Earnings call transcript: VAT Group Q3 2025 sees stock dip on revised EBITDA margin

VAT Group AG reported its third-quarter 2025 earnings, revealing a decline in orders and net sales compared to the previous quarter and year. The company revised its EBITDA margin guidance to the lower end of its projected corridor, contributing to a 4.18% drop in its stock price during market trading. Despite these challenges, VAT Group maintains impressive gross profit margins of 63.7% and a strong financial health score according to InvestingPro analysis. The company remains optimistic about future growth, with executives highlighting innovations and capacity expansions.

Key Takeaways

• VAT Group’s Q3 2025 orders fell 8% year-on-year to CHF 238 million.
• Net sales decreased 9% sequentially, but surged 2332% year-on-year to CHF 258 million.
• EBITDA margin guidance was revised to the lower end of the 30-37% range.
• Manufacturing capacity has expanded, with new facilities in Malaysia and Romania.
• Stock price fell 4.18% following the earnings announcement.

Company Performance

VAT Group AG experienced a challenging quarter with a decline in both orders and net sales compared to the previous quarter. Orders for Q3 2025 were CHF 238 million, down 4% sequentially and 8% year-on-year. Despite a sequential decline, net sales showed a significant year-on-year increase of 2332%, reaching CHF 258 million. The company’s robust performance is reflected in its return on equity of 33% and strong cash flow generation. InvestingPro analysis reveals 14 additional key insights about VAT Group’s financial strength and market position, available exclusively to subscribers.

Financial Highlights

• Orders: CHF 238 million, down 8% year-on-year
• Net sales: CHF 258 million, up 2332% year-on-year
• Nine-month orders: CHF 727 million, down 5% reported
• Nine-month sales: CHF 815 million, up 24% compared to 2024

Market Reaction

Following the earnings announcement, VAT Group’s stock price declined by 4.18%, closing at CHF 343.7. This movement reflects investor concerns over the revised EBITDA margin guidance and the sequential decline in orders and sales. The stock currently trades at 46.1x earnings, suggesting a premium valuation according to InvestingPro Fair Value metrics. With a beta of 1.29, the stock shows higher volatility than the broader market. The company maintains a healthy current ratio of 1.49, indicating strong liquidity to meet short-term obligations.

Outlook & Guidance

Looking ahead, VAT Group anticipates a sideways market development in Q1 2026, with improvements expected in Q2. The company forecasts a book-to-bill ratio around 1 in Q4 2025 and expects higher sales, EBITDA, net income, and free cash flow for the full year 2025. With a revenue CAGR of 11% over the past five years and projected revenue growth of 18% for FY2025, the company demonstrates strong growth momentum. Capital expenditures are projected to be between CHF 70-80 million. For detailed analysis and comprehensive valuation metrics, investors can access the full VAT Group research report on InvestingPro, which includes expert insights and peer comparisons.

Executive Commentary

CEO Urs Gamzner expressed confidence in the company’s growth trajectory, stating, "We expect a record year in 2025 and also next year will be another record." He emphasized the company’s readiness for future growth, highlighting the conviction in the potential of the US$1 trillion semiconductor market by 2030.

Risks and Challenges

• Supply Chain Issues: Potential disruptions could impact production timelines and costs.
• Market Saturation: Increased competition in leading-edge technologies may pressure margins.
• Macroeconomic Pressures: Economic downturns could affect demand for semiconductor equipment.
• Regulatory Challenges: Potential US technology restrictions could impact operations in China.
• Currency Fluctuations: Changes in exchange rates could influence reported financial results.

Q&A

During the earnings call, analysts inquired about VAT Group’s strategies in the Chinese market and potential impacts from US technology restrictions. The company addressed these concerns by outlining its inventory and supply chain strategies, emphasizing its strong position in the semiconductor manufacturing sector.

Full transcript - VAT Group AG (VACN) Q3 2025:

Sandra, Chorus Call Operator, Chorus Call: Ladies and gentlemen, welcome to the VIT Q3 twenty twenty five Trading Update Conference Call. I am Sandra, the Chorus Call operator. I would like to remind you that all participants are in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.

