Gap] at full capacity in the second half of 2026. On this basis, we confirm the guidance provided at the full year results presentation in March, and we expect full year 2026 orders, sales, EBITDA and EBITDA margin to be higher than in 2025. Net income and free cash flow are also expected to be higher in 2026. The coming quarters will continue to be in ramp mode. For the second quarter of this year, we expect sales between CHF 265 million and CHF 295 million.

This concludes my prepared remarks, and we are now turning the call back to the operator for the Q&A session. Operator, please.

[Operator Instructions] The first question comes from Yang Meihan from Goldman Sachs.

Just having a question on the capacity ramp-up in the second half. So previously, you have mentioned that you could ramp up 30% quarter-on-quarter. But if we look at the sort of historical pattern, the second half versus first half sales delivery has sort of been maximum 20%, whereas now consensus is implying you could ramp up about 50% in second half versus first half on the sales if we take midpoint of your 2Q guidance. Do you think this is achievable according to your current ramping up plan? And I have a follow-up.

Yes. Thanks for that question. Yes, we are very confident that we can ramp up 20% to 30% in factory output. And then, of course, there is the lag in sales. So we have done all measures already started in Q1, and we continue to do that now in Q2 to achieve the 20% to 30% ramp up quarter-over-quarter.

Got it. And my second question is, do you see any signs of double ordering from your discussion with your major customers? And on the second quarter book-to-bill, do you expect it to slightly normalize versus the first half as the sales ramp up? If you could give us a bit more color would be helpful.

Yes. Well, of course, the whole industry is in a ramp, but there is no way that -- everybody has its own capacity, right? And you have to fill the pipeline that you can deliver what your customer is needing. So it's not about doubling. Of course, you are securing your supply chain. That's also normal behavior. But everybody has also its own capacity and has to build up the capacity as well. So it's very important that the whole supply chain stays very close, each other discussing. And in the end, this is a B2B business. And well, you have to be very close and you don't want to overstock as well.

Got it. And the book-to-bill in second quarter comment?

Book-to-bill, I think you have seen we have a wonderful book-to-bill in Q1. And for Q2, we expect that this also will remain well above 1.

The next question comes from Daniel Schafei from Citi.

So the first one from my side would be basically just would be great if you could bridge the sales number that you've guided now for 2Q from your current backlog. Obviously, we have this deferred component of, let's say, CHF 40 million, but what are some other effects that hindered this translation from the CHF 260 million to CHF 280 million?

Because, for example, you've mentioned before that lead times are 8 to 12 weeks. I'm just wondering, is that now longer because given demand is ramping up and people are trying to kind of order more and that's why you have to extend your lead times? Or are there some other factors?

I mean, thanks for that question as well. So I think if at all with this phasing of the revenue, right, once you produce it and your factory output kind of then you deliver that and that is kind of like a phasing of the revenue generation. So that's why capacity increase is certainly the main focus now for us. Yes. And we have roughly about 10% is always kind of in transit, right? We're shipping it from Malaysia, from Switzerland to our customer sites.

Okay. And then also, would you be able to split the semi order that you have now into maybe something like leading edge HBM from China? Would that be -- or I know it's difficult for you to differentiate between the technologies, but at least could you give us maybe some color where you feel the split is, specifically China because is it still accelerating? Or do you see some customers being now more worried around the potential MATCH Act enforcement?

Yes. Well, in the last year, China was roughly 30% to 35% of our sales, right? And China is still hard. We just had Semicon China in March, so we could meet all the -- our main customers there. Q1 was a little bit lower, roughly 25%, maybe 25% to 30%. But it's obviously over there they've holidays as well, so in China. But overall, the number will be around the 30% overall is what we expect.

Of course, it always depends on the Western world trend. If they are ramping faster, then it can be a little bit lower. But overall, the Chinese market is still growing for us because even though the wafer fab equipment will not grow a lot in China, the local wafer fab equipment manufacturers, they will gain share, and we are working closely with them, and we do benefit from that situation.

The next question comes from Martin Jungfleisch from BNP Paribas.

Two questions, please. The first one is really just a follow-up on the first question. You have a total capacity of around CHF 2.3 billion in sales across the Swiss and the Malaysian fabs. Can you just disclose your current utilization rates or production capability of that and your maximum quarterly sales output based on that?

So for example, could you potentially reach a quarterly sales output volume of around maybe CHF 400 million by year-end? And going back to the question that consensus is looking at CHF 1.3 billion in sales this year. So this would be around CHF 380 million on average in sales in the second half per quarter. Is that kind of achievable? What's your views?

Thanks for that question. So our current utilization rate in Switzerland is roughly 65%. And in Malaysia, we are at 80% level, showing that, of course, semiconductor business is accelerating more also in Malaysia. This is based on all our relocation efforts we have done in the past years as well. And yes, our clear target now is 20% to 30% quarter-over-quarter increase that we come to a run rate of at least CHF 400 million in the second half.

Great. And the second question is also maybe a bit of a follow-up on the order momentum. I mean, in the media release and just now, you said that you expect the book-to-bill well above 1. I know it's early in the quarter, but would you expect orders to increase consecutively in Q2 versus the Q1? And maybe also a bit more further out in Q3 versus Q2 and so on. So it's like a consecutive increase that you're seeing from here?

Yes, of course, I also expect that the order is slightly higher, but it's not a big chunk anymore. I think now the whole supply chain has to digest as well. So we have to be now in the ramp, and at a certain point, it's more constant than what the order and sales and deliveries are more in balance. So now we have typical ramp. That's why we have this 1.6x in Q1 and certainly well beyond 1 in Q2 and then it will level out once the capacity in the whole supply chain is kind of in balance. But we also expect that the service will go up as well. This can have a positive impact also in the second half of the year.

The next question comes from Craig Abbott from Kepler Cheuvreux.

The first question, please. I know, obviously, in this Q1 call, you don't report EBITDA for the quarter. But I just wondered as we're heading towards the midyear point, if you -- if there's anything you could flag that we should be thinking about on the likely margin progression in the first half. I'm thinking about things like potential feed-through of the higher oil prices to the material -- on the material cost side, aluminum, things like that, plus maybe things like the ramp-up you were talking about in terms of the 450 new hires or so. So any indication you can give here on the margin progression would be very helpful. And then I have a follow-up.

Craig, this is Fabian speaking. Let me give you some additional color on the expectations regarding the EBITDA margin. Look, we do not expect any material adverse effects out of the situation in the Middle East and its consequences. Most of our main commodities are hedged well through the first half. And as such, I do not see that as a negative on margin.

What we certainly do have is a bit of freight cost increases here and there. But overall, the freight costs are not material to VAT. So I would also not expect this to have a material effect on H1.

On the other hand, with the ramp now happening in our factories, we will see kind of a reversal of the inventory effect in the first half. So there, I would expect that we can have a positive contribution to the bottom line margin from additional inventories. And overall, we are on a trajectory towards the midpoint of our communicated margin band for the full year. And I would say the first step will be accomplished in the first half.

Okay. That's very helpful. My second question basically, for the most part, have already been answered and talking about the ramp up of the capacity on a quarterly rate going forward. But again, just kind of like a follow up on that. I mean, like the order conversion rate into sales, I mean, can we expect that to like be speeding up in the next couple of quarters?

Yes, so we are now increasing capacity and speeding up also this conversion. So last year, the lead time for our customers and our products has been reduced. And of course, with the ramp, we have to catch up now with capacity and take lead time to the market expected level.

Okay. Okay. And this is my last question, any early views for at this stage already heading into the first half of '27?

2027, our expectation still is that it will be a fantastic year. We can just also confirm what our customers sees and what is published everywhere that 2027 again will be a growth year and certainly a record year 2027. This is how we see that, how we prepare our capacity at the moment also in the midterm horizon.

Okay. So no risk of like an overhanging of capacity heading into the next year.

The next question comes from Jorn Iffert from UBS.

The first one is, please, to double-click on the capacity. I think you mentioned you should have a quarterly sales capacity of at least CHF 400 million coming through in the second half. But may I also double check, I mean, as you have outsourced around 70% of your component production, I mean, are your sub-suppliers also ready to ramp this? Do you have some good visibility here that this will not be a bottleneck? This would be the first question, please.

And the second question on China. You said, I think the China share of local OEMs was going down to 20%, 25% in the order intake in Q1. On average, you still expect 30%. It's not so easy to get the data, but did you get insight that their 12 months inventory was coming down, that they are normalizing this somewhat? So any color here would be appreciated.

Let's start with China again. Overall, of course, if you are -- if you go to China, you really feel the heat in China. They are building up their own ecosystem. At the moment, they are less interested in any stocking inventories. They want technology. They want to bring up and be capable to produce leading edge chips on 7-nanometer, 5-nanometer, that's the drive.

They want to have all the processes produced and manufactured on their soil, and that's the main drive in China at the moment. But your question is implying around more the commercial optimization, that will follow afterwards, right? At the moment, it's really a battle and race who will win the different process steps and -- in China. I think that's certainly still ongoing.

And just that we have now a little bit lower sales in China in percentage in Q1, this is just also a seasonal impact, as I mentioned with the Chinese New Year and everything ongoing. But overall, the OEMs in China, they will win share. So their share was pretty low. Their self-sufficiency rate is in the range of 20% only, and they want to increase that to 70%. And this is what I always say, this is the opportunity we have to grow in China, just to grow with them and I think they will increase the self-sufficiency.

Second question is about capacity. Yes, of course, we have maybe 3 main areas we are following. That's our workforce in assembly ramping up there, our own workforce in machining as well, so producing our own parts. But as you know, it's only 25% and we have the 75% in the supply chain.

And of course, since the last ramp, we did a lot of -- I mean, did our homework and for most of the components, we have even our second sources as well. So we cannot only rely on one source, and it gives us much more flexibility. Everybody has to ramp up. That's certainly true. Everybody needs some time to ramp up.

I think I mentioned even during the road show sometimes, it's like a diesel engine that was idle for a year and then you start the button and there is some smoke and noise at the beginning until it runs smoothly. And this is now the phase, and this is the ramp-up phase for us, but also for the suppliers, but also for our customers.

So that's the whole industry, the whole value chain working on that. So I think I feel very comfortable for many of the critical suppliers like in electronics, like in elastomers, we have second sources.

The next question comes from Deshpande Sandeep from JPMorgan.

My first question is regarding your ramp-up of your sales. I mean this is a follow-up to one of the earlier questions as well. I mean, historically, your lead times from the orders to the sales are much shorter. You've seen very strong orders, but the sales is somewhat lagging. Is this because of where we are in the cycle that things are just recovering or it is because associated with customers that things are much more second half loaded? Or is it something to do with VAT's own supply chains which are taking time to ramp up?

I think you gave the answer already. I think it's really the ramp-up as well that everybody is now building up the capacity from, let's say, 50% to 60% utilization, everybody has to staff facilities ramp up and this needs some time. And if you would -- even if you would deliver everything that was booked, our customers could also not digest it, right? So that's why it's also good in a ramp that the forecasting becomes better than in earlier times as well.

So it's also scheduled to Q3 some of our order intake. So I think we have a very good order book and visibility now for Q2 and execute that and still the order inflow is very, very healthy. That's why we are very comfortable and planning to ramp up also in Q3 and Q4 -- to ramp up in Q3 and Q4.

I mean, in following up to that, I mean, your orders are very strong. Would we expect to see maybe your orders translate directly, so whatever your bookings are into sales in Q3 or Q4 because that would substantially lift your sales number in the second half of the year?

That's correct. So we expect that now with our forecast in the first half year, we will end up about CHF 500 million, right? And we still are very comfortable with the overall consensus close to the CHF 1.3 billion. So this will be roughly an increase in the second half of 50% to 60% you could say.

The next question comes from Michael Foeth from Vontobel.

Two questions from my side. The first one is in your Q1 sales impact that you mentioned, the CHF 20 million to CHF 25 million, you initially said there was some -- one of the reasons was also changes in customer specifications. Could you be a bit more specific what that refers to? That would be the first question.

And the second question is, you said order intake was up 67% in constant currencies and 47% in reported terms, that's a 20% differential due to FX, whereas in sales, you only have 10% differential. Can you explain what the FX mix in there or what's going on in that differential there, please?

