Okay. Ladies and gentlemen, Grüezi miteinander. My apologies, these are the notes that Urs will be using when he's on stage. Also from my side, welcome again here to our new Innovation Center in Haag for the Capital Markets Day 2025. I understand it has been an eventful morning with factory tours, service center tours, innovation center, apprenticeship center. All the tours took a bit longer than we anticipated. I hope you still got a glimpse of what we are doing here. Of course, if you feel that some of the sessions were short of your expectations, feel free to contact either Chris or myself after this, and we can always arrange a second tour, at least for those who are relatively nearby.
For those who come from a bit further away, whenever you are in the region, you're always invited to visit us here, and we can go a little bit more into details. Today, this afternoon, we will go through a couple of presentations. It will not be extensively long. It will be on the strategy of VAT, how we see we will drive our growth in the five-year period from 2025 to 2029. You have seen the media release. Some of you, I see, have already the presentation in front of you. Also, a little bit of chaos here. We have used a local printer because we are also kind of like looking for the people around us, not only as an employer, but also as kind of like as a customer.
There was a little hiccup, but there will be enough presentation printed out also for you over the course of the day. I see there is still some left on the tables there on the back. For those who then do not have presentations at the moment, as soon as they will arrive, the remaining one, we will distribute those to you as well if you want to take notes. Today, you will probably take the notes on your tablets and PCs on the PDF directly. A quick, let's say, for the security, we are not planning to have a training exercise with an alarm or anything this afternoon. If or should there be an alarm ringing, you can assume that really something happens. We then ask you to follow the exit signs, which are like in the airplane on the right and on the left of you.
Then down the stairs, there is a point, a gathering point for those of you. Now we have the blinds down, but it is here on this side of the building. It is a green sign. We ask you to gather there. We will then, of course, also have our security personnel on the ground to help you. If there is an alarm, please leave the building in an orderly fashion along the exit signs and down the stairs. Do not use the elevator. We will also, and there will be a slide, but we will not read that. You know that, the forward-looking statement. Anything we say today, we use terms like estimate, expect, and so on. You can read that on your leisure time. It is there in the presentation as well.
With that, and then when we are done at 4:00 P.M., the bus will take you back to the airport for those who came in with the bus. We hope that the bus this time will stop at the right location here in front and not at the old headquarter address, but we made sure of that. Four o'clock for you guys who go back to the airport or back towards Zurich is the shuttle bus departing. That's all from my side. I wish you a good afternoon. Learn a lot. We have really a high level of speakers with the CEO, CFO, and our Executive Vice President of the Semiconductor Solutions Group.
What we also intend is to make deeper dives into the service and the advanced industrials business, maybe for an hour, an hour and a half, a webcast in the second half of the year and the first half of next year, and then maybe a next capital markets day in two years' time. With that, I will now hand over to Urs. No, hold on a second, Urs. I was mistaken. We first have a video, and after the video, you're on.
Welcome to the Capital Markets Day. Ladies and gentlemen, Grüezi miteinander. Welcome also from my side to our 2025 Capital Markets Day here in the Forum Horizon. Now the shades are down, but maybe you could see why it's called Horizon in our new Innovation Center in Switzerland. We officially opened this building, our new home, on May 1st, so you are among the first guests we host in this building. Also, a very warm welcome to all the attendees online. I'm excited to be here today together with my colleagues and update you on our very promising growth story. I will go short the introduction, and then I will elaborate on our market drivers, give you a few insights about our toolkit, why we are so successful in the market. Then Finn Felsberg will elaborate on our growth strategy and give you some exciting cases.
Finally, Fabian Chiozza will close with the financial outlook. You will learn today that VAT will outgrow wafer fab equipment up to two times. This is based on the technology shift and our share of wallet expansions. The semiconductor market will grow beyond $1 trillion by 2030. The emerging AI, artificial intelligent application, fuels the demand for computing, memory, and advanced packaging technologies. This technology transition requires more vacuum-related wafer fab equipment, and the more and more complex chip manufacturing processes need more leading-edge wafer fab equipment. You might recall our reported spec win since the IPO. Spec win is our forward-looking KPI to ensure growth. The technology transition I just mentioned will boost our latest generation valves and adjacent products into the market. I hope by the end of the day, you will have all the information you need to share my positive outlook.
Before we start the deep dive, let's pause a moment and get a taste of 60 years VAT, 60 years of vacuum valve history.
In 1657, Otto von Guericke pumped the air out of two halves of a sphere in Magdeburg, which have been known as the Magdeburg Hemispheres ever since. They were only held together by vacuum. Sixteen horses could not pull the halves apart. Von Guericke succeeded in creating a vacuum equivalent to about one trillionth of the atmosphere of a VAT valve for UHV applications. Many years later, but very close by, Siegfried Schertler was born in Vorarlberg. After studying mechanical engineering in Bregenz, he gained his first experience with vacuum technology. However, the applications were still limited, and he looked further afield. He was certain that vacuum valves would be an elementary component of future technological developments.
