Advanced Energy at Bank of America Conference: Strategic Growth Focus

On Wednesday, 04 June 2025, Advanced Energy Industries Inc. (NASDAQ:AEIS) presented at the Bank of America Global Technology Conference 2025. The company highlighted its strong Q1 performance, driven by growth in the semiconductor equipment and AI data center markets, while acknowledging challenges in the industrial medical sector. Strategic initiatives focused on high-growth areas and margin expansion were also discussed.

Key Takeaways

• Advanced Energy reported strong Q1 results, bolstered by semiconductor equipment and AI data center demand.
• The company anticipates continued growth in 2025, particularly in the data center and semiconductor sectors.
• Operational changes, including the closure of its last factory in China, are expected to improve margins.
• Advanced Energy is prioritizing M&A, especially in the industrial medical market, to drive future growth.
• Tariffs pose a challenge, but the company has strategies in place to mitigate their impact.

Financial Results

• Q1 2025: Strong performance, mainly due to semiconductor and AI data center demand.
• Q2 2025 Guidance: Increased expectations due to rising data center demand.
• Full Year 2025 Outlook: Projected year-over-year growth, driven by data center and semiconductor sectors.
• Semiconductor Growth: Anticipated near 10% year-on-year growth.
• Data Center Revenue: Expected to grow approximately 50% in 2025.
• Gross Margin: Currently around 38%, with a target of approaching 40% by year-end.
• CapEx: Forecasted to be 5-6% of sales over the next one to two years, then moderating to 2-4%.

Operational Updates

• China Manufacturing: Closure of the last factory in China this month, part of a broader consolidation strategy.
• Mexico Factory: Products are USMCA compliant, offering a competitive edge amid tariff concerns.
• New Product Launches: Over 350 units of EVOS, Everest, and NavX shipped to customers.
• Thailand Factory: Continued investment to enhance production capabilities.
• ERP Systems: Consolidation aimed at long-term operational benefits.

Future Outlook

• Data Center Growth: Continued expansion expected through designs secured for 2026 and 2027.
• Industrial Medical Market: Anticipated recovery and growth at twice the rate of GDP.
• Tariffs: Expected to be manageable, with strategies to achieve margin targets.
• New Products: Projected to contribute 200-300 basis points to margins over their lifecycle.
• Telecom & Networking: Business expected to remain steady at $20-30 million quarterly.

Q&A Highlights

• Tariff Impact: Mitigation through supply chain optimization and customer surcharges.
• Semiconductor Growth Drivers: Focus on etch and deposition steps with new product adoption.
• Data Center Strategy: Emphasis on high-efficiency, high power density solutions.
• Industrial and Medical Recovery: New products and strategies to drive growth.
• M&A Strategy: Targeting industrial medical companies to integrate into existing operations.

In conclusion, Advanced Energy’s strategic focus on high-growth sectors and operational efficiencies positions it well for future success. For more details, refer to the full transcript below.

Full transcript - Bank of America Global Technology Conference 2025:

Daksan Chen, Semiconductors Analyst, Bank of America: My name is Daksan Chen. I’m part of the semiconductors team here at Bank of America. I’m very delighted to host the advanced energy team here. We have Steve Kelly, chief executive officer, Paul Olham, chief chief financial officer. And in the audience, we also have Edwin Mock, the vice president senior vice president of strategic marketing and investor relations.

Before we begin, I believe we have some comments to make regarding FD.

Paul Olham, Chief Financial Officer, Advanced Energy: Yeah. Thanks a lot, Ducks. And just a reminder that today, we may make forward looking statements. Those are subject to a number of risk factors, and you can have a look at our filings to have a better understanding of those. Also, a reminder that we don’t we don’t expect to give any updated guidance, as part of this meeting or provide any updates to guidance.

We had our earnings call, in early late April, early May, so that that’s out on the record for everyone to have a

Daksan Chen, Semiconductors Analyst, Bank of America: look at. Awesome. Well, Steve, I think we can start a little bit high level. Can we talk about the state of the union, how your business is progressing? What are you seeing in the demand today, say versus three months ago or at the beginning of the year?