Thanks, Michael. Let me take the first part of your question. The impact of the CHF 20 million on that configuration that was such a ramp because our customers had to optimize which configuration, which tool they can deliver. And then certainly, there is a higher activities in pull-in or pushout for certain orders.

And then in the second -- at the end of the quarter, of course, this can have quite an impact also on that. But it's a typical situation, especially the ramp is coming or if it's slowing down dramatically, then we see more pull-in or pushout activities also from our customer side where we have to react and this also led partially to this CHF 20 million delayed sales recognition.

And on the second question, Michael, this is purely a mix topic. So whenever these orders and sales have been received and then translated at the respective FX and also remember that in Q1 2025, we had quite a huge volatility, which was not the case this year.

The next question comes from Martin Marandon-Carlhian from ODDO BHF.

My first question is on WFE. I mean, I think you kept your assumption of WFE at $130 billion this year, which would imply growth of around 13%. And I think most of your customers have talked about 20% now growth. So is there a reason why you kept the same forecast? And also, is your expectation to continue to beat WFE growth by 5 to 7 points of growth through '26, '27 as you highlighted at the last year, and then I have a quick follow-up.

Growth, of course, is always where we start, where is the base, like the different models, they don't have the same number also historically. So that's certainly the starting point is important. I think we feel comfortable at the moment with $130 billion, $135 billion. If it's more, certainly, we are happy to do that.

I think it's the growth we calculate at the moment is 13% to 15%. Also considering at the moment, everybody has to ramp up, right? And you see that in theory demand might be even higher, but there might also be delayed because of the constraint in the whole supply chain.

Okay. And about the expectation to beat WFE growth by 5 to 7 points through '26, '27 you think that's still a valid scenario?

Yes, that's still a valid scenario. But we -- our ambition is always that we want to outgrow by 2x. And I think what is now up to 2x. So at the moment, you also see a lot of orders going in leading-edge tools and leading-edge fabs, and we have our higher share of wallet on the equipments.

Okay. And the last question for me is on DUV. DUV lithography is growing quite fast, especially versus EUV. So my question is how material is it in the order intake momentum? And do you see actually lithography-related orders growing faster than [indiscernible] orders?

Lithography historically was not a big business for VAT because there are legacy machines [indiscernible] very interesting business for VAT as well. But also here, there is just a limited amount of machines going into the market compared to etch and deposition machines. And here, you see probably also the relation what it means for VAT. So it is very interesting, important pillar for us. But of course, [indiscernible] are still dominant.

The next question comes from Nabeel Aziz from Rothschild & Co Redburn.

Just a follow-up on the disclosure at the 31st of March prelim announcement on reconfigured orders. I was just wondering, is there any color that you can provide in terms of whether it's related to certain deposition technologies or etch technologies that have been reconfigured or whether there's a difference in the impact between memory and between logic? And I've got a quick follow-up.

I think it was just through the band. In the end, you can imagine if a new factory, a new fab is equipped, they need everything, right? They need that etch lithography and all the other process steps as well. It's more kind of which customers win which part of a fab and then reconfiguration and optimization takes place or if they -- if you talk about pushout, then maybe they certainly are delayed and don't want to take the products yet.

And if they are asking for pull-ins, then they want something and have to accelerate something. But this is a dynamic in the industry. It's not related on a specific device. It's more than on a customer level and dynamic to [indiscernible].

Okay. Very clear. And then I guess, in terms of your order intake, I know you mentioned growth through the year or modest growth in the CHF 350 million that you disclosed at 1Q. Is there anything through this year that would point to -- that you would point to in terms of customer build plans, fab build plans that would mean that order intake may not grow through the year and whether there's anything seasonally that you would expect or call out from a demand perspective?

Well, just see what we hear and what we hear from our customers and also what we read out there that hyperscalers are investing fabs, the 110 fabs that get online, wafer fab equipment will be needed CHF 10 billion to CHF 20 billion for each fab, wafer fab in total is going up, we say beyond 150, some say 170. So this kind of indicates that we will see continuous growth as well order intake. If you don't see that, then maybe also something in the fab completion is delayed.

There is a question, are there enough clean rooms out there, it has nothing to do with us, but that's kind of just the infrastructure. Is the infrastructure ready to digest all the wafer fab equipment? At the moment, it's heavily driven by DRAM and logic. And then in the coming 2027 plus, we can also expect that even NAND will also have investment cycles again.

So very positive environment, very volatile as well, as you know, the situation out there in the world. But in semiconductor, certainly, the long-term trend is just going in one direction and that is growth.

The next question comes from Oliver Wong from Bank of America.

I wanted to go back to the capacity ramp-up. Would you say that you're kind of surprised by the order intake by the demand, hence, you're not able to kind of shift to the full demand in the first few quarters of the year? And then also, you mentioned 25% kind of on your end, 75% supply chain. On your end assembly and machining workforce, kind of where do you expect that to kind of show up the most on the income statement? And then also, is there a potential risk in the supply chain ramping to the timing that you expect given that it's the bigger chunk of capacity?

Maybe let me address the second part of the question. So according to our flexible operating model, we are able to source staff when we need them and then also have them productive within a couple of weeks. That said, the additional cost follows quite well also the increase in volume and as such, does not have a material lag effect on the P&L.

In terms of the input factors, I just talked about workforce. We talked earlier on about the scaling of our supply chain, which is now in full swing. Fortunately, we do not see major constraints on important commodities such as electronics or aluminum for the time being, right?

And last but not least, the assets that we need in order to convert all these components into end products are also in place. So we do have sufficient machining capacity. We do have sufficient assembly capacity. It's just basically a matter of bringing the parts from the supply chain together with the increased workforce and then convert this into product.

And as you can imagine, this is not an overnight exercise. It needs a couple of weeks, and we are now seeing that at the end of Q1, which was unfortunate. But nevertheless, now we are seeing daily increases of our output capacity, and this is set to continue.

That's helpful. But would you say that you were kind of somewhat surprised by the order intake and otherwise, you would have seen sort of a ramp in capacity already, let's say, at the end of last year?

Well, we are hearing about the ramp from our customer engagements since almost about 2 years, right? We have been talking about it. It has always been pushed out. And obviously, we didn't start to bring neither material nor manpower into the system as the orders didn't materialize.

What we did do is wherever we have long lead times, this is on the brick-and-mortar, on the machines, et cetera, we have invested ahead of the curve, and this is now enabling us within a couple of weeks really to open the tap and now also increase our capacity according to the model and also the promises that we have made.

The next question comes from [indiscernible] from Barclays.

So my first question is again on the capacity ramp up [Technical Difficulty].

Sorry, it's Chris here. You're very difficult to understand. Can you find a different way to speak to a microphone?

[Technical Difficulty].

Sorry, you're inaudible. Let's take this up bilaterally. I'm sorry about that. It's very difficult to understand you. I appreciate you as the last person asking a question. I'm going to -- why don't you speak after this call directly, and I'll hand back over to the operator, please, to conclude this call, please. Tina, over to you.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Good morning, everybody, and welcome to VAT's Fourth Quarter and Full Year Results Presentation. We have today with us, as usual, our CEO, Urs Gantner. I think it's the second or the third time, right? Yes, the third time that you are doing this since you took over. And of course, Fabian Chiozza, whom you know very well, too. We published our annual report, the media release or presentation this morning. I apologize for some delays for you who got it in the inbox directly at a somewhat later stage, only shortly before 7:00, not 6:30. But the e-mail provider, EQS had issues with sending out the e-mails to the recipients on the mailing list. So on Bloomberg Reuters, you already have seen the news, but you only got it a little bit later in your personal inbox. So apologies for that.

So without further ado, I would like to hand over to Urs for the presentation together with Fabian. Then we have the normal Q&A session, taking questions from the room, but also from people on either the webcast or over the phone. And then after that, for those who are here in present, they can then also join us for a small buffet lunch later on for further discussions.

So with that, Urs, the floor is yours.

Thank you, Michel. Thanks for the introduction. And also from my side, welcome. [Foreign Language] Happy that I see more and more faces that I already know. So as Michel mentioned, my third time now, and the last 2 years, I was always promising that the ramp was coming, right? And what you will hear today, the ramp is here. So it's certainly a special day also for me today. So you have -- we released our numbers already early in January. So you will notice no big deviation on that, no big changes, except that we can really confirm the ramp is coming. I always say semiconductor in any part of the cycle, in any phase of the cycle, it's really an exciting field and an exciting industry. At the moment, it's really vibrant. We see that with our customers, with the end users. You see the numbers are going up almost every day, what will happen. And often, it's not really rational what we hear. So there will be a kind of a leveling out over time.

So what we show -- what we -- today, we will go through the highlights shortly, review on 2025. And then I will hand over to Fabian, who will do a deep dive in all the financials and then maybe the most exciting and what you are most interested in the outlook for 2026 and beyond that. We will also have enough time in the end for Q&A. So the same setup for those who are online, use the chat box. And of course, we will also answer the questions coming up here in the room.

So let's turn to Slide #4 on the presentation that is also online available. So 2025 was a year about a broad adoption of the AI investments. And also this turned in the end in wafer fab equipment. Often, we say semiconductor is cyclical. But if you see the wafer fab equipment, basically in the last year, it was always a growth and then it kind of went on a plateau and then it grow again. And at the moment, we are just at this stage where we strongly believe that the growth will come again. Also for 2025, wafer fab equipment was a new record. Depending on the models, it was roughly USD 115 billion means roughly 12% growth compared to 2024.

For VAT, the highlights, 2025, it marked our 6 years anniversary. So we had some celebrations, of course. And while the best gift we could give ourselves is come up with new records. And we had new records last year. One of it is factory output. It was the record high in factory output. We had new records in spec wins, specification wins. So this is our future business. And also financially, we had a fantastic record in free cash flow. Orders, what you see we were kind of flat year-over-year, but actually about 6% up on constant currency. Sales was up 14%. And also here, constant currency would have been up 20%. And as I mentioned, innovation, this is the driver. This is -- also my heart is this innovation. This guarantees that we are ready for the future and shows our power and the collaboration with the customers with 150 spec wins and also a record in investments in R&D. It underlines that we are investing in the future.

Last year, we also launched new products called our [ Mod ] Horizon 2 products, we call it. So the first time we are also reporting our gas inlet, the ALD valves that were launched last year and also very interesting for us, the inauguration of the innovation center. So we have now a new home, a new home where all the engineers are under one roof, very close to operations. And this is the strength of VAT that we bring people together and innovate.

So we not only had a new building in Switzerland with the innovation center. We also had the opening of our new facility in Romania. It acts at the moment as an internal supplier, but also gives us much more flexibility in the long run to scale up in this region.

Financially, Well, we had headwinds. You know that pretty well. But despite these headwinds, I think we came up with very strong results with an EBITDA of 30%. And as mentioned, with a free cash flow of CHF 230 million, which is a record for VAT. This also shows resilience. Whatever happens outside in the world, our flexible operating model is agile. We can adapt fast to come up with outstanding results.

And now before we move on, I would also like to take a moment to thank the global VAT team for these outstanding results. Their commitment and agility, they know they have to react fast. They know our market. And I already mentioned them this year, well, it's going the other direction, but it's not being a quiet year at all. So I often say once in such a phase of the cycle, it's like a diesel engine that was idle for some time. When you start it again, it makes some noise and smoke and then it runs smoothly. And I think this is how the industry works now, a lot of expectation going forward, but it will also a few months that it runs smoothly.

On Slide 5, we see the split in our segments. So there is no big change. So it is roughly 80% in valves and 20% in service. About 80% of our service -- of our business is in semiconductor with about 20% in the service business. Regionally, you see it's more and more moving to Asia. So almost 3/4 of all our business, our products go into that region. That's, of course, the customers in Asia or Western OEMs that are Asian-based. So -- and in China, still about 30% of the business is in China. You might remember that after half year, that ratio was even higher so that China business was a little bit half year, first half year front-loaded and then muted or the others did pick up in the second half. So overall, let's say, 1/3 of the business going directly into China.

Yes, on Slide 6, we update our market share numbers for our core products for our valves, our vacuum valves. And here, these underlying numbers are still preliminary, so not completely finalized from the market research. But we continue to have a very comfortable market share of 71% in semi and semi-related. And if you would go only in semi, valves, it remains on the 75%. Outstanding still is our market share in control valves. So the most advanced products, it is clearly above 80%.