Driven by the enthusiasm of the 1960s, characterized by rock and roll and scientific leaps in development, he founded his own company without further ado in 1965, Cum Apparate Technik, VAT. He soon managed to acquire some land in Haag, surrounded by the picturesque hills of St. Gallen on the border with Liechtenstein. VAT researched, developed, and sold its first products, and it is still our home today. The first customers were quickly found. The Physics Institute of the University of Zurich, the ETH, but also CERN in Geneva, home of the largest and most powerful particle accelerator in the world, showed immediate interest. Our customers' needs were so urgent that our valves were delivered personally by a motorbike all over Switzerland. In the 1970s, the areas of application for vacuum technology continued to increase.
This led to further growth for the company, to over 1,000 valves produced annually and to sales far in excess of the rather limited research and aerospace budgets on which VAT had originally concentrated. Schertler wrote to his employees, "We can all be proud of our VAT because it is our joint success which has been recognized worldwide." In the 1980s, a new market began to develop. VAT was transformed from a research partner into an industrial partner. In order to secure its own supply chain, COMVAT was founded for the in-house production of parts that are essential for the particle-free use of valves. The digitalization of everyday life picks up speed. IBM launches the first personal computer in 1987. This is followed by cell phones and simpler household electronics, which further drove digitization and usher in the age of semiconductors.
Turnover and the number of employees grow in the same pace as the industry. Einen entsprechenden After-Sales-Service zu bieten, hat VAT eigene Tochtergesellschaften in den wichtigsten Industrieländern. Slowly but surely, manufacturing processes are moving into the nanometer range and require vacuum environments to ensure chip manufacturing processes take place in a controlled environment. VAT plays a key role in driving this development and launches the Monovat ceiling concept in 1988. The revolutionary ceiling system enables shock-free operation with low particle contamination. The 1990s mark the breakthrough of this new era, the era of semiconductors and the clean room. Semiconductor technology is the engine of the modern world, and two principles explain its rapid growth. Moore's Law states that the number of transistors in chips doubles every two years, enabling smaller and more powerful devices.
Rock's Law states that the cost of semiconductor production equipment doubles every four years due to increasing complexity. These two principles are important drivers for our growth. Auf besonderen Kundenwunsch erfolgt die Ventilmontage im Superreinraum Klasse 100. Hier können auch Partikelmessungen an den Ventilen gemacht werden. In 1995, we launched our Pendulum Control Valve series, which was specifically optimized for corrosive semiconductor and display processes. It quickly became a bestseller and still has a market share of over 85% today. In the early 2000s, the rise of consumer electronics, driven by the introduction of smartphones, laptops, and flat-screen televisions, led to an unprecedented demand for displays that revolutionized the market. With close ties to the industry, the next logical step was for VAT to enter the solar and display industry. VAT still holds a leading position in displays today.
With the integration of Romanian Sismec in 2008, we are strengthening our own supply chain. Everything is pushing towards the future. In the 45 years since the company was founded, we had grown to over 1,000 employees, generating sales of over CHF 300 million. Suddenly, in 2010, the founder Siegfried Schertler died at the age of 84. His house still stands on the site today, right next to the production facilities. The search for new owners began, and VAT was purchased by Partners Group and Capvis in 2013. Almost three years later, in March 2016, VAT went public, a sign that the new shareholder both valued our heritage but was also able to support our global ambition. In the years that followed, we continued to strengthen our market position through innovation and expansion into new markets such as China, Taiwan, Korea, Japan, Singapore, Thailand, and India.
With these new markets, we also developed new competencies, such as our own particle laboratory in San Jose, California. In 2023, we began construction of the new Innovation Center in Haag, Switzerland. VAT keeps on moving. Individual elements became modules, valves became advanced systems. Sixty years after our foundation, we can look back with pride on a market share of over 70%, 13 locations, and a team of over 3,200 employees worldwide. We are ready for tomorrow.
We are ready for tomorrow. Three weeks ago, VAT celebrated its 60th year anniversary in the big top of Circus Knie. It was a special honor to welcome, among many others, the employee number one, who manufactured and assembled the very first valve under the guidance of the founder, Siegfried Schertler. In the conversation with this gentleman, it became obvious where VAT's DNA is coming from.
From the beginning, our founder has focused on the uniqueness and quality of the technical solutions to surprise the customers and add value. The strategy paper from the early days is clear evidence of this. Now let's start into the markets, the market drivers. In today's Capital Market Day, we will focus mainly on our main market, semiconductor. We will give you a glimpse on the growth story in our service segment and the advanced industrial business. In the course of the next quarter, as Michel pointed out, we are planning to provide other short updates on these interesting fields. However, as reported in the full year results, two-thirds of our revenue is allocated to semi and related. Additionally, the majority of the 18% service business comes from semiconductor OEMs or the fabs.
VAT is an integral part of the electronic supply chain, providing critical components and systems to the wafer fab equipment OEMs. These are the companies providing the machines to the chip makers. The chip makers or fabs are therefore the effective users of our products. Collaboration with OEMs and fabs, but also critical material suppliers in the downstream, is crucial to be at the forefront of the technology. I'm sure you are familiar with these exemplary company names. It's just to recap where VAT is in the food chain. In the following slides, I want to guide you through some facts which will help you to understand the VAT growth story. The underlying drivers are the progression of digitalization, with AI fueling the demand for computing, memory, and packaging technologies.