Steve Kelly, Chief Executive Officer, Advanced Energy: Yes. So maybe just we’ll review Q1 quickly, but Q1 came in strong, you know, for the company. We benefited from a semiconductor equipment business, which was a little bit better than we had expected. And we also benefited from strong demand in AI data center, somewhat offset by continued correction in the industrial medical market. So but Q1 was a solid print.

We guided up a little bit in Q2 primarily because of increased demand from data center. And as we look out the entire 2025, we see a decent growth year for the company year over year, and that’s led by data center and semiconductor.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. Speaking about second half, I believe you’ve guided it to be about low single digit higher half and half. What are we seeing outside of this core semiconductor and industrial or data center markets?

Steve Kelly, Chief Executive Officer, Advanced Energy: Yeah. So the industrial medical market is the question mark. That market has been in correction for six quarters. It started for us in Q4 of ’twenty three, and it’s gone through Q1 of this year. We think we had a low point in Q1, and that’s based on our analysis of the distributor data, the inventory data, their resales, sell in and so forth.

We think we’ve hit a point now where the inventories are about where they need to be. And that’s reflected also in increased distributor bookings. So we have expectations. I think Q2 will be stronger than Q1 and we’ll continue to see a gradual strengthening. I think the big question mark for industrial medical now is the impact of the tariffs because I think the customers in the industrial medical segment, they’re a little less well positioned than some of our large customers in semi and in data center.

So we’ll have to monitor that situation pretty closely.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. Speaking of tariffs, I believe you said you see very limited direct impact. The indirect impact is probably a bit tougher to gauge. But how about in the semiconductor world? Because a lot of your customers, even The US based ones, believe, are multinationals and they have fabs around the world.

So how should we gauge that impact or how are you seeing it?

Steve Kelly, Chief Executive Officer, Advanced Energy: Yeah, in the semiconductor segment, we’ve seen very little impact of the tariffs. Sell to very large sophisticated customers who have multiple manufacturing options. And I think they’re doing a good job managing through, you know, the tariffs. So we haven’t seen much impact there or in data center for that matter. Again, it’s large sophisticated customers.

Really, I think the tariffs boil down to the the INM market, and and what is the indirect impact going to be on that that market? I think if you look at our position when it comes to tariffs from manufacturing standpoint, it’s pretty good. We’re closing our last factory in China this month. So we’ve closed three factories in China over the past four years. And so, you know, that is the most sensitive route between China and The US.

We have very little exposure to that. We also have a factory in Mexico where we could produce a variety of industrial, medical, and data center products. And almost all of our products in Mexico are compliant under USMCA. So, you know, if the tariffs stick, you know, I think we have a competitive advantage there.

Daksan Chen, Semiconductors Analyst, Bank of America: Understood. One last question on regarding tariffs. Do you think it’ll have any impact on the financial side, on the cost side, on the gross margin side?

Paul Olham, Chief Financial Officer, Advanced Energy: Yeah. It’s a good question. As Steve said, we’re relatively well positioned compared to our peers based on our geographic footprint, the customers we sell to, and the terms that we have in place. But tariffs affect everybody, and they’ll affect us. There was a small impact in the first quarter, and we expect a little larger impact in the second quarter.

Having said that, the impact is embedded in the guidance that we gave. We think it’s manageable over the course of the year. It’ll be headwind. But we said specifically that we still expect it to largely achieve our gross margin and operating margin goals in spite of the the the tariffs. So it’s really on us to work in the details to mitigate the the financial impact directly to to AE in terms of looking at our supply chain, looking at product flows, and taking other actions to to to mitigate the impact.

And we have communicated that, you know, where we can’t offset that impact, we do expect to pass that on through a surcharge to our customers.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. Moving on to semiconductor. So I think a lot of the big vendors are eyeing at, say, mid single digit growth for this year. It’s a two part question. Number one, do you see similar demand structure?