As we go to Slide #7 and also here, it's important to mention that all these providers are still gathering also the data for wafer fab equipment. We see that the growth was roughly 11% year-over-year. Interestingly, we see that the vacuum-related wafer fab equipment did win about 5 percentage points. And this is also what we always told if the leading edge is kicking in, more and more vacuum will be required, and this is what we see also compared to 2024. Also spending in new technologies, so we differentiate between the node size below 7-nanometer and above. Also here, we saw a growth of 37%. And China, also an interesting lost a little bit, but actually in absolute dollar value was kind of stable.

It's also important to mention that some of these investments, not all of these investments are greenfield. So they are not all of them are equipped new fabs. It's also a lot of upgrades, especially last year in the NAND business, there was a lot of upgrades and some of these upgrades, we could -- we are not participating because it's not related to the vacuum systems. We will have some more details about the wafer fab equipment and how this will evolve in the third part of our presentation in the outlook.

On Slide 8, we see one of another record. I already mentioned the growth in spec wins. So we achieved about 150 specification wins. About 70% of it is in the semiconductor-related environment and about 18% in our so-called adjacent products. This means the advanced modules, motion components and the gas inlet valves. Well, what does that show -- what does it mean to me? It shows that our customer, they are, first of all, feel comfortable to work with us on IP-related topics and prepare the future with us. And secondly, it demonstrates that we are spec-ed in and we are ready and will grow once the adoption of these new tools go to the market. Growing with the adjacencies, I mentioned it's about 18% of the spec wins also helps us to increase our share of wallet on the tool. So we have a very high share on valves and with the adjacent products, we increase the share of wallet on the tool, and this is also a big part of our future growth story. So broadening the footprint across the tool architecture gives us resilience also in the long run.

With that short feedback, I hand over to Fabian, who will give us a deep dive now in all the financial numbers.

Fantastic. Thank you, Urs. So good morning, everyone, and also a very warm welcome to those of you who are listening in on the webcast. 2025 was a year that demonstrated both the strength but also the resilience of our organization. We delivered solid results and made tangible progress on our strategic priorities despite operating in an environment that remained demanding and uncertain throughout the year. Volatile markets, external shocks and FX swings require continuous focus and disciplined execution. Against this backdrop, our teams performed exceptionally, managing complexity, adapting to changing conditions and ensuring ramp readiness. On the following pages, we'll take you through the financial highlights, key drivers behind our performance and also the opportunities in 2026.

Let's start with a recap of orders on Slide 10. Order intake 2025 amounts to almost exactly the same number as the year before, CHF 1.033 billion, up about CHF 60 million or 6% on constant currencies. Seemingly no change in order flow. However, the underlying trends have seen a shift whereas '24 and also the first half of 2025 was mainly driven by mature nodes and China. The acceleration in leading-edge build-out was noticeable in the second semester of last year. Furthermore, global service, a key leading indicator for fab activity, saw a 76% rise in retrofit orders in the second semester and a 21% increase in demand for consumables as memory fabs are running at higher utilization rates.

Let me also remind you about the preorders we mentioned in the high-level release mid of January. This CHF 30 million to CHF 35 million were predominantly driven by price increases for 2026, which come into effect during the current quarter. On the next slide, we show the development of orders in Q4 and full year. The number that stands out is the acceleration of order intake in Q4. Orders grew 28% quarter-on-quarter. Book-to-bill increased to 1.2. This also helped the order book to grow 18% quarter-over-quarter. Sales were flat Q4 versus Q3 or just 1% up on a like-for-like basis. Overall, for 2025, orders shared a mixed pattern with a trend of increasing leading-edge activity accelerating orders but also sales.

Moving on to Slide 12. As you know, adjacencies is one of our pillars of growth in order to deepen our customer intimacy and to expand our share of wallet. Adjacencies is thus a great indicator for leading -edge build-out and activity. As you can see, we saw a 23% growth year-over-year in adjacency revenue. At circa 9% of group sales, we are progressing to our target of 15% of total sales in the near term. We also added a tangible example of how we are expanding our content in a customer jewel. On the right-hand side, we see a generic schematic based on actual customer example of VAT gaining share by selling load locks and also transfer chambers, being able to offer our pin lifters and gas inlet valves on top of it.

In the future, this approach will enable us to get to our target of 3% to 5% share of wallet. Why are we certain to reach this? Worth mentioned our 150 specification wins at the start. Around 18% of these were in adjacencies, providing us good visibility on future growth opportunities. Following last year's strong gross profit improvement, we saw a slight decline by 2 percentage points to 64%. The main driver was a reversal of our net working capital buildup we saw in 2024. Further pain points were the FX development with ongoing strengthening of the Swiss franc against all major currencies. Our continuous improvement program, DarWin, again yielded about 2% gross savings on gross profit, which not only softened adverse FX and working capital effects, but also compensated raw material price increases, such as our main commodity aluminum.

On the next chart, 14, we see the stability of our EBITDA margin, testament to the resilience of our flexible operating model. As previously discussed, significant working capital reduction of 8 percentage points versus prior year down to 25% over sales burdened our P&L. We adapted our structure to market demand and established our global business service hub in Malaysia to cope with ongoing FX challenges. Together with our DarWin program and favorable hedging gains, we increased the H2 margin to 30.4% while at the same time, continuing our R&D spend that reached also a record level of CHF 75 million, up 22% versus prior year.

Let's now get to the bottom line with some of the other financials on Slide 15. D&A increased by about 11% on the back of our front-loaded infrastructure investments. EBITDA thus reached CHF 273 million, a margin of 25.4%, slightly below prior year. The net finance result is reflecting the ugly side of FX developments with a revaluation on bank balances and intercompany financing. Taxes slightly increased to 16.7% versus 16.1% a year before, mainly due to higher profit share earned abroad with higher statutory tax rates. Taking all of that together, net income increased slightly to CHF 214 million or an EPS of CHF 7.15.

Once again, I want to remind you about the economic value creation potential of VAT. We measure this as return on invested capital and cash return on invested capital. Both metrics despite record R&D spend and continued ramp readiness preparations are significantly above our weighted average cost of capital. With major CapEx projects in place and operating leverage to kick in during 2026, we expect continued expansion of both KPIs in the near term. Free cash flow generation is shown on Chart 17. Free cash flow increased to all-time record levels of CHF 230 million, up 26% year-over-year. While VAT always demonstrated its strong cash generation ability, 2025 certainly was a year of strength. VAT increased free cash flow as a percentage of sales to 22% and the conversion rate rose above the long-term average to 72%.

Slide 18 addresses our CapEx, which amounted to CHF 68 million in 2025 or about 6% of sales. Last year, we have completed major infrastructure projects around the world, including our innovation center in Switzerland, moved into a new enlarged factory in Arad, Romania, and established infrastructure in Malaysia to further expand in a targeted manner as demand builds. Our commitment to customers of 30% quarter-over-quarter ramp-up capability is in place, and we work closely with customers to ensure our part of the supply chain delivers. R&D reached, as I said, new records of CHF 75 million, up 22%. Spec wins up 14% to maintain VAT's technology edge and drive future growth.

When summarizing the full year 2025 financial performance, we can state that our preparation for the ramp over the last years is complete. Major infrastructure needed to satisfy demand is in place. We maintained readiness for market growth over the year, focusing on current and future capabilities. We proved EBITDA resilience within communicated range of 30% to 37% despite internal and external headwinds. Strict financial discipline, focus on free cash flow generation demonstrated premature repayment of our term loan facility in January 2026 and the replacement through an incremental RCF facility.

In this year, the start of the ramp is critical to get right, and we continue to remain disciplined around cost and monitor our customer requirements. We continue to build out core capabilities in close coordination with those requirements. We will maintain a high degree of R&D spend to ensure VAT retains its competitive edge to generate the next generation of products. We will also enter the last stage of our ERP project with the implementation of D365 in the sales and service entities during this year. Last but not least, managing geopolitical risks as well as mitigating continuing FX volatility will remain a key element of our financial steering.

To conclude my remarks on a positive note, after maintaining a stable dividend for 2 years, we decided that the increased free cash flow allows us to also propose to distribute a slightly higher dividend of CHF 7 per share, up 12% compared to 2024.

With that, I conclude my remarks on the financial performance, and I would like to hand back to Urs for the market expectations and the outlook. Thank you very much.

Yes. Thank you, Fabian. Yes, I'd say, fantastic numbers. Congratulations to the entire team again. And now we are at the beginning of 2026. And can say that just at the beginning of January, it came for many of us a little bit as a surprise when the latest -- when we attended all the ISS, this is an industry strategy conference, always very early in January. And suddenly, this $1 trillion market where we were always postulating that this will come in 2030, suddenly came in that said, well, maybe this will happen in 2028. Some said, well, no, it will for sure happen in 2027. And the totally crazy one we already said, well, this is happening this year. So it's at least 3 years pull in. What you also see here that we postulate now that about in 2027, the semiconductor market, the chip market will grow to this USD 1 trillion. So quite an acceleration. Of course, one is based on pricing as well. You have seen that also chip pricing increased quite a bit over the last quarters and months.

And secondly, of course, the build-out of the entire AI structure, so the sheer demand of chip contribute as well. So what we are entering now is kind of -- we call it a structural change in semiconductor. So the first step now is the creation of this new infrastructure. So all the data centers, what is invested now by the hyperscaler. I think it was about $400 billion last year and will nearly double for this year. So there's a lot of money invested in all this infrastructure for AI. And then we can also see, well, our -- today's devices, I think they will change. They will change. The AI will also be a kind of an inflection point that our smartphones, our laptops and I think I'm sure there will be a lot of creativity there that we can use then also the AI center and bring AI also to the edge. So this will be in a second wave that is coming. And so that means that there will be a multiyear of growth in semiconductor continuing.

And what we see just at the moment, also 2026, there is a tightening of the chip manufacturing. So some of the fabs are already sold out since quite some time. And of course, this increased also the pricing. So this means investment must happen. Almost every day, these wafer fab equipment numbers are going up and up. So we are still kind of on a level that we say the 130 is a reasonable number for this year. But we already see now in 2027, the highest was about 180. Yes, maybe the demand would be here, but for sure, the infrastructure is not ready. So where they should deliver this 180, they need a fab, right? So maybe you already heard that some fabs, they're already buying old fabs because they don't have enough clean room. This is what they mean. They don't have the shell to put in all the equipment.

So new bottlenecks are coming up. So -- but these, of course, are the interesting challenges to overcome because this is growth. And here, we have to align always with our customers, what do you need when shouldn't -- do not overshoot our time. These are the maps now at fab. We always postulated that as well. These are from semi organization. It's more than 100 fabs currently built. But this 100 fab, they are not enough for this $1 trillion. And if you go one decade to 2023 -- 2035, so 10 years ahead, then they already say it will be a $2 trillion market. So it's huge. So if you compare to normal industries with the GDP growth, semiconductor will always outgrow this market by the demand.

I also have to mention here, we think computing is already mature. We are using it every day, everywhere. But historically, we will say that this is actually the beginning of the computing. So we are not yet there. We will change a lot going forward as well. Very interesting to be in that phase of growth, there will be, as I mentioned, challenges as well. The whole machine has to start. Supply chain has to start. There might be bottlenecks coming up. Industry is pretty small as well. So we know each other very well, and we will overcome all these challenges going forward.

Now why all these investments are needed? Why AI needs now suddenly completely different tools and microchips. I think the main issue is an energy problem. that AI, the current chips are using too much energy that almost 50% of, for example, of a country would just use the energy for data centers on the AI use. This means we have to reduce the energy consumption of the chips, and this goes with miniaturization. Smaller chips and at the moment, we are at this inflection point of this gate-all-around technology. So for the last 12 to 15 years, it's always called FinFET. It's a technology and architecture of the microchips and now moving into gate-all-around technology. And why it becomes suddenly more challenging? Of course, first of all, it goes to the atomic size, atomic level. And secondly, what we try to show here on the picture, it's not only, for example, etching and deposition in one direction, but it goes in 2 directions.

And how can you do that? Just try to drill a hole in one direction, yes, I can do that. But then suddenly go to the other way, it becomes challenging. And they are doing that, so that the fabs, the microchip manufacturers, they find ways to do things like that. That's art. For us, it means the purity level goes up, particle is very important and the matching of the chamber, matching of the component that they always behave the same way, it's even more critical than before.