Assuming a wafer fab equipment intensity of 15%, the total wafer fab equipment market will grow with a CAGR of 8% to $150 billion in the time where the semiconductor market surpasses the $1 trillion mark. When we are talking about outgrowing the wafer fab equipment market, there are three main factors to be considered. First, we are at the inflection point of a technology transition. The last 12 years, FinFET technology architecture was dominating the technology roadmap. In 2025, Gate-All-Around will be launched. Second, the manufacturing complexity is increasing. More precision processes, such as ALD, and more process steps require vacuum, such as lithography and more advanced packaging. The third, and the most important in my point of view, is our share of wallet on these leading-edge tools is typically up to two times higher based on spec wins in the past.
The total Wafer Fab Equipment forecast shows a CAGR of 8%. In general, Wafer Fab Equipment is a reliable indicator for VAT. Market consensus for 2025 indicates a temporary plateau at record level, but still at a record level. Nevertheless, we expect to grow in 2025 based on investments in logic. In memory, high bandwidth memory expansions and more layers in NAND will also add to the Wafer Fab Equipment demand. It is important to notice that there is a shift in the application split. In the past years, mature edge for China and non-vacuum lithography were dominant. This will change to more leading-edge vacuum systems. China will continue to invest and grow the self-sufficiency rate with domestic OEMs. Also, this is another growth pillar for VAT. Wafer Fab Equipment is a great proxy for our growth.
What is even more exciting and promising is that vacuum-related wafer fab equipment is growing with a CAGR of 12% compared to the 8% for the total WFE. To top that, leading-edge tools, where our share of wallet is highest, is growing with an even higher CAGR of 15%. Again, the drivers behind are node-size progression, the launch of Gate-All-Around technology, the increasing number of process steps, and with that, more vacuum processes. Now, I was mentioning quite often the Gate-All-Around technology and transition. Moving to smaller design rules is seen as one of the most important technology milestones in semiconductor manufacturing. It is less about the computing power, but the power consumption of the chips, particularly for AI applications. We need chips that consume much less energy. Since 2012, the progression of design rules has been based on the FinFET technology.
In 2025, there is a new era starting. It is expected that first consumer products will be equipped in this technology in 2026. The investment in fabs is happening this year, and the volume will grow over the next years. Of course, although this is only a start, Gate-All-Around architecture will be further developed, and even smaller node size will penetrate the market. This technology transition impacts both the number of process steps, which will increase by about 25%, and the design of the wafer fab equipment tools. More process steps mean longer processing times for wafers. Therefore, more chambers will be required, and the precision of the manufacturing steps must increase to ensure the yield. Just consider a fake number that a fab has 95% of a yield, and now they are adding 25% of process step.
If the precision of each step is not getting better, the yield will drop. In the end, cost. This means that more precise and more ALD, APTEX C, advanced edge, and EUV tools become more prominent in the manufacturing chain. All highly sophisticated processes that require high precision machines. Here, VAT technology with advanced valves and adjacent products play an integral part. Sometimes you also have to step back a bit and think, is there something out there that would make vacuum obsolete? The end market in consumer electronics asks for higher performance with no price increase and longer battery life, for example. This is driving the microchip architecture and manufacturing roadmap. As mentioned, new architecture is coming in. First, Gate-All-Around, and in 5 to 10 years, next generation will be CFET. These processes need extreme precision and vacuum helps to manage it.
Vacuum eliminates impurities and ensures a stable, repeatable process environment. It enables precise control, which is critical to maintaining process integrity. Chamber-to-chamber matching is essential to achieve required yield with low defect rates and the overall fab efficiency. For VAT, we say vacuum is not just supportive; it is essential to meet the industry's scaling and performance goals. We are playing in a fantastic market, and our niche is even outgrowing this fantastic market. I mentioned the way to the $1 trillion semiconductor. Wafer fab spend will continue to grow with a higher share of leading-edge and more vacuum-related machines. VAT will benefit from the technology transition. The wafer fab equipment mix is also in our favor, going to more leading-edge tools. This will turn into higher growth for VAT. Market dynamics are playing in our favor, but success in this industry is not automatic.
The question now is, why is VAT outperforming? What gives us the edge to grow faster than the wafer fab equipment market and deliver differentiated value? In this next chapter, I will walk you through the core elements of our so-called toolkit, the unique combination of technologies, capabilities, and way of working that position us to win. First of all, I want to show you the testament that our toolkit has worked since the IPO. Our focus on valves and vacuum technology paid off in huge market share wins. In semi, we reached a record high of 77% in 2024, and in the semi and related markets, we won 25 percentage points since 2015. What is the magic behind this outstanding achievement? I was struggling if I should continue in our stuff because it's our secret, right? I will share it with you.
As mentioned at the very beginning, already our founder was focusing on technology leadership and value for our customers. For us today, customer focus is not just a word. For us, it's an obligation. We are pure-play focused on the semi market and delivering solutions for all key applications and all key players in the market. We must be there where our customers need our expertise. We have to develop the next generation products by anticipating what will be required in the next technology node. Being the clear number one in the market, we must be ready for all our customers to ramp when the market is ramping up. At the same time, we must be very agile and flexible with our operating model. Our skills and know-how are not limited to our vacuum engineering and manufacturing competencies, but also to how to manage these cycles.