At this time, it’s my pleasure to hand over to Urs Gamzner, CEO. Please go ahead, sir.

Urs Gamzner, CEO, VAT: Thank you. Ladies and gentlemen, good morning, and welcome to ENT’s Q3 twenty twenty five Trading Update Conference Call. With me this morning are CFO, Fabienne Jozza and Michel Gerber from Investor Relations. After my introductory remarks, we will have our regular Q and A session, and the call 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 six topics, on which I will elaborate in more detail during today’s call, are important when analyzing VAT’s performance over the last three 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 nine 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 two areas, while order activity in the semiconductor business remained muted.

The market conditions and our expectations have not changed fundamentally over the last three months. The rest of 2025 and at least the 2026 is still expected to be muted, but 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 result 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 nine months numbers before we share with you our expectation going forward. Let’s start with the orders.

Our third quarter orders amounted to CHF $238,000,000, 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 nine months ended in September 2025, we generated over CHF $727,000,000 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 15% 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 $258,000,000, down 9% sequentially as reported and down 6% on a constant FX basis. Year on year, however, reported sales increased by 2332% at constant FX.

For the first nine months of 2025, group sales amounted to CHF $815,000,000, 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 twenty twenty four of approximately CHF22 million, the year on year increase in sales would have been 12% for the third quarter and 20% for the nine 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 increased by 2911% sequentially and by 2018% 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 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 CHF145 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 VNC products to manage the expected future ramp in fab investments on short notice. Sequentially, orders and sales in the Semiconductor business unit were down 1317%, respectively. In the Global Service segment, Q3 orders were up 33% year on year and 9% sequentially, as fab utilization rates continued 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 hedge fabs, however, business remained subdued as low utilization rates of between 5070% 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 three 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 greenfielding at this stage. Yeti will only see a larger contribution from HPM once greenfield 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 led 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 105,000,000,000 and $110,000,000,000 and wafer fab equipment is forecast to achieve record levels in 2026 and 2027. As the undisputed marketed technology leader in vacuum valves, VAT is uniquely positioned to outpace the anticipated market growth in 2025 and beyond. In its high market share in leading edge applications, PAP expects to benefit extraordinarily from the upcoming more than 100 new fabs greenfield investments accompanying the ongoing technology shift. In addition, VLT 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 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 CHF70 million to CHF18 million.

As you have noticed, we no longer expect orders in 2025 to exceed the CHF 1,033,000,000.000 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 2025, we expect sales of CHF $225,000,000 to CHF $245,000,000. Now before turning the call over to the operator for the Q and A, let me share the impressions I got when attending SEMICON West in Phoenix last week. B and T 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 US1 trillion dollars semiconductor market by 2,030 has not been questioned by any of my contacts. Part of 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 €1,000,000,000,000 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 EDP in future chip generations. Over the next fifteen years, about 10,000 times EEP improvement is necessary to power the estimated semiconductor use.

This is about the same efficiency improvement as the one we have seen over the last fifteen 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 $1,000,000,000,000 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 two of our wafer fab equipment outgrow drivers. Leading edge technology will continue to see faster growth than the overall wafer fab efficiency spend and the overall percentage of vacuum related investment 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 VETI than in 2025. With that, I’d like to hand over to Michel and the operator for the Q and A.

Michel Gerber, Investor Relations, VAT: Thank you, Urs. We’ll now start the operator to assist the Q and A session. As a reminder, like every quarter, please limit your initial questions to two to allow the other callers who wish to ask questions to do so as well. Follow-up questions may be possible later in the Q and A should time allow it. With that, I will hand over to the operator, Sara, for the first question.

Sandra, Chorus Call Operator, Chorus Call: Thank you. We will now begin the question and answer session. Questions. Our first question comes from Meihang Yang from Goldman Sachs. Please go ahead.

Meihang Yang, Analyst, Goldman Sachs: I just have two questions. So first of all, on your comment on China. So 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?

Thank you.

Urs Gamzner, CEO, VAT: Yes, as pointed out, China is a very dynamic market, but in 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 OEM. And yes, of course, lithography is a critical application and they benefited quite a bit in the last years. So 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 would go down. But it’s mainly driven then or mainly impacted for the Western OEMs, so that domestic OEMs will grow China where we keep very high share.