Often get asked about China as well. So how is China? So we have the, let's say, the Western world meanwhile, and then we have China. China is building up its own ecosystem as well. They are already clear #1 in all the mature chips. So in volume, they certainly are producing most of the mature chips. But of course, they strive for leading-edge chips as well. With the restrictions they got to that they don't get some of the technologies, they have to invent on their own to find -- to develop their own tools. Overall, wafer fab equipment in China will be probably flat with single-digit growth. Interesting will be that the self-sufficiency rate also on the wafer fab equipment tool will go up. Today, it's around 15% to 20%, depending on the application. And the clear goal from China is that this will go up to 70% by 2030. So this means a lot of innovation is happening in China and also Chinese OEMs, they need the technology from the West. They are working with component suppliers to make that happen.

One word to our service business. Service, always the most profitable business. So we track that in the installed base, what kind of installed base we have in the market. So it needs repair, upgrade, consumable business. This kick in quite nicely in Q4 last year. And with the fab utilization now going up and almost being at the max, for example, for DRAM, also here, we will see quite a growth in this year. And also, we anticipate by 2030, the installed base of our valves will also double. So it's about the same doubling we had since the IPO in 2016. And now in the next 4 to 5 years, we will double again. And of course, the installed base is kind of the foundation then for our service business going forward.

The non-semi business, we reported about 14% of our sales in 2025. So this is kind of -- we are focusing here on some critical vacuum applications. I always say it's kind of our scouting as well, what's coming up. So 20 or 30 years ago, semiconductor was very small as well. So you need some scouts and get the foot into the door if something is growing. Here, we see certainly growth in the field of scientific instruments, metrology also semi-related business in one way. Research is always very close to our heart at VAT as well because the first valve was delivered to R&D at that time as well. And of course, there, you see what's going on, what kind of application could make it to the industry and high volume. Interesting for us also the energy market. So of course, solar at the moment, muted, but this will come back maybe in 2027, 2028, all the nuclear business as well. So the uranium enrichment kind of a revival as well that everybody understands we need the energy and maybe more in the long term, fusion as well.

So we are very deep in fusion technology as well. They need huge vacuum systems to run fusion reactor but of course, that's not in the midterm plan. But here, we learn about ultra-high vacuum application, extreme conditions. And I think that's the field we want to be in as well. A good example also so ADV Advanced Industrial, a lot of project business. Another good example for project business is the display. There is a lot of investments ongoing as well, especially in OLED. So in the future, all the laptops and all the eye-care relevant displays will be OLED, and there is investments ongoing, especially in Korea and China. And over the last years, we did win a lot of market share on these new tools. You see a picture and also the size of a human being, how big these tools are. It's massive. It's hundreds of meter vacuum systems where they produce these panels and a lot of investments going in there. It will remain a cyclical business as well, but it's always good in the long run that you can participate in such investment cycles.

So summary, the ramp this year. I think that's the most important. That's exciting. And what we expect for 2026 will be new records again this time, records in orders, records in sales and again, records in free cash flow. So very promising for 2026. This is what we want to achieve. At the same time, we want to also improve EBITDA, EBITDA margin and net income compared to 2025 and this is all based on these investments now in AI, wafer fab equipment going up, fab utilization on record high that we have a service business and also ADV kicking in with some interesting markets. We keep investing about CHF 70 million to CHF 80 million in CapEx and also R&D investments will remain very high. This is our future. This is where we want to invest.

So the guidance for Q1 is roughly CHF 240 million to CHF 260 million with a substantial above 1 book-to-bill ratio. This we can promise you already. Then 3 things you should take home from here. First, 2025 was a year of record for VAT. So looking back, especially factory output, we ramped that, and we are ramping again in our Q1 factory output. We completed major investments in R&D center in our facilities, record high in the R&D spend, so with record high of specification wins. And certainly, Switzerland remains the hub for R&D, new product development. The second, as I mentioned, 2026, finally, the ramp is here and coming. This will change the behavior in the market quite a bit. The USD 1 trillion semiconductor market is very close. So it's an acceleration in the market.

We will ramp up the factory in Penang in Romania, but you always have to be also cautious, and we will, as Fabian also mentioned, invest very disciplined as well because we know the market. It can change tomorrow again. So we have to be ready and alert on and keep stay flexible. And beyond 2026, I think it's still a fantastic growth story. The sub-2-nanometer chip manufacturers will continue. As I mentioned, the FinFET was about 12, 15 years and now gate-all-around starts. And this is not one technology. This is again a road map to the next one. And this is just starting with all the challenges the industry will have, and we are very well positioned to benefit on that.

With that, I think future is bright. I will hand over to Michel Gerber.

Okay. Thank you very much, Urs. What is always a little bit frustrating to me is when you start talking about the time beyond 2030. And unfortunately, we are not at liberty to give you yet too much detail about what's happening there, but I'm sure it's going to be very exciting. And maybe at the next Capital Market Day, we can tell you a little bit more. Anyway. Thank you very much.

So the Q&A, you know the drill. I'll take questions from the room. Carol will help us with the microphone because, as you know, we have people on the phone, we have people on the webcast. [Operator Instructions].

And with that, I would start here. And ladies first, Maybe I can give you mic closer.

Laura Bucher with Octavian. I have 2. First, very straightforward. On your outlook for Q1, you mentioned book-to-bill substantially above 1. So just trying to understand your use of the terminology there. Does that mean we should expect something similar to Q4 '25? That would be the first one.

Yes, similar to Q4 is a good assumption, yes.

Okay. And the second one, you mentioned factory output increase, preparation for the ramp is done. Can you comment a little bit on the trajectory of the margin in '26, maybe something a bit more tangible than the outlook. We know there will be a big FX impact. Is there anything else you need to do from your side that would prevent you from reaching already the higher end of the guidance by year-end? Are you just waiting on volumes? Just looking for some comments there.

Yes. Thanks for your question, Laura. I think we have to disaggregate a little bit on the margin, what is gross profit and what is EBITDA because especially on the FX side, you have negative effects on gross profit. But then on the other hand, all your hedging gains support your EBITDA. So on a -- let's say, on a like-for-like basis, I would not expect any substantial impact from the FX going forward on EBITDA. Whereas on the gross profit, we will definitely see now a reversion of the negative impacts that we have suffered during the course of 2025 as we were reducing the inventory now going again into a ramp, I would expect there a bit in accretive development from trade working capital buildup.

And then last but not least, as I have also mentioned, VAT has always been very exposed to strong operating leverage once we saw growth kicking in. And I mentioned that the capacity is in place. So I would expect our bottom line EBITDA margin and also to certainly hover in the, let's say, first half of the communicated margin band most likely towards the upper end of it.

Michael Foeth, Vontobel. Two related questions. The first one is if you can comment on your current lead times, if customers put an order in today, what's the -- approximately what's the lead time on those orders? And if you could also -- that's the second question, provide us with a sort of relate the Q1 sales guidance to the high Q4 order intake so that we understand why we're quite a bit below that -- below the order intake.

Yes. Thanks for that question. Lead time, I think lead times are completely different than maybe some of you had in mind during the COVID time where there were clear shortages first in aluminum, then in chips and then in elastomers at the moment that supply chain certainly is ready. It doesn't mean that there might pop up other challenges as well, especially also if you see geopolitics as well. I never know what's happening there. But lead times are back to the 8 to 12 weeks normally. And anyway, with our large customers, we have our consignment programs. So there is always a buffer. I think the biggest challenge also for our customers at the moment is which configuration they will need when. And this already shows that at the moment, there's no way to just ship something. So we also need to know what kind of configuration they will need for their customers. And this also translates already a little bit in the second question.

So as soon as it's not fully clear what configuration they will need for the production in which fab we cannot ship. So we can, of course, already ship the base. That's fine for high runners. But the specific configuration for this -- what I showed this gate-all-around technology, which is completely new. That's not 100% clear, and we need here close alignment with the customers. Furthermore, Q1 is always kind of also -- has also a seasonal impact as well with the many holidays, especially in Asia, and you have seen 75% of our business goes to Asia.

And basically, some of the counters are really shut down for 2 weeks as well as we do, of course, for Christmas break. And I think this year, even Ramadan is also in Q1. So that is more a seasonal impact. So that's why at the moment, it's very positive on all the order intake, the collaboration with the customer, a very close alignment, what they need when. I think that's the message, maybe less -- the Q1 is now not the fantastic sales, but what we are doing now is ramping up capacity. Factory output will go up quite a bit in Q1, and this will then turn into sales the following quarters.

It's Nabeel Aziz from Rothschild & Co Redburn. The first one was just on your major Western semi cap customers have guided revenues '26 kind of up 20%. Your China semi cap, if you look at consensus, are up kind of 30% this year. Other than FX, is there any reason why VAT shouldn't deliver similar sorts of revenue growth in 2026 for semi valves?

No, if they order, we are ready. No, I think that's certainly in line what we see. I think the configuration, as I mentioned before, it will be critical. Do they more legacy tools or they go in leading-edge tools. This will also then impact our sales growth.

Yes. Very clear. And then one of the topics that often comes up in our discussions is the topic of localization in China and specifically valve localization. So if there's a localization theme from the semi cap side, could you provide some more color in terms of what it is that's difficult to replicate about a VAT valve and what it is that makes your valves more resistant to disintermediation by a local supplier? Anything on that would be really helpful.

Interesting questions. And of course, you can imagine we are discussing this topic quite a bit as well. I think, first of all, valves are still a niche. It's a niche product in an ecosystem. And as also mentioned, China they have to do a lot of development on their tools to bring that to the leading edge. And there are multiple components. And I think as long as they can, they rely on something that exists and works. It's proven in the market. Why you should do something in your bill of material, maybe valves are roughly in the 2%, right? Why you should focus now on valves, a critical component, but not changing your entire pump structure as long as you get the kind of the confidence that you get the products.

So here, valves for such a tool, if you take the leading-edge tools, of course, my engineers don't like if I say that what it's like a screw for such a tool, right? It's not very critical in purity and ceiling and -- but still, they have other issues to solve than thinking about valves. And I think that's something that's very important. And then it's -- also I mentioned the semiconductor is a small industry still. People know each other and also here, very human being relationship is very important and supporting each other. Yes, you can replace anything if you want. But I think the strength of a company is always if something goes wrong, how to solve an issue. And there you can prove that you are the right partner. So coming from a supplier, we were clearly suppliers 20 years ago. And today, we are more partners in the industry. And losing a partner is something hurts, right? Replacing a supplier, you can do.

Okay. So maybe I take one more question from the room at the moment, [indiscernible] for you, and then we go to the questions that we receive over the phone.

[indiscernible]. First one is on price increases. You mentioned that you had -- if I understood you correctly, you had preorders because you will increase your prices in Q1. I was just trying to understand, so you -- I guess you stick to your 2x wafer fab equipment growth that you can achieve. So how much -- so let's assume that's volumes. So how much would come on top in terms of pricing for 2026? I mean what's your idea or plan on price increases for 2026?

Maybe I can take that question. Look, I think the semiconductor industry is one of stable prices, not just the end product for the customers, it should remain affordable and economically viable. But I think we also learned how to ensure we work with our customer on this ever-increasing pressure of cost reductions. So we don't just adjust prices on a regular basis. Therefore, we have had, let's say, a pause on it. And after 2 years, we ran selective price increases that that's important. And we're certainly not exploiting the position that we have. So you can assume that those price increases have been placed in areas where, for instance, our margins suffered extremely under currency devaluations or also where we have not been able to get the required volumes in the past. So to quantify that, I said previously that the price increases are low to mid-single digit in percentage and the contribution of those are very low 2-digit million Swiss franc number. So it's definitely nothing that we will have to highlight on one of the slides when we would disaggregate volume from price in our growth.

Okay. That's very clear. And a second one on the clean room space. I mean you read it obviously everywhere, yes, that there is an issue with clean room space, so basically fab space. I was just wondering what's your opinion on, let's say, the CHF 130 billion wafer fab equipment and next year, you showed on the graph, CHF 148 billion. I mean, at what point would you think it's becoming a real issue and actually stopping that accelerated growth in the next couple of years because still someone has to build those factories, yes?

