Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported August 5, 2026 · Beat 7 of last 7 quarters
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MKS's strong results and guidance underscore the accelerating AI-driven investment across semiconductor and advanced packaging, with the company's foundational technologies in vacuum, plasma, power, and chemistry deeply embedded in leading-edge processes. The doubling of Guangzhou capacity and expansion of Malaysia supercenter signal sustained demand for advanced PCB and semiconductor manufacturing capacity, reinforcing the AI infrastructure buildout thesis. The company's visibility extending through 2027 in chemistry equipment and strong order activity across semi and E&P indicate multi-year growth tailwinds.
MKS reported Q2 revenue of $1.25B, up 16% sequentially and 28% YoY, with all three end markets exceeding expectations. Semiconductor revenue grew 28% YoY, driven by broad-based strength in deposition and etch, including RF power for NAND upgrades and vacuum subsystems. Electronics & Packaging revenue grew 44% YoY, led by chemistry equipment, which saw the strongest demand ever, and strong flex PCB drilling sales. Specialty Industrial revenue grew 14% YoY, driven by datacom and defense. Gross margin was 47.6%, including about 100bps of discrete benefits, and operating margin expanded 480bps YoY to 25.6%. The company generated $188M of free cash flow and made a $100M term loan prepayment, reducing leverage to 3.0x.
Management guided Q3 revenue to $1.35B ± $40M, implying continued strong sequential growth and further acceleration in YoY growth. Semiconductor revenue is expected to be $630M ± $15M, representing over 50% YoY growth, driven by broad-based strength across the portfolio. Electronics & Packaging is guided to $385M ± $15M, up over 30% YoY, with AI-related investment partially offset by flex equipment seasonality. Specialty Industrial is guided to $335M ± $10M, led by datacom and defense. Gross margin is expected at 47% ± 100bps, with operating margin expanding to 26.3%. Management highlighted capacity expansion, including doubling the Guangzhou chemistry equipment factory (online Q3 2027) and the new Malaysia supercenter, and noted visibility extending through 2027 in chemistry equipment. They expect continued operating leverage and remain committed to deleveraging, with $100M quarterly term loan prepayments and potential additional payments in Q3 and Q4.
“Our chemistry equipment demand is easily the strongest it has ever been, supported by AI server investments, including optical modules. Our visibility now extends through 2027, and to meet this growing demand, we recently announced we are doubling the capacity of our Guangzhou equipment factory.”
on Chemistry equipment demand and capacity expansion
“We are planning to make sure that we're not the constrained. Lead times right now for us are still kind of normal, so we're executing really well given we're already a couple of quarters into the ramp.”
on Supply chain and capacity readiness
“We are bursting at the seams, but we've been able to take every order that our customers needed. And so that's really an area where we're pretty happy with our capacity plans.”
on Capacity utilization in chemistry equipment
Can you update us on what the NAND upgrade cycle looks like and how that bridges to greenfield projects?
John Lee noted that NAND upgrade activity is expected to continue and can be lumpy. Greenfield fabs are expected to come online towards the end of 2027 and beginning of 2028, which will be even better for MKS's power and other portfolio products. Between now and then, continued upgrade activity is expected.
Can you give us an update around the ramp-up of Malaysia capacities and are you still comfortable with the $180B to $200B of WFE that you can support?
John Lee said Malaysia has started ramping with first revenue shipments occurring. They reconfigured plans so that when Penang is filled out, they can support WFE in the $200B to $250B range, an incremental improvement from last quarter. They also announced doubling capacity at the Guangzhou chemistry equipment factory.
How much of your quarter-over-quarter decline into September is a result of E&P chemistry weakness? And are you expecting palladium to be a tailwind or headwind to gross margin?
Ram Mayampurath said palladium is expected to stay flat at about $1,300. Q2 gross margin of 47.6% included about 100bps of discrete items, mostly tariff refunds. Excluding those, GM was consistent with prior quarters despite investments for growth. Mix is unfavorable and will remain so as VSD and chemistry equipment ramp, but these are good problems as higher VSD means higher operating income.