And number two, if AE’s goal is to outperform WFE, what do you need to do above and beyond that?

Steve Kelly, Chief Executive Officer, Advanced Energy: Yeah. So I think we’ve had a good start to the year in semiconductor. And our expectation is year on year we’ll be growing close to 10% in semiconductor. So that’s yeah. In this environment, I think it’s pretty good.

And there are two main factors why we’re growing faster. First is we’re primarily involved in the etch and deposition steps. In etch and deposition, it’s growing faster than some other parts of the WFE calculation. The second is our new products. So we’re seeing these new products designed into leading edge applications.

And so we’ve seen revenue start to pick up there. It takes some time. You know, turn design wins into revenue in semiconductor. But we’re expecting that strength in the second half to offset some of the weakness in trailing edge in the second half of twenty five. I talked a little bit about the strength in new products during the earnings call.

And we’ve shipped to date more than three fifty units of these new products to EVOS, Everest and NavX products, and we we sell those products to customers. But those those products are not only at our customers’ labs, but also at their customers in the fabs. And so so some of these processes will start to ramp as soon as second half this year, But we expect to see more significant impact on our revenue starting next year, ’26.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. Well, how should we compare that number, three fifty units? How does that compare to your previous launches? Is this going faster or slower than prior launches?

Steve Kelly, Chief Executive Officer, Advanced Energy: Yeah. It’s going a lot faster. You know, our our prior major technology launch was more than ten years ago, and I think maybe twenty, twenty five percent of the rate that we

Daksan Chen, Semiconductors Analyst, Bank of America: see

Steve Kelly, Chief Executive Officer, Advanced Energy: today. So the difference today is that our customers are facing significant challenges as they move below two nanometer. And so they need something new to maintain wafer fab throughput as well as good yield. And so that’s why there’s such an uptake on our technologies is because it’s required.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. And then you’ve alluded to this earlier, but the trailing edge and the China portions, how should we think about that market? Is that still an important market for AE?

Steve Kelly, Chief Executive Officer, Advanced Energy: It’s really important for our customers. And so most of our exposure to China is indirect through our large OEM customers. And so, you know, they they talk about that during their earnings calls. So, obviously, the conclusion is the percentage of their sales into China is going down gradually. But what’s happening is they’re seeing demand on the leading edge pick up.

So I think that’s that’s making up for any losses they’re seeing at trailing edge. And trailing edge is under pressure not just in China but also outside China.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. And then the margin implications of these new products. I mean, we’ll probably get to margins at a deeper level later, but how should we think about the impact of these to your margins? Do you foresee any potential headwinds or tailwinds that could impact it either up or down?

Paul Olham, Chief Financial Officer, Advanced Energy: Yeah. On balance, the margins on our new products are better than our current margins, and so we expect it to be a tailwind. In fact, at our Analyst Day, we talked about the impact of what we call mix, which is primarily the impact of new products and the higher margins they bring with them to be 200 to 300 basis points positive impact over the product life cycle. So it will fold in over time, but we do expect it to be a a meaningful impact. And it’s across all areas.

Obviously, we’ve talked about the new products in semi that are just getting started, but we have multiple new platforms that we’ve launched in the industrial medical market. We haven’t seen much revenue with those yet given where the market is from a correction perspective, but as the market recovers, we expect those to fold in. And and in data center, which has arguably the lowest margins of the company, as we focused on more applications where they’re proprietary, they have to provide a differentiated need, the margins on those products have come up significantly from where they’ve been historically. Really they’ve really closed a lot of the gap towards the corporate average. So the combination of new products and more sole sourced wins, we think, will drive two to 300 basis points of margin improvement in the company over this strategic cycle.

Daksan Chen, Semiconductors Analyst, Bank of America: I see. Well, when you say over the strategic cycle, how many years would that be?