Well, here, I think the ones who invested ahead of the cycle, they are ready, right? They will win again. And I think that's typical in semiconductor. We have to invest ahead of the cycle to be and benefit. So we do it on our level as well with our factories in Romania and Malaysia. And the fabs are doing the same. The OEMs are doing the same. So they invest, they are ready. And some of the fabs, we see now that maybe they did not invest enough and more got surprised that their products, for example, DRAM is just ramping like hell at the moment, and they try to find fabs at the moment. So the issue for -- I think it's not a general issue, but for some companies, they might have an issue and might also then lose or they have to deprioritize the fabs to go to the leading edge. That's how they manage -- they have to manage that in the future.

So certainly good that there is not enough clean room space. I think there is another element as well that every region and sometimes every country wants to get self-sufficiency. U.S. is doing a lot of -- because they want to have self-sufficient. China is doing -- the only country that is self-sufficient is Taiwan. Of course, they don't need a lot, but they have really the leading edge and also South Korea is very close to that. All the others are dependent on each other. So this is also a driver why they are building the fabs as well. And also even in Europe, there are some fabs, but maybe not fast enough.

Good. Thank you very much. So with that, I would turn over the Q&A to people on the phone. And operator, please, the first question.

The first question from the phone comes from Meihan Yang from Goldman Sachs.

[Technical Difficulty]

Can you please repeat the question? You were breaking up a bit here.

Yes, sure. [Technical Difficulty] basically your aluminum exposure.

Well, our exposure is to raw material and raw material price increases, I think you...

Yes. Okay. Yes. Thanks for that question. Look, we were already exposed to raw material inflation during the course of 2025. But thanks to our continuous improvement program, we could not only mitigate that effect, but also have had a positive net effect on our gross profit. And with these, let's say, measures being sustainable in our cost base, and we continue to deliver further improvements. I do not expect a negative impact from raw material swings during the course of the next 6 months, at least, as we also hedge our key commodity aluminum for about the annual volume that we expect. So the LME increases that we have seen, let's say, from $2,400 now to about $3,300, $3,200 will not directly impact our P&L. And hence, I'm pretty comfortable that we can sustain, if not slightly increase the gross profit margin that we have reported now for 2025.

On services margins. do you see your global [Technical Difficulty] and if you could remind us [Technical Difficulty] geographically?

Well, I think service margin are always higher than what you do with an OEM. That's I think probably in every business like that. And I think we are on a very healthy level. And of course, as soon as also volume is kicking in, this will be getting even better. So the different -- on the different product lines, so consumables, spares, upgrades, retrofits. And certainly in consumables, it's -- normally, it's single parts, it's higher margin. And if it comes to upgrades, then it goes more into complete products like valves. And of course, there is margin then lower than in single parts as this is just normal probably also here in different businesses.

Yes. And maybe just to quantify that a little bit. So we have seen a nice increase of the EBITDA of our service business in the second half to about 47.6%. And this was mainly driven by the increased absorption of the cost structure. So with the strong increase in order intake, I would also see that level to sustain well into 2026. And on the margins, again, we have for spares and repairs, we have definitely the highest margins together with the upgrade and retrofits. And then on some of the consumables, as Urs has already said, it is slightly lower. But overall, the service business will definitely return as a very accretive driver to our bottom line margin in 2026.

Next question comes from Oliver Wong from Bank of America.

My first question is on China growth. So I think you guys [indiscernible] mid-single digits, and you're expecting [indiscernible] I was just wondering given your mix more important to domestic semi cap, which as we mentioned, some of them grow [indiscernible] Could that be potential upside that may grow more than the market?

Yes, certainly. As mentioned, maybe total wafer fab equipment spend in China will be flat, maybe single digit up. And as mentioned as well, the domestic wafer fab equipment tool manufacturers they will grow to increase the self-sufficiency rate. But also here, it's -- visibility is not that clear because they also have to go through the qualification. So their tools need also to go to the level that the next node can be produced. Once it is qualified in China, it can be -- go extremely fast. So you always have to be ready in China to deliver yesterday and not tomorrow. So -- but first, they need, of course, to qualify the tools as well. I expect that the China business will certainly grow for VAT this year in the region of -- as the OEMs will grow as well in the 20%.

And my third question is on [indiscernible] what should be expect progressively higher orders especially [Technical Difficulty] kind of how you see the revenue, any kind of impact upon the preordering for that [Technical Difficulty] rest of the year?

I think the preordering in the end, if you look at the whole year will be not that material. So it will be quite almost noise. I expect that the order pattern will grow what we see at the moment, what's going on in the market that is more and more clarity coming on the fabs going online. So I expect that the order cadence will grow. There could be kind of, let's say, shocks out there. If there is somewhere a shortage, then suddenly customers start ordering more without the business impact. So similar behavior as during the chip shortages, right? They just started to order full year. And then it can, of course, be not a cadence. It can be a peak and then maybe go back. So the behavior is hard to say. At the moment, I think the communication is quite open through all the supply chain. I don't expect it at the moment, but something like a shortage somewhere kind of trigger something like that.

The next question comes from Jörn Iffert from UBS.

I will take them one by one. [indiscernible] the first one is the outlook [indiscernible] is there any anything you're seeing [indiscernible] for example others, which is a [indiscernible] first question, please.

Well, you're now focusing on one segment in the wafer fab equipment, particularly the lithography. I think there, the EUV, if you see the numbers, is up at least 2x this year. So -- but in general, of course, still lithography is a smaller business for VAT overall. The biggest business is always going to the deposition and etch application. But EUV certainly is also growing this year, what we heard from the customer side, and that's a very interesting growth business for us as well.

Okay. So just to clarify [Technical Difficulty] This was more or less...

Yes, you say correctly up to 2x. So there is some room. Yes, there's no reason. Now if the investments are coming, especially in the leading edge fabs, we are on track. And if all these major OEMs equip the fabs where we are specified where we had a spec win in the past, then, of course, we are on that track.

And then the second question [indiscernible] on the CMD in May, you had this CHF 1.6 billion revenue target for '27 [indiscernible] CapEx. Now I see in your slide that you mentioned CHF 135 billion, I assume it's a typo or has something changed here? And then after this one, maybe a follow-up to this related, please.

No, you see that at the moment, it's a very dynamic market. I also showed that some already displayed that it's CHF 180 billion wafer fab equipment. In the end, it's all about what can the industry digest in the end? Is there enough shelves there? Do they really understand what technology they need is also the chip manufacturers already ready to do high volume or are there process issues? This is still in floating. It's not just that like in automotive, you have a new car, you build a factory and you want to produce 100,000 cars a year. And this is planned and they will achieve probably plus/minus 1%. Here, I try to show you it's an atomic layer, atomic level what they have to do. They have to drill these fancy structures. Sometimes they don't know yet how they want to -- they can do that.

The guys in [ IMEC ] they did it. They know it works, but now they have to bring it to high volume with a certain yield on a wafer as well. And I think that's the big challenge the industry has. And that's why, yes, the forecast looks brilliant, but there are a lot of technical challenges as well. And that's why this wafer fab equipment can, of course, also you see that a little bit shift or pull in or push out. So that's always critical. So overall, under these circumstances, yes, we're still confident that we can achieve this CHF 1.6 billion with all the FX and headwinds that come, but it's certainly a good reference for you what you want to achieve by then.

Okay. [indiscernible] revenue on an underlying CapEx of CHF 125 million. And now in the earnings slides, I see that this is now based on the equipment CapEx of CHF 135 million. My question was really, is it a typo or has something changed regarding the correlation here.

I don't have it at the moment in the mind, so maybe we can do that offline with Fabian.

No, Jorn, I can take that. It's not a typo and your house was actually pretty bullish on the WFE number. So you certainly also indirectly drove that up. And I think ultimately, the answer lies in what Urs was explaining that, yes, of course, we also observed these numbers. At times, we're also surprised of the volatility and the dynamic that the researchers bring into the WFE development. And at the end of the day, there are 2 thoughts I just want to give you. The first one is we always have to remember that we are a Swiss franc reporter and WFE numbers are in U.S. dollars.

So was the reference at the Capital Markets Day, which was at -- I think it was CHF 0.835 at the time. And secondly, also mentioned by Urs, I think we need to see how the phasing of these investments is ultimately happening and how the supply chain is digesting this massive amount of CapEx into industrialization of tools. So I think overall, we are ready. We are cranking up the machine. And if investments are going to develop into the heights that are stipulated right now by market observers, then obviously, VAT's revenue will also develop accordingly.

Okay. So we just heard that there was a bit of an echo on the questions. But now maybe next question, please operator.

I would like to ask on China again [Technical Difficulty] probably still close to 50% exposure there. Then I recall you said China is the highest margin market for individual valves. If you now expect the market to grow China by 0% to maybe 5%, but you expect the Western market to grow maybe 15% to get to this 11% market growth, would that mean a negative mix effect for you? And can you maybe a little bit elaborate on the impact here. That would be my first question.

Yes, we have stated before that the China business certainly has a higher margin profile than our long-standing huge Western customers. But as you can imagine, China has grown quite a bit over the years. And also these guys have to work on cost-down initiatives. They have to ensure that the yield gets into an economically viable pattern. And therefore, these margins will also adjust over time. Now talking about 2026, I do not expect a material negative mix effect on the bottom line. As I have stipulated before, we expect very good contributions from our service business.

We are ramping significantly the output of Malaysia, which will also help. We are also continuing to ramp the new factory in Romania. And then also on the personnel cost side to soften the impact from the Swiss franc. We established a new legal unit in Malaysia, and we're now also starting to provide shared services out of Malaysia. So all of that together will help to still provide an increased margin profile and make us even more resilient as we move forward.

Understood. Second question on operating leverage. You mentioned that [Technical Difficulty] at the same time I would assume that VAT is mostly an assembly company. So if you want to raise output, you want to raise volume, you raise staff -- safety staff, which gives you a relatively small operating leverage. But I would assume that you have certain staff quantities in place as of today that allow you to ramp to a certain extent without adding people. Could you maybe give us a little bit of an idea how -- where the utilization rate is at the moment, which then allows us to calculate incremental volume without adding too much new people, if that makes sense.

Yes. Look, we are running our operations always with 2 mindsets. There's also the vigorous debates I have with my COO colleagues. On the one hand side, obviously, we have the cost discipline. On the other hand, we have the scalability, the ramp capability. Now fortunately, we have developed over the years a model that really allows us to timely adjust capacities, both down, but then also up. We talked at the end of summer last year that we have taken out in Switzerland about 110, 115 people. And you can imagine that some weeks ago, we started to bring them back on board, and this is continuing. So therefore, the personnel cost effects are pretty well synced also with the increase in factory output, which then translates into revenue. And therefore, the biggest lever for me is really the measures that I have just discussed a moment ago in combination with a much higher fixed cost absorption. Remember, we have about 30% of our costs are fixed. So any additional franc of revenue will substantially help to bring more bottom line profit.

With regards to the utilization rates, we are in Switzerland, still in the low 60s. That is now cranking up. And in Malaysia, in the existing factory, we're operating around 90% right now. And as I said before, the second factory is basically ready. It is right now working as an internal machining supplier. And once we see now demand unfolding, we will bring in the clean rooms and then also switch this factory on for end product production.

Now maybe one question from the webcast still. I'd like to ask you, Fabian. And it's more a little bit of a clarification to a statement you made earlier. and it has to do with the 2026 EBITDA margin expectation range or whatever. And the question is whether you said the top half of the 30% to 37% corridor or what kind of like statement. It was a little bit misleading.

Yes. No, I said that I want to move back in the upper end of the first half of that band. So the first half being 30% to 33.5%, I hope that clarifies it.

Okay. Thank you very much. So as they say, time flies when you're having fun. We're already past the hour. We don't have any more questions neither from the webcast nor over the phone. And I think for the guys who we likely -- we'd like to invite you now to a quick standing lunch. It's one floor down. And there will be, again, opportunity for additional questions unless you have one burning one that you want to express now to be heard over the air. So otherwise, I would like to thank you, Fabian and Urs for today. Thank you for coming. And next results will be on the 16th of April, our Q1 trading update. And we're confident that we can show you the nice book-to-bill ratio that we alluded to today. So thank you very much, and see you later with drinks and something to eat.