Meihang Yang, Analyst, Goldman Sachs: 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?

Urs Gamzner, CEO, VAT: Yes. So the OEMs, our customers feel domestic, the Chinese OEMs will win more share in the overall base of battery treatment in China.

Meihang Yang, Analyst, Goldman Sachs: 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 twenty twenty six story. How worried about you are in terms of the latest U. S.

Restrictions on the foreign memory OEMs expansion in China?

Urs Gamzner, CEO, VAT: I’m very happy if the memory expansion will start because memory expansion means they will need a lot of step on 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 has always been a good field for BAT 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 anytime there is way to have equipment and expansions, the team will benefit.

Meihang Yang, Analyst, Goldman Sachs: Thank you very much. Very clear.

Sandra, Chorus Call Operator, Chorus Call: Next question comes from Sebastian Kunle from RBC Capital Markets. Please go ahead.

Sebastian Kunle, Analyst, RBC Capital Markets: Hi, good morning. Yes, I have a follow-up on China as well. Could you give us maybe the split between the business you do with global OEMs and Western OEMs? Because if you see overall China going down next year, but your 35% direct sales to go up, then the business you do indirectly with Western OEMs must be collapsing in that category. So maybe you can give us a bit a little bit.

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 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.

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

Sorry

Sebastian Kunle, Analyst, RBC Capital Markets: 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?

Urs Gamzner, CEO, VAT: There’s no Western OEM. So it’s 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 that the

Sebastian Kunle, Analyst, RBC Capital Markets: 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.

Urs Gamzner, CEO, VAT: Yes. Definitely. Okay. Thank you. And then on margin, sorry.

Michel Gerber, Investor Relations, VAT: Sebastian, Fabian speaking. Good morning. You’re right. In the first six months, we had a line EBITDA of 29.6 percent 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 two key drivers that do help: A, on the personnel expenses, which usually has 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.

Sebastian Kunle, Analyst, RBC Capital Markets: So how big is the risk that you dropped below the 30%? Or is there are you confident to be above the 30%?

Michel Gerber, Investor Relations, VAT: I usually don’t go into too much detail of the P and L and in the Q3 trading update. What I can say is at like for like basis, mostly constant FX, I’m confident that we will reach the communicated level by the end of

Sebastian Kunle, Analyst, RBC Capital Markets: Okay. Understood. Thank you very much.

Urs Gamzner, CEO, VAT: Thank you.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Jorn Ifert from UBS. Please go ahead.

Jorn Ifert, Analyst, UBS: Thank you, and good morning, everybody. The first question would be, please, on technology trends. Is there anything happening out there which could be adverse to the VAT prospect? Like, for example, you have a higher DSO share for DRAM or also that machinery for etch and deposition is merging. Is there anything you would have in mind here?

Let’s start with the first question, please.

Urs Gamzner, CEO, VAT: Yeah. No, Jaron. The technology shift is certainly something that is helping DET. By the way, it is the opposite. It’s not going in a way.

It’s more and more going into back. And for example, with the advanced packaging as a quite a growth driver, just during semi convection that new tools launched and tools also need more vacuum than in the past. The litho share is not increasing. 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 and in EUV and I think more EUV will come now going forward as well. This is also help EUV means vacuum related tools and EUV means non vacuum tools. So I don’t see adverse that should movements, but still, but we communicated also during our Capital Markets Day. More leading edge means also more vacuum related tools.

So this should fuel our story.

Jorn Ifert, Analyst, UBS: Okay. Thanks. And then second question, maybe also a product industry question. But from your perspective, what you heard on the silicon 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 Mark Vilgins, 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, higher average bank price should indicate that really supply is tight, which is not the case.

Michel Gerber, Investor Relations, VAT: Excuse me. This is Steve Borreza speaking. Yes. Yes. Yes.

Yes. Sorry.

Sebastian Kunle, Analyst, RBC Capital Markets: We had a very quick issue here.

Urs Gamzner, CEO, VAT: Your question that goes around the pricing, DRAM NAND pricing versus the lower capacity utilization. Is that correct?