Let me guide through these four elements of our toolkit. Our customer focus started, as mentioned before, in the early beginnings. CERN in Geneva was, after the University of Zurich, our second customer. Until today, hundreds or thousands of valves support the fundamental research, providing groundbreaking insights into the basic building blocks of the universe. Researchers all over the world rely on their experiments on our equipment. As also shown in the movie, in the 1980s, VAT started to customize products for early semiconductor tools. With that, the functionality shifted from extreme high vacuum isolation to pressure control and high purity solutions. This slide highlights how customer centricity is embedded across all areas of VAT, from R&D to manufacturing, and from our global presence to the way we operate as a focused pure-play company.
This integrated approach ensures that every part of VAT is aligned around delivering value to the customer, not just with great products. This is, of course, the main reason why customers come to us, but also with reliability, responsiveness, and long-term partnerships. Our pure play in vacuum technology and our ability to customize products is at the core of the customer experience. VAT has built decades of trust with customers, positioning us as a preferred partner. This trust is rooted in a deep understanding of the applications, enabling these tailored solutions. Customization is one of the key strengths in our engineering teams, and strict firewalls between the different customers are a must. When I look back to my early interaction with customers 20 years ago, we approached the clients with specification sheets, and then we started with design. In today's complex environment, the collaboration is different.
Our customers expect from us that we invent ahead and guide them what they need for their application. In this way, we can reduce the customer's complexity, and the customer can focus on their core. Sustainability is also not an isolated topic in VAT, but it is done in close collaboration with our customers and suppliers. We are committed to contributing to the sustainability goals of the industry and our customers. Also here, a close correlation to the customer. We see it as an obligation for our planet and society, but also as another opportunity to differentiate and add value. Now, let's move to the second element in the toolkit: technology. Our R&D spend is increasing year over year and is focusing on the requirements for the semi customers. Also here, we are living the pure-play approach.
Our total spend in R&D is more than the valve sales of our competition. Our research activities focus on the high-value industry challenges, such as fast and precise motion control, advancements in sealing technology, from metal seals to PFAS-free elastomers. We explore physical behavior of particles in vacuum. We define ultra-clean requirements along the entire value chain, from the raw material to the installation of the product. At the very core, we expand our offerings from vacuum valves into integrated systems with additional functionality. All these activities turn into customer benefits, and we measure our success in our spec wins. These spec wins will secure our business and add big times to our growth. I'm happy to show you two examples of VAT's superior performance in our products. In our core technologies, we are constantly improving performance, and with that, we do enable the progress in semiconductor manufacturing technology.
On the left side, we see the development of actuation speed for one of our control valves technology, mainly used for deposition chambers. At the time when 200 wafer were used in the 1990s, speed was around 2 seconds. With the introduction of 300 wafer, it was improved to 300 ms, which is roughly the speed of the blink of the eye. For the latest generation, for example, ALD processes, we are on track to be 10x faster than this blink of the eye. The animation shows old versus new technology in slow motion. On the right-hand side, the improvement in purity is displayed. In 2012, when FinFET technology was launched, actually, that's the technology we are still using today, our valves were shedding one nanoparticle per closing cycle. VAT's expertise in advanced machining, cleaning, and material science improved particle performance by a factor of 1,000 since then.
Our valves today generate less than one particle every 1,000 cycles. These are the technologies and features that bring huge value to our customers' machines and act as the main barrier against our competitors. I pause a bit here and let you enjoy an animation showing an illustration of a vacuum system with many different VAT valves and adjacent products. There is no sound, so I do not sing, but I can maybe comment a little bit. You have seen the modules with a lot of transfer valves included. We have adjacent components as well. Here, the typical transfer valves. Transfer means the wafer is going into the system. It is like a door closing the door, and then it is in the chamber. It will pump down, and then there are transfer valves going into the process chambers. Typical isolation valve to isolate the pump.
Very small ones sometimes, also angle valves to bypass the flow. Sometimes they are integrated systems as well, so control the pressure and isolation in one valve. It's a typical adjacent product as well that we are also delivering heating and cooling plates, so heating up and cooling down the wafers. The wafer needs movement, so the motion component touching the wafer and moving it. Symmetrical flow valve to control a very precise pressure in the chambers. Upstream valves here to isolate very aggressive plasma. Another type of isolation valve, our famous 65, developed in the 1990s and made it kind of the standard in the industry. The third element in our toolkit is extremely important for VAT since it provides the resilience we need in our volatile market environment. Our proven flexible operating model has demonstrated that our profitability remains very attractive even in semi-market downturns.
Cost discipline, our Darwin program, strict protocols in market downs, and a high degree of automation build a foundation. We manage it through a flexible workforce with up to 25% temps in a peak, enlarging the best cost country sourcing and focus on IP-critical parts for in-house manufacturing, while 75% is outsourced. This all results with 67% in a very high level of variable costs. For our customers, I mentioned that it is essential that we can ramp when they need us. As the preferred partner in the industry, we have to be ready, and we have to invest ahead the cycle. 2025, this year, is kind of a completion year of our big investments in operations in Malaysia and Romania. Just next month, VAT will officially open the new plant in Romania.
With all the expansions, it is worth to mention that VAT is also committed to keeping Switzerland as a key location, not just for R&D and engineering, but also for production. Thanks to a high level of automation and a highly skilled workforce, we are well positioned to bring new cutting-edge solutions to market that meet the evolving needs of the high-tech industry. Today's infrastructure will allow VAT to grow beyond CHF 2 billion. We are ready for the growth with top-class manufacturing facilities. In a highly specialized industry like ours, technical expertise isn't just a support function, it's a strategic asset. We maintain an internal core competency program where our employees can learn and impact the technology roadmap in their field of expertise. There are two dimensions in this program: the technology dimension and the people dimension.