Ladies and gentlemen, welcome to the VAT Q3 2025 Trading Update Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions]

The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Urs Gantner, CEO. Please go ahead, sir.

Thank you. Ladies and gentlemen, good morning, and welcome to VAT's Q3 2025 Trading Update Conference Call. With me this morning are CFO, Fabian Chiozza; and Michel Gerber from Investor Relations. After my introductory remarks, we will have our regular Q&A session and the call operator/moderator will take your questions in the order you enter them.

Another quarter has passed, and I can say that it developed quite in line with the expectation we shared with you during our Q2 webcast on July 29. For me, the following 6 topics on which I will elaborate in more detail during today's call are important when analyzing VAT's performance over the last 3 months.

Our Q3 orders showed the flattish development we anticipated, while sales in the quarter were supported by the execution of our still sizable backlog. Adverse FX impacts did not have the same negative impact in Q3 as in Q2. However, on a 9-month basis, the headwind is still strong.

Among our business units, Advanced Industrials and Global Service had a pleasing development, confirming our expectations for these 2 areas, while order activity in the semiconductor business remained muted. The market conditions and our expectations have not changed fundamentally over the last 3 months. The rest of 2025 and at least the first quarter of 2026 is still expected to be muted, while only over the later course of 2026, stronger growth is anticipated. .

It is worth noting that our operational performance in 2025 is outstanding. It will be a record year in terms of factory output and adjusted for FX in sales. And we are achieving this without critical disruptions and with short lead times. This proves that we are ready for the expected growth ahead.

Lastly, you have seen in the media release this morning that while we confirmed the majority of our results outlook for 2025. We had to abandon our previously given guidance for higher orders and a higher EBITDA margin as the softer-than-anticipated semi business and the persisting FX challenges became too big a hurdle to cross.

For the EBITDA margin, we now expect it to be at the lower end of the margin corridor band of 30% to 37%. So let's quickly go through some Q3 and 9 months numbers before we share with you our expectation going forward. Let's start with the orders. Our third quarter orders amounted to CHF 238 million, 4% lower sequentially and 8% down year-on-year. FX adjusted, the declines would have been substantially less with minus 1% quarter-on-quarter and minus 2% year-on-year.

For the 9 months ended in September 2025, we generated over CHF 727 million of orders, down 5% reported, but only down 1% on a constant FX comparison. Ongoing uncertainties surrounding global trade tariffs, geopolitics as well as some semi industry-related issues prevented certain investment decisions and therefore, negatively impacted VAT's semiconductor business.

And looking at these numbers, one must bear in mind that positive developments in the leading-edge space like Gate-All-Around or HBM memory were masked by lower wafer fab equipment investment in the more mature or lagging technologies. It is estimated that fab capacity utilization in leading-edge applications have recovered to over 90% already with new capacity additions becoming necessary.

In the lagging edge areas, however, current utilization rates are estimated to still be only between 50% to 70%, requiring not only smaller service and maintenance efforts, but also a little addition of new capacities. After this overview in orders, let's now move to the sales numbers. The third quarter group net sales were reported at CHF 258 million, down 9% sequentially as reported and down 6% on a constant FX basis.

Year-on-year, however, reported sales increased by 23% and 32% at constant FX. For the first 9 months of 2025, group sales amounted to CHF 815 million, a plus of 24% compared to 2024 and the result of our strong order backlog execution in 2025. On a constant FX basis, the growth would have even been around 30%.

However, when adjusting for the negative ERP implementation impact during Q3 2024 of approximately CHF 22 million, the year-on-year increase in sales would have been 12% for the third quarter and 20% for the 9 months period.

Let me give you now a brief deep dive into our different businesses. When looking at how our group order and sales numbers are composed, we see both a positive development in our smaller business units, Advanced Industrials and Global Service, and at the same time, a sluggish performance in our semiconductor business.

In Advanced Industrials, the third quarter saw orders and sales increase by 29% and 11% sequentially and by 20% and 18% year-on-year. These good results were driven to a large degree by government-funded research projects, but also by coating applications and general industrial -- industrial markets, mainly in China. Scientific instruments markets continue to consume their inventories. While some of the orders, especially in research are project related, this nevertheless shows the strong market position of this business unit and its ability to win business also in competitive areas.

The semiconductors business unit posted Q3 orders of CHF 145 million, 22% less than in the same period a year ago. Sales, however, increased by 16% year-on-year, driven by strong backlog execution despite the increased market uncertainty. This uncertainty is also reflected by our customers' demand for shorter lead times for VAT products to manage the expected future ramp in fab investments on short notice.

Sequentially, orders and sales in the semiconductor business unit were down 13% and 17% respectively. In the Global Service segment, Q3 orders were up 33% year-on-year and 9% sequentially as fab utilization rates continue to improve, and initiatives by fabs to increase ramp readiness continue. Q3 sales were up 13% sequentially and 57% year-on-year.

As mentioned earlier, the improvements were driven by leading-edge fabs where capacity utilization rates were above 90% and increasing. When it came to lagging edge fabs, however, business remained subdued as low utilization rates of between 50% and 70% typically entail minimal investment requirements in consumables and spare parts.

Upgrades and retrofits also saw improved results with accelerating momentum towards the end of the 3 months with several projects in both the leading and lagging edge areas.

Let me now give you our view into the future. When looking at the remainder of 2025, we expect investments in semiconductor equipment to continue at this constant level in the absence of a semi ramp. The installation and upgrading of new manufacturing tools related to leading-edge logic chips and high-performance memory chips require significant CapEx.

This trend is unchallenged and 2025 will be another record year in wafer fab equipment spend. Some of the earlier anticipated even higher growth in investment has been offset by a decline in the amount of capital spend in more mature technologies and node sizes, particularly in China. Looking ahead, leading logic chip manufacturers have committed to or confirmed extensive CapEx plans. The timing, however, indicates that this will be a 2026 story. In memory, fabs are moving rapidly to build high-bandwidth memory capacity, announcing the partial conversion of existing DRAM capacity but with limited green-fielding at this stage.

VAT will only see a larger contribution from HBM once green-field investments are also being executed, something that is now expected to happen over the course of 2026. Mixed signals prevail for NAND capacity expansion investments that have been further postponed by major players.

The recent memory rally is triggered by higher average sales prices and less by heavy investments in additional production capacity. Market research indicates that memory fabs are still running at only around 70% to 75% utilization rates.

Overall, global wafer fab equipment is expected to grow by around 5% overall in 2025, putting it within a range of between USD 105 billion and USD 110 billion and wafer fab equipment is forecast to achieve record levels in 2026 and 2027. As the undisputed market and technology leader in vacuum valves, VAT is uniquely positioned to outpace the anticipated market growth in 2025 and beyond. With its high market share in leading-edge applications, VAT expects to benefit extraordinarily from the upcoming more than 100 new fabs, green-field investments accompanying the ongoing technology shift.

In addition, VAT expects the healthy demand in its direct business with Chinese OEMs to continue. China is still working to become self-sufficient in chip manufacturing. However, contrary to the Western landscape, the market dynamics there are more volatile and the competitive situation among domestic OEMs is in constant flux, requiring VAT to closely monitor such changes and adapt at fast pace.

In addition, the speed of qualification of new OEM tools at the Chinese IDMs and the digestion of some of the capacity produced and installed over the last couple of quarters may lead to increased swings in the China business. Overall, while the Chinese wafer fab equipment is expected to go down slightly in 2026, the domestic portion is still growing in 2026. And with that, our direct business in China. On this basis and despite persisting FX headwinds, VAT expects higher results for sales, EBITDA, net income and free cash flow in 2025.

CapEx is now forecast at CHF 70 million to CHF 80 million. As you have noticed, we no longer expect orders in 2025 to exceed the CHF 1.033 billion achieved in 2024. This is mainly due to the substantial FX headwind, but also related to the lower-than-expected order activity coming from our semiconductor customers and changed order patterns compared to previous years.

For the final quarter of 2025, we expect sales of CHF 225 million to CHF 245 million. Now before turning the call over to the operator for the Q&A, let me share the impressions I got when attending SEMICON West in Phoenix last week. VAT remains the global market and technology leader for vacuum valves and solutions, a position that will grow even stronger in the years to come.

This assessment of our position has been confirmed during all the customer meetings we conducted last week at SEMICON West. The market conviction of the USD 1 trillion semiconductor market by 2030 has not been questioned by any of my contacts. Rather the opposite was the case, as some now expect these numbers to be even higher on the back of AI-related semiconductor needs.

A key driver for reaching the USD 1 trillion is the ongoing technological development, which not only is driven by the hunger for even more performance semiconductors, but equally by the need to further and massively review the energy efficiency performance or EEP in future chip generations.

Over the next 15 years, about a 10,000x EEP improvement is necessary to power the estimated semiconductors in use. This is about the same efficiency improvement as the one we have seen over the last 15 years. Another aspect for the confidence in an increasing wafer fab equipment spend is the fact that even with the more than one of the fabs coming online until 2028, they will most likely not be sufficient in capacity to fully satisfy the USD 1 trillion goal.

Additional new fabs are therefore expected to be announced in the future. When discussing these trends with our customers, I have also got very strong confirmation for 2 of our wafer fab equipment outgrow drivers. Leading-edge technology will continue to see faster growth than the overall wafer fab equipment spend and the overall percentage of vacuum-related investments is set to increase.

While the current market conditions remain mixed, I sensed great confidence during my stay at SEMICON West in an accelerating market growth over the course of 2026 with a more favorable impact for VAT than in 2025.

With that, I'd like to hand over to Michel and the operator for the Q&A.

Thank you, Urs. We now start operator-assisted Q&A session. [Operator Instructions]

With that, I will hand over to the operator, Sarah for the first question.

[Operator Instructions]

Our first question comes from Meihan Yang from Goldman Sachs.

I just have two questions. So first of all, on your comment on China, you said you expect a slight decline in the China WFE. But overall, this is kind of in contrast with the ASML comment when they expect a significant decline in China sales. Can you elaborate a bit more on the confidence on a healthy China demand in 2026?

Yes, as I pointed out, China is a very dynamic market, but it's a clear goal to get the self-sufficiency rate up as fast as possible. Having said that, so in the past years, China was certainly buying a lot of wafer fab equipment tool from the Western OEMs. And yes, of course, lithography is critical applications, and they benefited quite a bit in the last years.

For us, for VAT, it is even more important how our customers in China are developing and growing, and they are gaining share year-over-year for their domestic market. And this is why we are so confident that our direct business in China is going to grow also in 2026, even if the overall wafer fab equipment in China, it would go down. But it's mainly driven then or mainly impacted for the Western OEMs. So the domestic OEMs will grow in China, where we keep a very high share.

Got it. So just to clarify, you mean the domestic market share that you have would grow? Or is it more the OEMs would take market share from the foreign OEMs?

Yes. So the OEMs, our customers, domestic, the Chinese OEMs will win more share in the overall wafer fab equipment in China.

Okay. Got it. And the second very quick question is how much exposure do you directly have to the memory CapEx expansion? I know it's more second half '26 story. How worried about you are in terms of the latest U.S. restrictions on the foreign memory OEMs expansion in China?

I'm very happy if the memory expansion will start because memory expansion means they will need a lot of depo and edge tool. And here, we have a very high share on Western OEMs. And if there are restrictions that they cannot deliver into regions on this planet, then they will invest on other places. So for us, it doesn't matter where the investment takes place at the moment. .

Most important that the investments take place and memory is always -- has always been a good field for VAT in the past. Just remember what happened in 2017, we saw the flash growth. So we've had a big portion in that because our customers, of course, they have big portions on that business as well.

So in the end, we always mentioned also in the past, we are kind of agnostic to if it is investment in memory or logic. In the end, they need deposition and edge tools where we are qualified. Often, we don't exactly know where our products will be used, but any time there is wafer fab equipment and expansions, VAT will benefit.

The next question comes from Sebastian Kuenne from RBC Capital Markets.

I have a follow-up on China as well. Could you give us maybe the split between the business you do with local OEMs and Western OEMs? Because if you see overall China going down next year, but your 35% direct sales to go up and the business you do indirectly with Western OEMs must be collapsing in that calculation. So maybe can you give us the split a little bit. And my second question is on margin. If the exit margin in Q2 was somewhere between 29% or 28%, 29%, then operating leverage now goes against you in the second half of the year. So I was wondering what would you do to reach the low end of your 30% to 37% margin guidance? And how big the risk is that you may be somewhat below the 30%?