Jorn Ifert, Analyst, UBS: Yeah, exactly. Look, mean, because the average selling prices which went up materially for DRAM and NAND would indicate that supply is tight, that there’s not enough supply currently. But at the same time, it seems utilizations, 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?

Urs Gamzner, CEO, VAT: 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 if they and new technology is coming out, they are becoming more and more of a single sources in such technologies and this might have also an impact on the pricing. But other than that, it’s just also, I guess, I have in during semicon, we were less discussing things like that. So for us, lot of discussions go around this, how can we solve the industry or the AI problem, our upcoming problem.

The power consumption, that’s huge. And to have a 10,000 times 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 that’s about the Tier one NAND pricing.

Jorn Ifert, Analyst, UBS: Thank you very much.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Menon Genarde from Jefferies. Please go ahead.

Menon Genarde, Analyst, Jefferies: Hi, good morning. Thanks for taking my question. I just wanted to ask you 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 you’re slightly more bullish or optimistic about orders in Q4 and the book to bill will go about one. 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 2026. In your discussions in the last, say, five, six weeks, including at Saigon 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?

Urs Gamzner, CEO, VAT: Thank you for these two questions. Let’s start with just the second one. Definitely, wafer fab equipment overall is always a very good proxy for VAT orders have 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 off of the 20%, but maybe around the 5%, 67% growth next year.

And the shift is very important that we see it 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 gradual improvement towards then a record year by 2026. So it is kind of the consensus, and it’s not only one customer. So I think this was kind of everybody sees the development the business in 2026 like that.

And underlying, of course, it’s not only this 1,000,000,000,000 story, it’s mainly the fabs that are built and they need equipment going forward. To your first question for the very short view on Q4, I think I can confirm that we expect the book to bill around one for Q4.

Nate Lavage, Analyst, Octavian: And if I might have

Menon Genarde, Analyst, Jefferies: 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, etcetera? Is that possible? And will the orders come in strongly through Q1, Q2, Q3 to get you to that growth trajectory?

Urs Gamzner, CEO, VAT: Yes. This is our expectation that the orders will come in late Q1 than Q2.

Menon Genarde, Analyst, Jefferies: Understood. Thank you.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Daniel Shafai from Citigroup. Please go ahead.

Michel Gerber, Investor Relations, VAT: Hi, good morning. So 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?

Urs Gamzner, CEO, VAT: Thank you for that question. So inventory levels with our large customers are well under control. So we have consignment with most of the large customers. So we have a weekly alignment and adjust here inventories based on the market outlook. China, as I mentioned before, China is a little bit different story.

They are competing in a growth mode and that they have to expand their portfolio quite a bit. 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

Michel Gerber, Investor Relations, VAT: is

Urs Gamzner, CEO, VAT: a tendency that, of course, there is a 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 it’s a very volatile environment at the moment in China. Every of these customers want to fortify 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 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 there’s no sign reduction. It’s 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, convinced on that.

Michel Gerber, Investor Relations, VAT: Okay. Thank you. 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.

Sandeep Deshpande, Analyst, JPMorgan: The

Sandra, Chorus Call Operator, Chorus Call: next question comes from Craig Abbott from Kepler Cheuvreux.

Craig Abbott, Analyst, Kepler Cheuvreux: Yes. Good morning. 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. Thank you.

Urs Gamzner, CEO, VAT: Yes. Everybody hopes that tariffs, of course, will be changed and go down, and 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 half year, it was it’s even been 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. Meanwhile.

Michel Gerber, Investor Relations, VAT: Craig, let me maybe complement that. So we have seven percent 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.

Craig Abbott, Analyst, Kepler Cheuvreux: Okay. Thank you. 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.

Michel Gerber, Investor Relations, VAT: It was the first, not the latter. So that is due to FX.

Urs Gamzner, CEO, VAT: The

Sandra, Chorus Call Operator, Chorus Call: next question comes from Didier Shevarma from Bank of America. Please go ahead.

Michel Gerber, Investor Relations, VAT: Yes. Good morning. Thank you for taking my questions. We’ve got two, if I may.

Urs Gamzner, CEO, VAT0: First, high level question. So we think NAN, WFE, this year is up 75%. I think that’s quite clear from from Lam Resource in particular. Think it’s one of your important customers. But not exclusively, next year, we predict it’s gonna go up another 20%.