Paul Olham, Chief Financial Officer, Advanced Energy: Well, it starts this year at a very small level. Steve just said it folds in more heavily in in 2026. But we think, you know, certainly, that’s what’s built into our financial model. But you could see a large amount of this benefit overall, say, a two to three year period, kind of a product product cycle as the products get in and then they ramp to to full production. Mhmm.

Daksan Chen, Semiconductors Analyst, Bank of America: Just just one more follow-up here. So when you say two to 300 basis points and the ramp really starts next year, so that’s when we should really start to feel that gross margin expansion over the two to three year period?

Paul Olham, Chief Financial Officer, Advanced Energy: That’s right. I think you’ll start to see that impact from new products really start to have an impact to ’26 and will continue on into ’27 for sure.

Daksan Chen, Semiconductors Analyst, Bank of America: Understood. I do wanna touch on data center. And I think a lot of the other semis custom semis companies who we’ve hosted are pointing at pretty strong growth in the second half and into next year. We’ve also just hosted NVIDIA this morning. I I think the consensus is that market’s gonna remain strong.

So are you also seeing that as part of your demand curve? And do you see this as a sustainable growth into the second half of next year?

Steve Kelly, Chief Executive Officer, Advanced Energy: The answer is yes. We’re seeing the same things you’ve heard from other participants in the market. You know, this year we’ll grow roughly 50% in our data center revenue. And we already won the designs that we need to grow next year, and we’re actually working on designs that will kick in late twenty six and early twenty seven. So data centers particularly AI data centers turned into a very interesting market for us because it has a special need for where we excel, which is high efficiency, high power density, and high reliability.

So it’s very important for AI data centers, are very expensive and very power hungry. The other thing that’s key is the ability to move quickly. And so we have a lot of IP, a lot of knowledge about how to build these advanced power supplies, and we’re able to reuse a lot of that during each of these shifts. And it shifts basically once a year in conjunction with the latest GPU introduction from NVIDIA. So it’s a very fast moving market and very focused on optimizing efficiency, power density, and reliability.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. Does the mix between GPUs and a six and, you know, the market share difference between different GPU vendors, does does this have an impact to you?

Steve Kelly, Chief Executive Officer, Advanced Energy: Not really. Because the power challenges are similar for no matter what processor you choose. So I think our business model is to engage directly with the hyperscalers and work with them, you know, to optimize the power and delivery system and help them differentiate.

Daksan Chen, Semiconductors Analyst, Bank of America: How would you characterize the competitive landscape here? So obviously, you have sole source opportunities and wins. How sustainable do you think they are? Well, the market’s gonna grow, but how sustainable are your wins?

Steve Kelly, Chief Executive Officer, Advanced Energy: I think they’re sustainable. Because one thing that’s happened is that we’ve developed much much closer relationships with our customers over the past couple years. That’s by necessity. Because of the speed of of the changes in the market, they need to pull us in earlier in the design process because they can’t afford to have a serial process. They need to develop the power solution.

At the same time, they’re optimizing the the data solution. So that’s worked to our advantage. And, basically, we’re working on n plus one and n plus two solutions for our customers. And these these solutions ramp to production quickly, then they ramp down. And so it’s more difficult for second sources to come in.

Got it.

Daksan Chen, Semiconductors Analyst, Bank of America: And then could you talk about your demand profile between these hyperscalers and then the traditional enterprise market? If you can if you can break out the mix, that’d be very helpful. Or how should we think about the ramp going on at the enterprises?

Steve Kelly, Chief Executive Officer, Advanced Energy: Yeah. So when we changed our strategy a few years ago, we were about fifty fifty enterprise and and hyperscale. And today, it’s more like 75% hyperscale and 25% enterprise because we again, we’re much more selective in the opportunities we entertained. So, you know, we think we’ve been successful in our our, you know, small list of customers, and we think that’s pretty sustainable. Again, there are a lot of opportunities in front of us.

We probably have twice as many opportunities as we actually engage in because we don’t have the bandwidth. You know, there’s an engineering bandwidth issue. There’s also our criteria. We want to be able to make money on these opportunities that is close to corporate average. So that that reduces the number of projects we’re willing to engage in.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. As the number of hyperscalers grow, and I I think we’re seeing a lot of neo clouds and these sort of vendors coming up. What’s your strategy in expanding your customer list there?