Thank you, Sebastian. So to your first question, so our direct share in China today is about 35%. But of course, as a relative number, it's always depending also on the other. And if the others are growing -- growing faster than the China market, it can be, of course, impacted. But I think, yes, we still think that China share also next year will be around 30%, because the China...

Sorry, my question was not on the -- sorry, sorry to interrupt. My question was not on how much direct sales you have, but what the split is within China that goes to local OEMs and Western OEMs?

There is no Western OEM. The Western OEM delivering to China, right? So we have 35% is our direct business into China, and we estimate that about 10% is additional that goes through our Western OEM into China.

Understood. Okay. But that means the Chinese OEMs are larger than the Western OEMs, the business that the Chinese OEMs do in China is bigger than the Western OEMs in China.

Yes, sir. Definitely.

Okay. Yes. And then on margin, sorry.

Yes. Fabian speaking. So you're right. In the first 6 months, we had headline EBITDA of 29.6%. And with the communicated full year margin now, we expect to slightly boost that up into the second half, whereas you're also right that the operational leverage is certainly not helping.

We have 2 key drivers that do help. A, on the personnel expenses, which usually has -- is a seasonal pattern where you build up your vacations and other accruals in the first half and you reduce them in the second half. And secondly, we had quite some adverse hedging effects in the first half, which do not repeat into the second half.

At the same time, also remember that we continue to invest for the anticipated ramp and also harness future business opportunities and as such, the cost absorption is obviously suffering from the softer sales in H2, which ultimately demanded us to reduce the outlook slightly down.

Yes. So how big is the risk that you drop below the 30%? Or is there -- are you confident to be above the 30%?

I usually don't go into too much detail of the P&L in the Q3 trading update. What I can say is at a like-for-like basis, mostly constant FX, I'm confident that we will reach the communicated level by the end of the year.

The next question comes from Jörn Iffert from UBS.

The first question would be, please, on technology trends. Is there anything happening out there which could be adverse to the VAT prospects? Like for example, you have a higher litho share for DRAM or also that machinery for etch and deposition is merging. Is there anything you would have in mind here? To start with the first question, please.

Yes, Jörn. The technology shift is certainly something that is helping VAT quite a bit. It's the opposite. It's not going away. It's more and more going into vacuum, for example, with the advanced packaging as quite a growth driver. Just during SEMICON West, new tools launched and tools also need more vacuum than in the past. The litho share is not increasing. I think there was a kind of a shift in litho in the past because of China buying a lot of litho tools. So the portion of lithography in the last years was higher than what's normally required.

This will be balanced out in the years to follow. But also, if you talk about litho, there was a very high share in EUV and I think more will come now going forward as well. This will also help EUV means vacuum-related tools and EUV means tools. So I don't see the adverse that -- movement but still what we communicated also during our Capital Markets Day, more leading edge means also more vacuum-related tools. So this should fuel our story.

And the second question, maybe also a broader industry question. But from your perspective, what you heard on the SEMICON in your conversations, we have a material increase in the average selling prices for DRAM and NAND. At the same time, utilizations are still according to market diligence around 70%, 75%. I mean how is the industry or how are your contacts or your conversations you had last week, how are they explaining this difference? Because usually the higher average selling prices should indicate that really supply is tight, which is not the case.

Excuse me, this is the operator speaking.

Sorry we have a very quick issue here.

Your question goes around the pricing, the DRAM NAND pricing versus the lower capacity utilization. Is that correct?

Yes, exactly. Look, I mean, because the average selling prices, which went up materially for DRAM and NAND would indicate that supply is tight, but there's not enough supply currently. But at the same time, it seems utilization according to your market diligence of these fabs is 70%, 75%, which is not indicating that there's not enough supply. So how do you explain this mismatch currently?

Yes, it's really hard to explain sometimes things what's happening in such a dynamic market. I don't have probably the real explanations here. I still just see that -- of course, some of these players, they have some pricing power and they -- and if new technology is coming in, they are becoming more and more of single sources in certain technologies, and this might have also an impact on the pricing.

But other than that, it's just also, I guess, I have. During semicon, we were less discussing things like that. So for us, a lot of discussions go around is how can we solve the industry or the AI problem or upcoming problem. The power consumption, that's huge and to have a 10,000x lower power consumption for the next generation of chips. That's kind of in everybody's mind and how can we solve that, we need new materials. There is node sizes going down and a lot of challenges to come, which nobody knows how to solve today. But as an industry, I feel that they are getting closer and closer and collaborating even closer than in the past to overcome these challenges. These were kind of the main spirit at the SEMICON, it was -- in the event I took place at least and less about the DRAM NAND pricing.

The next question comes from Menon Janardan from Jefferies.

I just wanted to ask about your order expectations into Q4 and also the sales progression that you expect in 2026. In your first half results, you had talked about how or you're slightly more bullish or optimistic about orders in Q4 and the book-to-bill will go above 1. Is that still your expectation for your Q4 orders? And if so, is that sort of coming from Gate-All-Around HBM kind of areas where you talked more positively?

And you've said that you're getting signals, which is you had said that previously as well that the industry will start recovering from the second half of 2026. In your discussions in the last, say, 5, 6 weeks, including at SEMICON West. Have you got more confidence that, that trend will come through? And if so, would -- is that mainly a NAND flash driven upside? Or is that more broad-based?

Thank you for these 2 questions. Let's start with the second one. Definitely, we see wafer fab equipment overall is always a very good proxy for VAT, always has been. And as I mentioned, there will be a record year in 2025. And we also expect that also next year will be another record -- not a jump of 20%, but maybe around 5%, 6%, 7-plus percent growth next year.

And the shift is very important that we see it's more towards the leading edge where I explained that leading edge means more vacuum-related system where we will benefit as well. So with all the discussion with our customers, everybody expects that the Q1 will be kind of the low point of 2026. And from there, they expect a gradually improvement towards then a record year by end of 2026.

So this is the kind of the consensus, and it's not only one customer. I think this was kind of -- everybody sees the development of the business in 2026 like that. And underlying, of course, it's not only this USD 1 trillion story. It's mainly the fabs that are built and they need equipment going forward.

To your first question for the very short due on Q4, I think I can confirm that we expect the book-to-bill around 1 for Q4.

And if I might have a small follow-up. I mean, with the backlog, which is running like 34%, 33% down and probably not changing too much in Q4. Do you still think that VAT can grow next year? And close to where consensus is right now, et cetera. Is that possible? And will the orders come in strongly through Q1, Q2, Q3 to get you to that growth trajectory?

Yes. This is our expectation that orders will come in, in late Q1 than Q2.

Next question comes from Daniel Schafei from Citigroup.

I just had a general question on valve inventory. How high do you see this at customers right now? And is there any difference, particularly in China?

Thank you for your question. So inventory levels with our large customers are well under control. So we have a consignment with most of the large customers. So we have a clear alignment and adjust year inventories based on the market outlook. China, as I mentioned before, China is a little bit different story. They are in a growth mode, and they have to expand their portfolio. So they are coming out with new applications, new tools almost quarterly.

And this also means that the inflow in new products is certainly higher than with the Western OEM. And this can -- there is a tendency that, of course, there is higher inventory in China, which is also then impacted, of course, if they have a qualification and the qualification of a new tool takes longer that the outflow of the inventory is slower, and this can be the disruption.

This is what I also meant with that is a very volatile environment at the moment in China. Every of these customers want to qualify the tool, if they fail, it can take a little bit longer. So there, we have to be very, very fast to adjust how we act in China. So it's interesting, but not easy to forecast at the moment in China, but it is clear that they will grow their self-sufficiency rate. And it's also clear they will see the same challenges as the OEMs in the West a few years back because this node sign reduction is not just something I can buy a tool and it works. It's a lot of know-how they have to build up. But yes, they learn fast and reached there.

Okay. And just on margins as well. Last time around, you were pointing to more or less stable gross margins. Now you took down the EBITDA expectations. Just trying to understand where do you see now gross margins? Is that still the case? Or did that change now? And how much of that is OpEx moving around? That would be great if you could give us the moving parts here.

I do expect gross margins in the second half below the first half, predominantly on the ongoing reduction of inventories, which will then also have a positive effect on our trade working capital, but ultimately, also on the free cash flow. So that is one element.

And the other one, which is also reducing gross profit margins is obviously coming from the reduction or the weaknesses on all the major currencies against the Swiss franc. And on the bottom line, we mitigate these effects, a, via cost discipline in our personnel and operating expenses and b, via higher hedging gains anticipated in the second half than the first half.

The next question comes from Craig Abbott from Kepler Cheuvreux.

Two questions also. First one, you're telling us as before that you're not expecting material impact from the tariffs this year. But I'm just wondering how confident you are that this will likely continue into next year, particularly as your U.S. share of sales, I reckon would be set to increase given the significant amount of investment taking place there. That would be my first question.

Yes. Well, everybody hopes that tariffs, of course, will be changed and go down. This is the expectation. But if not, our U.S. content that stays in U.S. is not that high as you might anticipate. So it was at half year, it was -- it went down to 7% now. So that's not marginal. Of course, we have large U.S. customers, but they operate globally and their operations is mainly outside of U.S.

Craig, let me maybe complement that. So we have 7% of VAT sales where we are importer of record. And as such, these sales are subject to potential tariffs. Now as we said earlier on, we are working closely with our customers to find solutions in order to offset these effects -- and as such, we do not expect any material effect on our financial performance, not this year and also not next year.

Okay. And secondly, a technical issue. If I did my math right, the order backlog for both divisions, it appears in my numbers at least that they declined more than would have been implied. So I'm just wondering, was this solely due to FX? Or were there some cancellations?

Yes. It was the first, not the latter. So that is due to FX.

The next question comes from Didier Scemama from Bank of America.

I've got two, if I may. First, high-level question. So we think NAND WFE this year is up 75%. I think that's quite clear from Lam resource in particular. I think it's one of your important customers, but not exclusively. Next year, we predict it's going to go up another 20%. So how do you reconcile those comments you made earlier where fab utilizations are 50% to 70% in NAND. One of your top customers clearly growing very strongly this year with NAND WFE or NAND upgrades. I don't really understand how you don't see it. Is it because they put too much inventory? Or what are we missing in that -- what's the delta? And then I've got a follow-up on China.

Yes. Well, the big delta here is that on the NAND upgrades on the great U.S. customers with a high share in the NAND, they do upgrade and it's not vacuum-related system. So they do upgrades, but there is no vacuum system involved in these upgrades. It's more about that they, of course, increase the layers and -- but they don't need more chambers at the moment or upgrades in the system.

Okay. Interesting. And second question on China. I think it was a question that was mentioned earlier, and I'm a bit surprised by what you said. You said China is -- if I understood correctly, China is 40% of sales. And of that, around 30% is with China domestic semi caps and 10% is with international OEMs. Is that right? Did I understand that correctly?

No. Sorry if this was not clear enough on that. But the overall China business for VAT is 35%. So 35% of VAT business, not only semi, overall, goes into -- directly into China. And then we estimate that through the Western world, Western OEM, there might be another 10% going into China additionally. So if you sum it up, it would be probably now 45% of the VAT business exposed to China. But direct, and this is what we can calculate or see in our books, direct business in China is going -- is 35% with Chinese customers.

That's weird because Lam, all these companies have got China exposure around 30% to 40%. How can it be only 10% for you?

Well, it's our estimate on, of course, what's the share of wallet on these tools, what is going into China.

Okay, all right.

And then, of course, there is also a sales portion in other businesses as well.

The next question comes from Martin Jungfleisch from BNP Paribas.

Just another follow-up on China, please. Sorry about that. I think at H1 results, you mentioned that you would expect China to grow 4% to 5% next year. Is this something you would reiterate today? Or is it -- given your positive comments this morning, is it -- would you say it's more mid- to high-single digits now? That's the first question.

Yes. I can take that question. We do expect roughly the same growth rate also into next year. So there is no change.

Okay. And the second question is really on the Q4 guidance. I mean you expect revenues to be broadly down 10%. If we assume flattish development in ADV and services, I think this would imply semi valves to be down 15% sequentially. Is this somewhat a correct assumption? Or are there some other moving parts in services or ADV as well?