In the technology dimension, the lead experts align competency strategy annually with the management. The core teams drive the roadmaps on how to expand our competitive advantage, market leadership, and innovation. In the people dimension, the lead experts and our calibration board shape and influence VAT through community leadership. It ensures both transparency and consistent development opportunities for our experts to reach their potential. The Swiss apprenticeship model also acts as a differentiator for VAT, and we are participating since 50 years to this program. We train key roles we need to differentiate in the market and, meanwhile, even rolled out the program to our colleagues in Malaysia. In-house retention and development of skills is a crucial asset and acts at the same time as a barrier to entry into VAT's core markets.
In summary, our pure-play focus, the close end-to-end partnership with our customers, the demonstrated technology advantages, and the high flexibility with proven downturn resilience are the key elements in our successful toolkit. VAT differentiates through deep customer engagement, being present where and when needed, backed by 60 years of specialized expertise in vacuum technology. Continuous innovation and R&D investment enable advanced vacuum applications, increase spec wins, and support expansion into adjacent fields. VAT maintains agility with a 30% ramp-up capacity and robust cost control measures, ensuring resilience during market fluctuations. A strong internal competency network and apprenticeship program ensure skilled workforce and support long-term innovation. That is a summary of our toolkit. I have covered now the market drivers and the secrets of our toolkit, and now I want to hand over to Finn Felsberg.
He is our Head of Semiconductor Solutions Group, and he has the pleasure of presenting the growth strategy peppered with a few amazing success stories. Please, Finn.
Okay, let's come to our growth strategy. We have a clear profitable growth path ahead of us, and the foundation for our growth is our undisputed leadership in our core business with vacuum valves for the semiconductor industry, as well as for our advanced industrial markets. We will grow beyond that with profitable growth with products and services which are adjacent to our core valve business. This is not only limited to services and products; we also look here into adjacent markets, like for instance, advanced packaging, where today we have a very good foothold in already. Those areas, our core and our adjacencies, are the foundation for our growth in the short, mid, and long term.
However, we are already working on what's coming beyond that, so we look into complementing our portfolio with advanced products, with vacuum solutions in order to generate growth beyond the timeframe of 2030. I will not go into this in today's presentation since much of that is still very confidential. I'll tell you, while today we focus on the core and the adjacencies, there's much more to come beyond for the growth beyond 2030. Okay, let's go through the details of each area, and let's start with our core valve business. Our core vacuum valve business makes up more than 50% of VAT's group revenue today, and this will remain the same throughout the next years, throughout 2029. When we talk about our core, we talk about control valves, we talk about transfer valves, and we talk about isolation valves.
These are areas where we have a very strong differentiating position. We have talked about that intensively before. We deliver best customer value-add over the entire product lifecycle when we talk about total cost of ownership and performance. This has led or materialized to our dominating market position. Especially when you look into the leading edge, here our market share is above 90%, and this is because our customers rely on us as their innovation partner, developing their next-generation wafer fab equipment, going to 2 nanometer, developing Gate-All-Around processes, entering the Angstrom era, going down to an atomic level. As I showed before, our core valve business benefits from the big growth in the semi-industry and the wafer fab equipment growth. We also benefit from the increasing share of vacuum content.
Our business also sees growth based on the increasing number of steps and depth position and edge, which requires more chambers. On top of that, we see that we have the potential to outpace the market, and we are very confident to do that based on the spec wins, which we have achieved and which we have in the pipeline ahead of us to achieve a CAGR of about 15% plus over the next years. In 2029, our core valve business will also be more than half of VAT's group sale. Overall, we are very well on track with the spec wins here. When we talk about differentiation of spec wins, let me share with you an example, which is a success story which we achieved last year.
This is also a very good example, by the way, for our technology leadership, for our customer focus, but also for our global team's skills and capabilities. The display market is shifting from LCD to OLED. What you see here is an example of those huge manufacturing lines. This is the evaporation manufacturing part of that. This line is about 350 meters long, so this is really big. It uses more than 40 vacuum valves, more than 100 transfer valves, more than 300 pendulum valves. Here we use the same technology as we use for our semiconductor valves, but as you can imagine, at much larger dimensions. Now, as the OLED display technology for tablets and mobiles goes to the next generation, we also see, of course, increasing requirements on these evaporator manufacturing processes.
We work very intensively with the market leader who's producing these manufacturing equipments. We work very closely with them, co-develop with them their next-generation manufacturing line, really stretching the capabilities to the edge under very high time pressure, and we made it a success with them together. That was a great success story for us last year. As a very common pattern also, such a spec win is also the foundation for further spec wins to come because with the same customer, more business follows, and other following customers also follow, and we generate spec wins with them. The OLED segment is a nice driver for us in the display. We see that we have the growth here of more than 20% CAGR over the next couple of years.
In the overall display business for LCD and OLED for our vacuum valves, we see the potential to have a market share of more than 70%. Let me give you an overview of our adjacent growth plan, and this has, of course, a target, as I said before, to increase our share of wallet in the semi-wave of hub equipment. The adjacencies fall into three categories of highly spec products. This is, first of all, the advanced modules. Here we talk about bundling our core and adjacent products in subsystem solutions like transfer modules or load locks, which we deliver to our customers not only to increase more value, but also to help them to outsource complexity as they need to focus on their core. Second, motion components. Here we talk ab`out pin lifters and shutters.