Steve Kelly, Chief Executive Officer, Advanced Energy: You know, I think it’s opportunistic. I think most of our resources are focused on resources are focused on the key strategic customers that are currently in front of us. And so we don’t wanna get distracted. When I say opportunistic, you know, if we have existing designs that can be adapted quickly without too much engineering effort, then, you know, we would opportunistically go go after those those, those opportunities. But, we’re not going to divert our resource into smaller deals.

We’re going to focus on the biggest deals we can.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. And then one more question on the data center side. Is it fair to assume that this business longer term grows in line with the overall power requirements of the data center systems, or are there any other factors being into play?

Steve Kelly, Chief Executive Officer, Advanced Energy: Well, certainly, with each increase in power, there’s an increase in cost. It’s not it’s not linear, but every solution is gonna cost more because there’s more circuitry inside the box. So that’s that’s generally a good thing for us. You know, I I think we’re gonna maintain our focus on on on the high end, on basically generating margins that are respectable. And so we’re less focused on market share and more focused on margin in the data center business.

Daksan Chen, Semiconductors Analyst, Bank of America: Got it. Moving on to industrial and medical, and we touched upon this a little bit earlier, but how should we think about the second half in general, just given, I think, especially on the semiconductor side, our companies are saying, well, some are seeing pull ins and seeing a little bit more challenging second half, whereas some are seeing, well, Q2 is going to be the bottom. So how should we think about this segment for you?

Steve Kelly, Chief Executive Officer, Advanced Energy: MR. Yeah. So industrial medical market is a very broad market. There are tens of thousands of customers and and hundreds of subsegments. And so that’s it’s generally a good thing because some segments will be down, others will be up.

What we’re seeing right now, and this is anecdotal, is that some of the customers who have been struggling with inventory, issues over the past year and a half, are starting to come out of that. And so that’s that’s good news because they’ll continue they were gonna, restart some of the buying patterns that they had before the supply chain crisis. And also good news because a lot of the design wins that we’ve earned over the past couple of years will have an opportunity to go to production now, now that they’ve burned through inventory. However, there are other customers who are still working on the inventory issues. So it’s it’s gonna be a, you know, a choppy type of environment, I think, for the rest of the year.

But I’m optimistic because we started the correction phase back in q four of twenty three. We’ve gone through it for six quarters. And some of our competitors didn’t didn’t fill out of their delinquencies until until the 2024. So I think it’s gonna take them longer to recover than than advanced energy.

Daksan Chen, Semiconductors Analyst, Bank of America: Mhmm. That recovery actually comes, do you think you’re gonna be able to grow faster than the overall demand?

Steve Kelly, Chief Executive Officer, Advanced Energy: Definitely. So, you know, we’ve spent a lot of time, effort, and money on increasing number of new products that we introduce every year. We’ve increased the resource in the field tremendously to support the customers. And then we’ve also spent a fair amount of money creating a new website, which makes it much easier for customers in industrial medical to deal with with advanced energy. I think those three things together have created a, very healthy design win pipeline, and you’ll start to see the impact of that moving forward.

We think we can grow at least twice the rate of GDP and INM moving forward. Mhmm.

Daksan Chen, Semiconductors Analyst, Bank of America: Understood. Speaking of that share gain, what do you think can help you really gain share and grow two times the market? It’s a very fragmented market, so.

Steve Kelly, Chief Executive Officer, Advanced Energy: I think it’s focus. Know, think industrial medical market is a fragmented market. There are a lot of smaller players, and we’re in the process of focusing and going from a number two position to a number one position. That’s gonna be a combination of what we’re doing organically, you know, with the products, the support, the website, but also inorganically. There’s an opportunity for us to start to roll up part of this industrial medical market, And and you’ll see more of that activity, I think, in the coming months and years.