Can you say it again, please?

You're guiding Q4 revenues down 10% broadly, right? This would imply probably semi valves to be down 15% if you assume flattish ADV and services development. Is this a correct assumption? And would you -- or is there some moving parts within services or ADV as well for the fourth quarter?

Sounds about right. With ADV, of course, it always can be also project business in one quarter or move to the other quarter, have that kind of an impact. But I think your assumption is about right, yes.

Okay. Great. And then maybe just a follow-up on the backlog. Would you also expect Q4 to still benefit from backlog? Or is that -- would you consider the backlog now to be more or less normalized?

We are working down the backlog and with the earlier comment that Urs made and expect the book-to-bill of this will then also be replenished accordingly.

The next question comes from Nejc Lavric from Octavian.

On the first one, you mentioned that this weakness could continue or flattish sales going into at least Q1 next year. Now you had quite a high base in Q1 this year, and you also have probably mid-single-digit FX headwind there. So this would imply actually that in the following quarters, according to your guidance, you would have to grow more than 20% at least. So my question is, how did this seasonality change? Because we used to have maybe stronger H2s. I mean this year, this clearly was reversed. What explains that? And how can we expect that for 2026?

The comments that were made before were of sequential growth. So Urs was not referring to year-on-year comparisons, but more quarter-over-quarter. But we do expect now kind of a sideways development into Q1 and then a pickup into Q2.

Okay. But it is a fair assumption that in Q1 next year, you might be missing CHF 50 million if we go sideways and you have the FX effect, would that be a reasonable assumption?

Year-on-year.

Year-on-year, yes.

And maybe then on my second question. When...

Nejc, Nejc, just to remember, let me just -- I think this is important for everyone. You remember that we had this massive ERP changeover last year where we started to build safety stock in the first half of 2024. So you would have to normalize that out.

Okay. And on my second question, when it comes to the whole value versus volume debate, I mean, clearly, 70% to 75% utilization rates are not going to change overnight. And when I look at some of these projections for how many chips you need for 1 gigawatt expansion, we get to maybe 0.5 million while the smartphone sales are really above the 1 billion. So what makes you so confident that even though there will be leading-edge investments that this will really translate into volume for you? And do you have some sort of visibility there on this repurposing of existing lines because it seems to be a pressing issue.

Yes. So a good question here. I think what we also mentioned is that in the leading edge, the utilization rate beyond already 90%. And there, if you come with how much chips will be needed for us and a new data center and a future data center, of course, there is a lot of leading edge also required.

And here, the investments will take place going forward. I think that's important to note is not only that the NAND and HBM. It's also very important, but the shortage not yet the shortage, but many investments will come with the leading edge.

And as I mentioned, there are more than 100. I think it's 120 fabs in construction, and they have to be equipped over the next years. So that makes us get really positive that these investments will come. And also during the SEMICON West, there were clear statements that what is now in planning the fabs. It's not enough. It's not yet enough to come to this USD 1 trillion by 2030.

So there must be this investment should come in. Also the hyperscalers, they committed to these investments. So there's a lot of positive signs. It's always challenging in the short term. But in the long run, I think all the vectors show that this is going to happen.

The next question comes from Michael Foeth from Vontobel.

Just two questions from my side. The first one is on the Global Services business. Can you give some more granularity on whether that is more geared towards spare parts or retrofit? And how do you expect that to develop in the coming 2 quarters?

And the second question is regarding technology. You briefly mentioned that the energy problem and the need to improve technology to bring down energy efficiency. And I was just wondering what specifically VAT can actually contribute to those efforts?

Thank you for these questions. So coming to the Global Service. I think the big change in the growth we had in spares and repair and in the retrofit business, it was the big growth. And of course, with utilization rates going up then also the consumable part like the gate is also picking up quite a bit.

So that's kind of where we have seen the growth. To your second question on this energy efficiency. So this is all around this Gate-All-Around story or this -- since 10, 12 years, there was the FinFET transistor now in the market and getting all the node size reduction were made with the FinFET technology.

Now this Gate-All-Around is get launched. And this is also now the first generation coming. We expect that the first products come into the market next year, 2026, maybe in the first smartphones. And here, to produce these new chips, there are more than 2,000 steps required.

And a lot of them are this leading-edge step like the ALD, ALE or special edge applications. And here, new tools are required. So the processes are becoming much more complex. So chamber, chamber matching is something they must be faster, more matching from one wafer to the other. So that's kind of the challenge the industry has.

They bring in new materials as well. They have to run different temperatures. Not always getting hotter, sometimes it's getting much cooler. So going to the cryo temperature as well. So it's a lot in the move from the technology side where VAT as a component and subsystem supplier supports the industry to overcome all these challenges.

Okay. And maybe just 1 word on the outlook for the services business.

Our service business is in the long run, of course, set for growth, the more valves are in the market, the more kind of our market -- the addressable market is growing as well. Of course, it's always overlaying about the utilization rate as well. But the service business is also set to outgrow the market as well.

The next question comes from Sandeep Deshpande from JPMorgan.

Can you hear me?

Yes.

My question is about supply and the lead times. I mean, you are indicating that you think that based on what the trends are seen in the industry things will pick up later next year, particularly maybe by end of Q1 into Q2 or something like that. But how quickly can you react to the change if that happens in terms of your orders and in terms of what customers want you to ship? And do you have to prepare the supply chain for it? And are you -- and how quickly you can react to any significant change? And the second related question to the supply chain is that when we look at the supply chain and the issues associated with rare earths, et cetera. Do you see any issues for you involved with rare earths?

Okay. That's an interesting question on supply chain. So certainly VAT we had in the years -- in the past year. So during COVID and the ramp was coming and all the shortages in material elastomers aluminum, there were shortages everywhere. This is solved now. So we came down to lead times to 4 to 8 weeks today and this is also reflected then in the order pattern from our customers.

We have, of course, a capacity, so we invested ahead of the cycle. This was always a message we placed as well. So we have expanded our capacity in Malaysia. We just opened up our Romania factory in June. So we are ready and set for the growth as well. So we have a ramp-up capability of around 30% per quarter. This is what we have in our system. And this is also what the market is expecting from us. From the rare earth, now that's not something that is material to us. So yes, fortunately.

The next question comes from Timm Schulze-Melander from Rothschild & Co Redburn.

I have two. I just want to come back to this question around bookings and visibility where I think we're all having a bit of problem kind of squaring the circle. Can you -- this inventory adjustment and you talk about bookings inflection in sort of Q1, Q2, I've got a 2-part question there. Number one, is there any impact that you are still seeing from the buffer stocks you built when you did the ERP transition?

And when you look at the destocking that you expect, can you give us any color by application within your dep and etch exposures, just where that might be concentrated? And then I had a follow-up.

Okay. Thanks for that question, Timm. Well, there is no buffer stock anymore from this period from last year. So this is sold out, executed. On the dep and etch, so as I mentioned, we have consignment agreements with our large customers. And there, of course, we see what is in the pipeline.

So it's not always related then to the dep and edge. I think it's more related to individual customers. And of course, I cannot talk about that in more detail.

Okay. But so this is not by -- this is not concentrated in etch or PVD or some CVD, PECVD application. This is across the board, dep and etch, with maybe some concentration by a customer, which for understandable reasons, you can't discuss. Is that broadly the right way to think about this?

Yes. Yes. Just thinking about how the architecture of such a tool, it always needs a vacuum system with a lot of valves to stop down and when the transfer of wafers, the architecture is kind of similar to a depo and edge tool. And this is now even more obvious with the new tools if you are following that.

So in the past, there were a clear dep tool, a clear edge tool. Today, there is all consolidated in one platform as well. So they have chambers on that edge, another ALD and they just mixed that up at all. So to follow then actually on which application and which tool our products will end up.

Okay. All right. And then on the factory space, you just talked about Malaysia, you talked about Romania. Just as you go through the next 2, maybe 3 quarters, can you just talk about how you are going to be loading your manufacturing and where the production that you do do, how that's going to be balanced between those facilities and kind of how that will then work as we work through 2026?

So far, our Malaysia factory is set up for high-volume manufacturing, especially for the semiconductor business. So with more and more the leading edge coming in, these qualified products will be produced in Malaysia and Malaysia is set for growth in the coming quarters.

Also here, we have a record output in Malaysia this year, and this will grow also over the next years. Romania is kind of one of our internal supplier and they are delivering, especially stainless steel and weldings out of Romania to our factory in Switzerland and also from Malaysia. Then it is in Switzerland. We keep a lower volume, high mix portfolio, so mainly also for our Advanced Industrials business and a lot of the legacy and also use, of course, the expertise here to -- for innovation on completely new products to optimize manufacturing processes.

I also think about doing more and more automation going forward in our facility here as well. For example, a good example is our newly launched ALD valve. This will be a high volume in the future. Still today, we produce it out of Switzerland. We do here all the qualification, optimization and the innovation part before we find a new home for the production of this high volume valve.

The next question comes from Oliver Wong from Bank of America.

So in July, late July, the White House released its AI action plan. And one of the things that drew some attention was a comment on plugging loopholes specifically as it relates to subsystems. I was wondering if you guys could maybe quantify the potential impact on further policy action there? And also on whether you're -- whether you have any contingency plans or any planning around new policies related to that?

Yes. Thank you for that question. Somebody has a crystal ball out there, what happens in the next years, please call me afterwards. Certainly hard to say what will happen in the future, so far all these actions has no impact on our products.

So -- and we work also, of course, we will be compliant whatever will come up. So we are in close contact here also with our Swedish regulators. But so far, our products, valve products are not deemed for any sanctions.

The last question for today's call comes from Nigel van Putten from Morgan Stanley.

Just a quick follow-up on sort of the expectations of orders into the second half. We've also certainly picked up, I think it's 1 larger OEM that's gone out to suppliers with indications of the strong pickup in the second half. So is that the signal you're referring to as relevant and probably a good proxy for the market? Or do you have these indications of a strong pickup from each and every one of your sort of major customers? That will be my first question.

Yes. So the feedback is not only from one. So we talk to all of them and they see the same pattern in the wafer fab equipment and with their customers and the end users. So in the end, they need all this edge, dep and tools, leading-edge tools for the new fabs and it's across the customer base that we hear this is going to happen.

We always have to differentiate a little bit what the Western OEMs are telling us and the Chinese because China is kind of a different story. They have their own dynamics today, as I mentioned, with any momentum for self-sufficiency, try to increase self-sufficiency rate. So they have a little bit different, but all the Western world is quite similar.

Got it. Yes. Actually, my second question was similar but on China. Considering there's sort of a little bit of uncertainty at least from what I pick up in terms of the memory side, which perhaps some more financial conservatism by the major memory makers, but then also there's the potential for them to go and invest more aggressively. Could you talk to a range of possible outcomes when you sort of see the China market as you stand here today, maybe for '26? I'm imagining it's a bit of a wider range, but can you maybe give us some numbers towards that, that would be helpful.

Of course here, we have the same numbers from the market intelligence what's out there. So China wafer equipment certainly was growing quite a bit in the last years up to 40% of wafer fab equipment ended up in China with quite a high portion coming from the West. So the domestic portion will grow.

So my estimate is that a mid-high-single-digit growth in the next year as well. I think even more important is that the long-term view and this trend that they want to have full self-sufficiency, they have to develop still a few applications they do not have on their soil and certainly, the biggest challenge will be on lithography, but also they have in the metrology and the inspection tools.

But here, we see a lot of efforts from Chinese OEMs to overcome these challenges. So this means that it's a very dynamic market, and it's hard to predict where they succeed and where they fail and how this will then also what it means to the time line of their self-sufficiency rate going forward. So we have to be very close to these markets in the Western market, but also the Chinese market, to react very fast when they need something new.

So it's hard to predict how it's growing. But in general, wafer fab equipment, the sheer number of this 35 billion to 40 billion in China probably will remain on that level. But as I mentioned before, for VAT, for us, it's important and interesting that the domestic portion of the wafer fab equipment is growing in China.

Ladies and gentlemen, that concludes today's question-and-answer session. I would now like to turn the conference back over to Urs Gantner for any closing remarks.

Yes. So thank you all for attending our call today. I'm looking forward to seeing you again next year in person, at latest on March 3, 2026 for the presentation of our full year 2025 results. Thank you, and have a great day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.