This is an area where today the market is supplied with suppliers who do not have a semi-focus. Also, to a large extent, still the OEMs do developments themselves. Here we are in a position with our clear focus on semiconductor to develop very dedicated optimized solutions, which help to optimize performance, which help to optimize cost performance at the customer, at the same time also help them to outsource complexity. The third product family I will talk about here is a big highlight. It is our ALD Inlet Valves because it is our first product family going into precision delivery. This works very well in the market, so we have shipped the first productive units and quite a number last year to a leading ALD customer. There is more to come in terms of spec win with this customer and also others as we go wider here.
When we look at the growth perspective for our adjacent business, of course, coming from a much smaller basis, we see a strong growth potential over the next years with a 25% CAGR, so that we see the potential that with our adjacencies, you could come up to almost 20% of our group sales. Very nice development here. As we talk about increasing our share of wallet with adjacencies, I would like to share with you the next video.
Okay, let's move on. Let's talk about our service business. The revenue for our service business mainly comes from gates and consumables and upgrades and retrofits and to a smaller part from repairs. Here we have the advantage which we can leverage, and this is a huge and growing installed base of VAT vacuum valves out there in the field.
We talk about 1.7 million VAT vacuum valves as a basis to leverage our service business. Here our customers also rely on VAT because we have the quality standards which we deliver to them very close to their sites through our service centers, which are globally distributed close to our customer sites. Another leverage for growth which we see here is upgrades and retrofits, and I will talk about that a bit more on the next page. However, we see also here that we gain market share, more than 30% compound growth, and here also potential to grow our sales for services to keep it on the 18%-18% of the VAT Group sales. What is important for our service business, and this is important for us, for our business as an important pillar, is that it ends end-to-end value chain offering to our customers.
We talked about the increasing base, the growing market, and here, of course, this is what we use to leverage the core spare parts, repairs, gates, consumables, and upgrades. Of course, when we talk about service business in the semi-industry, it's a volatile business since the demand here correlates with the utilization of the wafer hubs. That is part of the nature of the business. What is attractive for us in that field as well is doing retrofits and upgrades because this gives a chance to really create value in the later product lifecycle, also replacing competitors. Now, with the increasing requirements on sustainability, we help our customers to fulfill their sustainability targets, also with dedicated retrofits and upgrades to reduce emission resource consumptions and reduce the usage of elastomers. That is for sure also leverage.
There is a huge base of installed chambers out there in the market which will benefit from the sustainability trend. As a last part, I would like to talk about the advanced industrial markets, which is a nice growth field for us, a very profitable one. Here we make use of existing semiconductor products and technologies, which we use to address very attractive market segments in this industrial market. With this also, VAT remains at the front-footed position to make sure that we also capture the next big thing, like semiconductor was 40 years ago. It is also important for us because it helps us to keep out competitors which come up from the side. Here with this very focused strategy, we focus on large accounts directly, and we leverage the broad customer base out there to go wide, wide distributors.
With this focused strategy, we are confident to also outgrow the market with 12% CAGR. Let me give you a bit more details about the advanced industrials market. We see five segments. First, research, which is attractive for us because it gives us early access to innovation and emerging technologies. Scientific instruments, which is the solid baseline with repeating orders as a business, so less on the project side. Coating, here we have strong differentiation where we talk specifically about optical coating, which we can then very nicely cross-sell into the wider part of the portfolio. When we talk about targeted industries, for sure currently silicon carbon is a big topic, but here it goes into various general industries. The last one, power generation as an attractive long-term growth field. Of course, we talk about solar, fusion, and nuclear enrichment.
Yeah, to conclude, our profitable growth story continues. In the core, again, this will remain a big part for us, more than 50% of our group sales today and tomorrow. With our strong technology leadership position, with our market leadership position, we are confident that we are going to grow with 15% CAGR and outgrow the market. We are going to expand our share of wallet with adjacencies and semiconductors. Also here, leveraging our technology and market access to more evolve into the vacuum system sphere, going more into the system area. There we see the biggest growth with more than 25% CAGR. Finally, the further growth with global services and advanced industrials services, leveraging the large installed base, which is out there doing retrofits and upgrades, also leveraging the need for higher sustainability targets.
This gives us here a growth potential of 14% and 12% for advanced industrials, where we target profitable, attractive non-semi-market segments.
Thank you very much. That is all about the growth strategy. Now, Fabian will take over with a financial outlook.
Good afternoon and welcome again to all of you here at our new innovation center, and also a warm welcome to the ones on the webcast. I have the good fortune of working with the VAT team for more than four years now. The past two and a half years since our last capital market day have been very exciting as we have further transformed the company to harness our exciting growth story ahead. Earlier, you heard Urs outlining the strategy and differentiation points, and Finn discussed our leadership position in semi and some highlights of our service and advanced industrials business.