So I think it’s a two pronged approach, acquisitions as well as strong organic growth. You know, one of the differentiating features for advanced energy is our ability to build all of our products in house. So if you take a look at many of our competitors, they’ll outsource the products typically to third parties in China, and that’s problematic now. And so so the fact that we run our own factories, we service our own business, we design our own products, is a big differentiator in industrial medical. Understood.

Daksan Chen, Semiconductors Analyst, Bank of America: One on telecom and networking. It’s probably not an important focus area for you anymore, but it’s currently around, say, dollars 20,000,000 to $25,000,000 quarterly run rate. What can help you get back to your prior or 30 or 40 plus run rate? Or is

Paul Olham, Chief Financial Officer, Advanced Energy: that out of the equation now? I think strategically, when you look at look at that market, it’s a market that’s not growing a lot. Telecom CapEx largely is flat. New generations offset spending declines in old generations. So it’s not a market that’s growing a lot, and a lot of the more commodity applications were in that market.

So we’ve pruned our portfolio to address really a few premier customers and premier applications where, again, we can have a sole source store, one of two positions. So there will be some places where we can still gain some share. We’re able to leverage the products and technology from the other markets into this market, so we’ll maintain a position here. But we expect it to stay in this 20 to $30,000,000 range. That that’s our plan plan as we go forward.

Daksan Chen, Semiconductors Analyst, Bank of America: Gross margins, I think this is a big part of your story so far. It’s now at about 38%. You’ve come a long way. I think you’ve put out the target of approaching 40% by year end. What do we still have in that fuel bucket?

Paul Olham, Chief Financial Officer, Advanced Energy: Yeah. You’re right. We have seen margins improve quite a bit from a year ago as we’ve been able to execute and show progress on our plan. We’re running right around 38%, as you said. As we look forward to the rest of this year, the first thing is we’ll close our large China manufacturing plant in June.

And the reduction in fixed costs there should largely drive the balance of our improvement that we would see from reducing our cost structure. That’s probably 100 points of gross margin by the end of the year. We’ll get some of that in the third quarter. As inventory rolls through and is completely done, then we’ll get the balance of that in the fourth quarter. So that’s that’s the first thing.

Secondly, as I mentioned, we’re at the front end of kind of the improvement in margins from portfolio and mix from new products. We can see a little bit of that start to fold in in the in the second half as our new products start to to get in the market and play play a more a more prominent role. And the third thing is volume. We’ve been right on track to our model of improving margins by about a hundred basis points for every $50,000,000 in incremental revenue. So as revenues, you know, hopefully tick up a little bit from this point, as we’ve talked about, then we should get a little more benefit from that.

The tariffs are a little bit of a headwind, as we talked about. Mix can have some impact, but the mix impact is minimized, as we’ve talked about it, as our margins, particularly at the lower end, have come up. And so we do feel like, depending on how volumes play out in the year, that we could be approaching 40% by the end of the year. And certainly, as we go into next year and strategies continue to play out, you know, our goal is to be over 40% in good markets and bad. That comes from structural improvement in the cost structure and their products.

And then as volumes grow, you know, over our strategic horizon, we expect to get margins into the low forties, 43% plus over the course of our model. I see. Just going back to

Daksan Chen, Semiconductors Analyst, Bank of America: the mix a little bit, and I think Steve alluded to this earlier as well, but I believe the data center computing tends to be slightly dilutive Mhmm. And and INM as well. And those two are potentially, you growing the fastest and recovering. So how should we think about those impacts? Yeah.

Paul Olham, Chief Financial Officer, Advanced Energy: I think data center computing, we talked about, is below corporate average, but we’ve closed the gap to that significantly. Industrial and medical is above corporate average, so we generally think of that as positive to the corporate average. And as I and M recovers, then that should certainly help overall margins. Now because we’ve closed the gap in the portfolio, we think the impact to mix in any given quarter is sort of plus or minus 50 basis points. So there could be some impact, but I think it’s within certainly in our long term model.