So how do you reconcile those comments you made earlier where site utilization are 60 to 70% in NAND? You one of your top customers clearly growing, you know, very strongly this year with NAND WFE or NAND upgrades. I 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.

Urs Gamzner, CEO, VAT: Well, the big delta here is that on this NAND upgrade from this great U. S. Customers with a high share in the NAND. They do upgrade, and it’s not a vacuum related system. So they do upgrades, but there is no vacuum system involved in these upgrades.

Okay. 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.

Michel Gerber, Investor Relations, VAT: Okay. Interesting. Thank you. The second question on China. I think it

Urs Gamzner, CEO, VAT0: was a question that, you know, was mentioned earlier, I’m a bit surprised by what you said. You said, China, 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?

Urs Gamzner, CEO, VAT: No. Sorry, if this was not clear enough on that. But the overall China business for BAT is 35%. So 35 of BAT business, not only semi overall, goes into directly into China. And then we estimate that through the 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 exposure to China. But direct and this is what we can calculate or see in our books. Direct business in China is going to 35% with Chinese customers.

Urs Gamzner, CEO, VAT0: That’s weird because Lam, Emat, Tel, all these companies have got China exposure around 30 to 40%. How can it be only 10% for you?

Urs Gamzner, CEO, VAT: Well, it’s our estimate on on, of course, what’s our what the share of wallet on these tools, what is going into China.

Urs Gamzner, CEO, VAT0: Okay. Alright. Thank you very much.

Urs Gamzner, CEO, VAT: And then, of course, there is also a sales portion in all the businesses as well. Yeah. No. Makes sense. Thank you.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Martin Jungfleisch from BNP Paribas. Please go ahead.

Urs Gamzner, CEO, VAT1: Yeah. Hi. Good morning. Just another follow-up on China, please. Sorry about that.

I think at H1 results, you mentioned that you would expect China to grow four percent 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.

Michel Gerber, Investor Relations, VAT: Yes. I can take that question. We do expect roughly the same growth rates also into next year,

Urs Gamzner, CEO, VAT2: so there is no change.

Urs Gamzner, CEO, VAT1: Okay. And the second question is really on the Q4 guidance. I mean, do you expect revenues to be broadly down 10%? If you assume flattish development in ADV and services, I think this would imply semi valves to be down 15% sequentially. Is this some of the correct assumption?

Are there some other moving parts in services or ADV as well?

Urs Gamzner, CEO, VAT: And can you say it again, please?

Urs Gamzner, CEO, VAT1: Regarding some yeah. You’re guiding q four revenues down 10% broadly. Right? And 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 ADV as well for the fourth quarter?

Urs Gamzner, CEO, VAT: Yes. And it’s Andy, he talks about right. With ADV, of course, it always can be also project business in one quarter or move to the other quarter and have that kind of an impact. But I think your assumption is about right, yes.

Urs Gamzner, CEO, VAT1: 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 or would you consider the backlog now to be more or less normalized?

Michel Gerber, Investor Relations, VAT: We are working down the backlog and with the earlier comment that Urs made on the expected book to bill, this will then also be replenished accordingly. The

Sandra, Chorus Call Operator, Chorus Call: next question comes from Nate Lavage from Octavian.

Nate Lavage, Analyst, Octavian: The first one, you mentioned that this weakness could continue or flattish sales going into at least Q1 next year. Now you’ve 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’d 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?

Michel Gerber, Investor Relations, VAT: Thanks. 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.

Nate Lavage, Analyst, Octavian: Okay. But it is a fair assumption that in Q1 next year, might be missing $50,000,000 If we go sideways and you have the FX effect, would that be a reasonable assumption?

Michel Gerber, Investor Relations, VAT: Year over year? Yeah. Year over year. Yeah.

Nate Lavage, Analyst, Octavian: Okay. And maybe then on my second question.

Michel Gerber, Investor Relations, VAT: Benesh, 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 2024. So you would have to normalize that out.