During our time together, I would like to review our track record of financial performance, our growth focus approach to capital allocation, and finally, the cornerstones of my agenda. Let's begin with a recap of our business unit's growth ambitions. Our semiconductors business is set to grow more than 15% on core valves. We are intending to increase our market share to about 85% by 2029. Our adjacencies business is growing by more than 25% towards a 20% overall share on SKU to leading-edge chips and spec rate of last years. Our global service business is constantly increasing its installed base, driving growth in consumables, upgrades, and retrofits. With a CAGR of more than 14% over the five-year period, we are expecting to increase our market share in services beyond 60%.
This comes at a very accretive margin profile where we expect to leverage about three to five times the revenue of the individual valve sale. Last but not least, our advanced industrials business is operating in a fragmented high-vacuum niche market and is leveraging existing semi-products and technology, providing also accretive margins, two to three times market growth, and last but not least, also some resilience through the cycle. Over the past three years, VAT has significantly increased its capital expenditure to create the surge capacity customers expect from a single-source supplier like VAT. In Switzerland, our flagship factory can add another CHF 500 million in capacity, which will be required for low-volume, high-mix semi-manufacturing, our ADV specialization, prototypes, new advanced products, but also service. Our two sites in Malaysia have a combined capacity for more than CHF 1.2 billion in sales.
I would like to take a moment to thank our talented, local, and empowered people for all their efforts and achievement over the course of the last years in adapting our footprint. Let's jump to our capital allocation principles. The good news is priorities are unchanged until 2029. In 2024, we spent a significant amount for front-loaded growth CapEx in Switzerland, Malaysia, Romania, but also here to establish this magnificent innovation center. Our R&D spend also reached record levels of CHF 61 million, or 6.5% of sales, securing our competitive edge. Last but not least, we continue to return excess cash to shareholders, up to 100% free cash flow to equity. Managing uncertainty and the unpredictability of our business environment is at the core of our financial steering claim. Last autumn, our ERP transition gained some attention post the Switzerland go-live.
I'm happy to report that the patient is out of the emergency room and has also left the rehab, and the full focus of the team is now on the rollout in the sales and service entities, which we will conclude in 2026. As I have highlighted various times, our new ERP serves as the foundation for our digital transformation roadmap, which will bring further scalability, productivity, and ultimately also profitable growth. Our corporate transformation program, also known as VAT2B, is at the core of our efforts, providing people, structure, and processes to scale the company towards and beyond 2 billion. In our rather volatile industry, disciplined cost and capacity management is key, combining customer-built plans and our flexible operating model. Over the years, we have established proven protocols to maximize our resilience through the cycle.
These include our temp ratio, the variable-to-fixed-cost ratio, our in-outsourcing ratio, our Darwin program, but last but not least, also our move into best-cost country. More than ever, our global footprint and our best-cost country footprint are key to master the current and most probably enduring Swiss franc strength. On the other hand, our exposure. In parallel, we continue to apply our proven financial hedging strategy. We also maintain our very solid balance sheet and target a net cash position by the end of 2026. Our attractive gross profit development evidences our relentless focus on operational excellence. Our continuous improvement program, also known as Darwin, has been reinforced since 2021, and is providing about 2%-3% annual gross savings. This helps us to lower our cox and standard cost baseline continuously and to cope with persistent inflationary pressure and other negative effects.
More recently, we have been able to lift our gross profit margin by 400 basis points from 22, sorry, 23 to 24 on the back of these continuous improvement programs, a favorable mix, but also some inventory changes. Ultimately, this focus on gross profit and the achieved level is a key enabler for the operating leverage. The anticipated double-digit top-line growth is providing the foundation for our EBITDA expansion. If you look at the chart, you observe how VAT benefited historically from the operational leverage, and we do expect that this will also bode well into the future. At the same time, VAT will continue to consciously invest ahead of the curve, keeping higher R&D investment to secure our competitive edge. Amidst challenging ethics development and ongoing volatility in our space, application of our flexible operating model will secure our downside resilience through the cycle.
The EBITDA target band has been expanded to reflect potential downside risks. Some moments ago, we discussed VAT's investments into capacity and R&D. While the latter will continue, our growth CapEx investments will normalize in the coming years. At the same time, we will benefit from efforts in ERP and our digital transformation to bring our trade working capital into the target corridor of 22%-26% of sales. In combination with solid EBITDA development, we introduce a new free cash flow conversion range, lifting the upper end by 5% from 65%-70%. Aggregating the building blocks of our business unit strategies, core semi will contribute about 50% of the midterm growth, whereas adjacencies will contribute about 50% of the remaining growth. Factoring in current FX and WFE environment, our 2027 milestone sits at CHF 1.5 billion-CHF 1.7 billion.
With a five-year CAGR of low to mid-teens, we are confident to outgrow WFE up to 2x. Ladies and gentlemen, I would like to conclude my remarks by consolidating our business vectors into our attractive value proposition, which is based on three pillars: growth, profitability, and capital allocation. As we introduced earlier on, the $1 trillion semi market, our exposure to vacuum and leading-edge WFE, as well as the ongoing technology shifts into gate all around, ALD, the AI proliferation, but also new themes that are moving into the vacuum space, such as advanced packaging, metrology, inspection, will allow us to grow over the next five years in the low to mid-teens. Our relentless focus on operating excellence, the cycle management with our flexible proven operating model, as well as our push into our best-cost country footprint, will help to mitigate our Swiss franc exposure.