We don’t see that as a as a factor that impacts our ability to get to to achieve our goals. We’ve contemplated that. And in the near term or in any particular quarter, I think the impact is is mitigated because of the the progress we made

Daksan Chen, Semiconductors Analyst, Bank of America: in margin improvement. Regarding your China factories, and you’ve closed two factories so far, are there any transition costs that we should still be aware of? And for your new ramping up facilities in Thailand, are there any ramp up costs associated?

Paul Olham, Chief Financial Officer, Advanced Energy: Yes. So there are certainly transition costs. Those have all been provided for. We took a charge in the third quarter of twenty twenty four and went a little bit earlier that contemplate the cost closing those factories. There can always be a little bit on the margin as you actually close things down, but we think the large costs of transition are behind us from a restructuring or one time cost perspective.

Now as we go forward and we continue to invest in our our core factories that remain and we build out in Thailand, we’ve talked about that we do expect an increase in capital expenses. That’s funds a function of of spending on those factories to really make them first class and scalable. Also contemplates our new product spending because as new products come to the market, there’s some investment associated with that. There’s some infrastructure investment. We are consolidating our ERP systems in this in this time frame, which will give us some really positive long term benefit.

And then as we talked about the data center market, the pull in related to the design wins and the opportunity set there is we are increasing our our CapEx to fund some of that investment, mostly in in high power infrastructure. Again, these products are coming at much higher power levels. This investment we planned, but it was a year and a half or two out. We’re pulling that in because of the success we’ve seen in in the design wins and the ramp of those products. Overall, should put CapEx in the five to 6% range of sales over the next one to two years, then we’ll see it moderate back down into the more traditional two to 4% range of revenue.

In

Daksan Chen, Semiconductors Analyst, Bank of America: the amount of time we have, I do want to go back to semis. And how should we think about the competitive dynamic today? You’re bringing out these new products. What are you expecting in terms of market share? That’d be very helpful.

Steve Kelly, Chief Executive Officer, Advanced Energy: Yeah. So with regards to semiconductor, we think we’re positioned to gain market share over the next five years. So today, if you take a look at the market, you know, we’re number one in something called conductor etch, and we basically have very little share of dielectric etch. And so with the new technologies, with Everest, with EVOS, with NavX, we will increase our share of the conductor etch market. So we’ll increase our lead essentially.

And these technologies will allow us to participate in the dielectric etch market. So that’s what drives our confidence, my confidence in our ability to gain share in semiconductor. I think we’re in good shape, and I’m very encouraged by the customer pull on the new technologies. You know, we didn’t have to sell these technologies very hard. The customers saw the technologies, and they’ve been pulling for the last two years to make sure they get the technologies into their latest systems.

Daksan Chen, Semiconductors Analyst, Bank of America: I know we’re running out of time, but just one question on capital allocation. You’ve mentioned inorganic growth and I think also in part of your long term model you do have hundred million dollars coming from M and A. So number one, is M and A your top priority? Then number two, what type of characteristics are you looking for in a potential target?

Steve Kelly, Chief Executive Officer, Advanced Energy: Yeah. I think from a capital allocation strategy, M and A is obviously our top priority. We also pay a dividend, but M and A is number one. What we said about M and A is the primary target is going to be industrial medical companies that we could fit into our factories and fit into our sales process relatively easily. The second priority is technology tuck ins.

So we did one of those last year with a company called Arity out of the Bay Area here, which worked out very well for us. But, you know, I think the issue has been valuations, and I anticipate that the valuation gap should start to close here in the next twelve to eighteen months.

Daksan Chen, Semiconductors Analyst, Bank of America: Awesome. I think that’s the end of our allotted time. Thank you so much, Steve and Paul.

Steve Kelly, Chief Executive Officer, Advanced Energy: Thank you, Dixon.

Paul Olham, Chief Financial Officer, Advanced Energy: Thank you, Dixon. And thank

Daksan Chen, Semiconductors Analyst, Bank of America: you for joining us today.

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