Nate Lavage, Analyst, Octavian: Okay. And on my second question, when it comes to the whole value versus volume debate, I mean, clearly, percent to 75% utilization rates are not gonna change overnight. And when I look at some of these projections for how many chips you need for one gigawatt expansion, we get to maybe half a million whilst the smartphone sales are really above the billion. So, you know, 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?

Urs Gamzner, CEO, VAT: Yeah, so a good question here. I think what we also mentioned is that in the leading edge, the utilization rates beyond already 90%. And there if you come well with how much chips will be needed for also and the 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 notice not only the demand HBM.

It’s also very important, but the shortage, not yet the shortage, but the main 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 a cap really positive that these investments will come. And also during SEMICON West, several clear statements that what is now in planning fact, it’s not enough. It’s not yet enough to come to this $1,000,000,000,000 by 02/1930.

So there must be this investment ship coming. Also the hyperscalers, they committed to these investments. So there’s a lot of positive signs. It’s always challenging in

Michel Gerber, Investor Relations, VAT: the short

Urs Gamzner, CEO, VAT: term. But in the long run, I think all the vectors show that this is going to happen.

Nate Lavage, Analyst, Octavian: Okay. Thank you.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Michael Firth from Vontobel. Please go ahead.

Michel Gerber, Investor Relations, VAT: Yes. Hi. Good morning, gentlemen. 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 retrofits? And how do you expect that to develop in the coming two 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

Urs Gamzner, CEO, VAT: Thank you for this question. So coming to the Global Service, I think the big change and the growth we had in spares and repair and in the retrofit business, it was a big growth. And of course, with utilization rate going up, then also the consumables part like the gates is also picking up quite a bit. So that’s kind of where we have seen the growth. So your second question is on this energy efficiency.

So this is all around this gate, all around stories or this new since ten, twelve years, there was the FinFET transistor now in the market and getting even though 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 the first smartphones. And here to produce these new chips, there are more than 2,000 steps required.

And a lot of them are these leading edge step like the ALD, ALD or special edge applications and new tools are required. So the processes are becoming much more complex. So chamber chamber matching is something that must be faster, more so 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 we’re going into the cryo temperature as well. So it’s a lot in the move from a technology side where VAT as a component and subsystem supplier support the industry to overcome all these challenges.

Michel Gerber, Investor Relations, VAT: Okay. Thank you. And maybe just one word on the outlook for the services business.

Sebastian Kunle, Analyst, RBC Capital Markets: Our service business is in

Urs Gamzner, CEO, VAT: the long run, of course, set for growth. The more valves are in the market, more than kind of our 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.

Michel Gerber, Investor Relations, VAT: Okay. Thank you.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Sandeep Deshpande from JPMorgan. Please go ahead.

Sandeep Deshpande, Analyst, JPMorgan: Yeah. Hi. Can you hear me?

Urs Gamzner, CEO, VAT: Yes.

Sandeep Deshpande, Analyst, JPMorgan: Yes. Thank you for taking my question this morning. My question is about supply and the lead times. I mean, you are indicating that you think that the 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, etcetera, do you see any issues for you involved with rare earths?

Urs Gamzner, CEO, VAT: Okay. That’s an interesting question on supply chain. So certainly, we had in the past year, so during COVID when the ramp was coming and all the shortages in material, elastomers, aluminium,

Michel Gerber, Investor Relations, VAT: there

Urs Gamzner, CEO, VAT: were shortages everywhere. This is solved now. So we came down to lead times to four to eight 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 reverse, that’s not something is material to us, so yeah, fortunately.

Sandeep Deshpande, Analyst, JPMorgan: Thank you.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Tim Schultz Emilander from Roche Linco Redburn. Please go ahead.

Urs Gamzner, CEO, VAT: Yeah. Hi, there. Morning. Thank you

Urs Gamzner, CEO, VAT3: for taking my question. 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 then this inventory adjustment, and you talk about bookings inflection in sort of Q1, Q2, I’ve got a two 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.

Urs Gamzner, CEO, VAT: Okay. Thanks for that question. There is no buffer stock anymore from this previous from last year. So this is sold out executed. On the debt and hedge, so as I mentioned, we had consignment agreements with our large customers.

