Cyclical Recovery & Ramp Of New Fabs Earn MKS Instruments Rating Upgrade Post Upbeat Q4

  • Benchmark analyst Mark Miller upgraded MKS Instruments Inc MKSI from Hold to Buy with a $125 price target.
  • MKS posted upside results with record sales for its December quarter
  • However, ransomware incident could negatively impact sales by at least $200 million in 1Q23. 
  • A recovery from the incident is likely in 2Q23. However, headwinds are seen this year due to lower cyclical WFE spending and the U.S. restrictions on semi-equipment sales into China. 
  • An expected cyclical upswing in 2024, combined with the ramp of new fabs and funding by the U.S., Europe, and Japan for internal chip production, is seen lifting non-GAAP earnings to $8.01 per share. 
  • MKS' 4Q22 non-GAAP earnings of $2.00 per share were $0.66 above investor expectations, while sales of $1.09 billion were $95 million above investor expectations. 
  • The December results include a full quarter from the Atotech acquisition. 
  • Sales to semiconductor customers totaled $503 million, up 1.6% Y/Y but down 6.1% Q/Q.
  • Electronics & Packaging posted sales of $266 million, up 264% Y/Y and up 60.2% Q/Q, while Specialty Industrial sales of $316 million represented a Y/Y increase of 61.2% and Q/Q of 24.9%. 
  • Driven by AP and inspection applications, Photonics Solution sales were at record levels in 2022. 
  • Flexible PCB sales remain muted, but the HDI/Via Drill segment reported some orders. 
  • Packaging accounted for 25% of Electronics & Packaging’ total revenues. 
  • Lower auto production and the impact of COVID in China are affecting the Specialty Industrial segment. 
  • For 2022, MKS reported record semiconductor sales of $2.04 billion. Electronics & Packaging sales of $1.1 billion were up 3% Y/Y, neglecting foreign exchange and palladium pass-through. 
  • Specialty Industrial sales of $1.3 billion were up 4% Y/Y, neglecting foreign exchange and palladium pass-through. 
  • Non-GAAP gross margins of 45.9% were up 100 bps Q/Q but down 50 bps Y/Y. 
  • December quarter Product margins were 45.0%, while Service margins were 42.5% versus the Product margins of 39.8% and Service margins of 48.7% reported in 3Q22. 
  • Mix and lower supply costs positively impacted margins in 4Q22. 
  • Price Action: MKSI shares traded lower by 2.17% at $94.83 on the last check Wednesday.
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