And then of course, we see what is in the pipeline. So it’s not always related then to the debt and hedge. I think it’s more related to individual customers. And of course, I cannot talk about that in more detail.

Urs Gamzner, CEO, VAT3: Okay. But so this is not by this is not concentrated in etch or PVD or some, you know, some CBD, PECVD application. This this is across the board, DEF and etch, with maybe some concentration by a customer, which, for understandable reasons, you you you you can’t discuss. Is that broadly the right way to think about this?

Urs Gamzner, CEO, VAT: Yes, just think about how the architecture is such a tool. It always needs a vacuum system with a lot of valves to stop down and when and transfer of wafers. And the architecture is kind of similar to a deck on an edge tool. And it is now even more obvious with the new tools, if you are following that. So in the past, there were a clear tech tool, a clear edge tool.

Today, is all consolidated in one platform as well. So they have chambers on that edge and other ALD and they just mix that up at all. So to follow then actually on which application and which tool our products will end up.

Urs Gamzner, CEO, VAT3: Okay. All right. And then on the factory space, you just talked about Malaysia, talked about Romania. Just as you go through the next two, maybe three 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? Many thanks.

Urs Gamzner, CEO, VAT: So far, our Malaysia factory is set up for high volume manufacturing, especially for the semiconductor business. So we have 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. So 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 weldings out from India to our factory in Switzerland and also from Malaysia.

Then it is in Switzerland, we keep 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 high volume in the future.

Still today, we produce it out of Switzerland. We do here all the qualification optimization on the innovation part before we find a new home for the production of this high volume valve. Very helpful. Thank you very much.

Sandra, Chorus Call Operator, Chorus Call: The next question comes from Oliver Wong from Bank of America. Please go ahead.

Urs Gamzner, CEO, VAT4: Hey, good morning, guys. Thanks for taking my question. 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 have any contingency plans or any planning around your policies related to that?

Thank you.

Urs Gamzner, CEO, VAT: Yeah, 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 have no impact on our products. So we were also, of course, we will be compliant whatever will come up.

So we are in close contact here also with our Swiss regulators. But so far, our products, well, products are not deemed for any sanctions.

Menon Genarde, Analyst, Jefferies: Thank you.

Sandra, Chorus Call Operator, Chorus Call: The last question for today’s call comes from Nigel Van Putten from Morgan Stanley. Please go ahead.

Urs Gamzner, CEO, VAT2: Hi, good morning. Just a quick follow-up on sort of the expectations of orders into the second half. You’ve also certainly picked up on, I think, it’s one 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 would be my first question.

Urs Gamzner, CEO, VAT: Yeah. So the feedback is not only from Juan. 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 these edge step and tools, leading edge tools for new fabs and that’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 gaining momentum for self sufficiency, try to increase self sufficiency rate. So they behave a little bit different, but all the rest of the world is quite similar.

Urs Gamzner, CEO, VAT2: Got it. Yes, actually my second question was similar around 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 by the major memory makers, but then also there’s the potential for them to go and invest more aggressively. Could you talk to the range of possible outcomes when you sort of see the China market as we 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. Thanks.

Urs Gamzner, CEO, VAT: Of course, here we have the same numbers as from the market intelligence out there. So China wafer fab equipment certainly was growing quite a bit. And then the last year is 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 it’s

Michel Gerber, Investor Relations, VAT: a mid

Urs Gamzner, CEO, VAT: high single digit growth in the next year as well. But I think even more important is 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 timeline of their self sufficiency rate going forward.

So we have to be very close to these markets, the investment market, but also the Chinese market to react very fast and 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 35,000,000,000 to €40,000,000,000 in China probably will remain on that level. But as I mentioned before, for D and T, for us, it’s important and interesting that the domestic portion of the wafer fab is growing.

Urs Gamzner, CEO, VAT2: Got it. Yes.

Sandra, Chorus Call Operator, Chorus Call: Ladies and gentlemen, that concludes today’s question and answer session. I would now like to turn the conference back over to Urs Kantner for any closing remarks.

Urs Gamzner, CEO, VAT: 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 03/03/2026 for the presentation of our full year 2025 results. Thank you, and have a great day.

Sandra, Chorus Call Operator, Chorus Call: 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.

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