Bottom line, we introduce an EBITDA margin band over the course of the next five years of 30%-37% of sales and also a free cash flow conversion rate of 60%-70%. Last but not least, we continue to invest ahead of the curve into leading-edge innovation, harnessing the opportunities that we have at our fingertips. We will also invest ahead of the curve as we see demand unfolding. Remember that we have sufficient capacity available for about CHF 2.4 billion of sales. Lastly, we will continue our strong dividend policy. Key metrics here, we are talking about around the 5% R&D spent over total group sales. You have seen before that the semi spend is about 6%-8%.
Our CapEx rates will also hover around 5% of sales over the course of the next five years, and we will continue with our dividend payout of about or up to 100% of free cash flow to equity. We are confident that our business is well positioned to achieve those midterm targets, creating long-term value for our shareholders.
I'm now inviting Urs and Finn back to stage to kickstart our Q&A session. Thank you very much.
Thank you, Fabian. We now come to the Q&A. Most of you, you know the procedure. We first take questions here from the room, where I ask you to please wait for my colleague Daniel to come by with another microphone, because otherwise the people on the phone or on the webcast would not hear what you would like to ask.
I'd like to remind you that we would very much appreciate if you could limit your questions initially to two questions. We have lots of time. Like I said, the bus is only leaving at 4:00 P.M., so we have lots of time for all the questions. If you then have follow-up questions, we will certainly award those to you, but to give everybody a fighting chance to ask a question, please limit yourself to two questions. I will start here in the room. We will then potentially go to questions that we have over the phone or over the webcast. Chris will give me a sign if there's a question there. With that, I would open the floor for questions here in the room. We have Michael in the first row. Please state also your name and company you work for, please.
Yes, thank you, Michael Foeth of Vontobel . Two questions. The first one is on the development of the capital intensity of the semi industry. You mentioned 15% as your assumption. I think that's the level where we are now, and you assume that the capital intensity remains at that level by 2029, 2030. Any reasons why that could deviate either up or down? I think that's going to be a significant driver of growth or change for you. That would be the first question. The second one would be the opportunities that you see in advanced packaging for VAT, more specifically, if you could give some indications of what applications for VAT might be interesting in advanced packaging. Thank you.
Yeah, thank you, Michael. Maybe I start with the intensity and then hand over to you for the advanced packaging question. It's a very good question, yeah.
That's, of course, if you look historically how this wave of epic intensity moved, I think many years back it was around the 12%, and lately it was more at the 18%. This was also driven then on some of very expensive tools coming to the market, not mentioning which one from the lithography, but I think that will be kind of leveled out as well. I think now it's a good consensus in the market that it will be in 15%. Some say 12%-18%, and we in our model, we're just using now the average of 15%. I think there was, I tried to highlight that a little bit, especially in the last two years, quite a shift in wafer fab equipment.
In the split, a lot of Western OEMs could sell into China, so there was a strong appetite in China to buy the tools, and especially lithography tools as well, non-vacuum lithography, the traditional one. This kind of split was a little bit, yeah, out of balance, I would say, for a few years, and I assume that this will go back to the normal level. That is why in our model we say this 15% is a reasonable number. Advanced packaging, of course, an interesting technology. Do you want to add some flavor on that, Finn?
Yeah, definitely. Urs, you have vacuum processes there as well, definitely. This is more an evolutionary migration of the semi processes which you have. Therefore, naturally, we are part in those processes with vacuum valves, transfer valves, control valves, isolation valves.
The interesting question is, how is the application going to evolve, right? We are in there today, and we monitor it very closely, also engaging with the customer to see what are trends as this is going to pick up. Just to quote others, advanced packaging might become the new lithography, right? You have this quote out there. Therefore, there is quite some momentum in. This is why we observe the development of this application very closely to see how we can help to optimize the processing to improve cost performance then as it starts to ramp up further.
For us, it is another great opportunity, right? Packaging was not a vacuum process. Exactly. Now with advanced packaging, some of the processes move into vacuum.
This is what I mentioned before, that's so exciting that more and more of these process steps go into vacuum, and that's kind of part of our growth story as well. In the end, there are always the same big guys in the market who will win, and that's why we have to be close to all the customers, and then we just follow them. Sometimes we call the name, we are kind of agnostic to the industry. If this is ramping, we are happy. If the others are ramping, we are also happy.
Exactly, because they are the big ones, but there are also small dedicated focus players we're dealing with, so we are on that market.
Okay, there's a question back there.
Hi, it's Janardan Menon from Jefferies. First question is on the spec win number. You have put 132 spec wins.
Can you just confirm what market share that represents? Is that the 85% which you've given as your targeted sort of market share in the chart on 2029, or what is that running right now? What percentage of that spec win is from adjacencies? If you can also say what percentage will be from China, that would be great. I'm sorry, I'm adding more questions into my one question, but. The second question is just on your gross margin. You've got a 62%-66% range for 2029. You were at 66% last year. What kind of, are you expecting any headwind over the next three or four years, or if you're already at that level, why not sort of give a range which could even exceed that a little bit given your ongoing cost reduction program?
Let me start with the spec wins. Of course, you understand that we cannot disclose who are the big drivers behind that, but in general, it is the whole market. If you see that the Gate-All-Around technology is going into the market, all the big players, they have to come with new equipment, new process chambers, and there, of course, every time they have to qualify new products. This is what we say, design in, we have spec wins. Yes, of course, China is booming at the moment. They want to achieve the self-sufficiency rate, and of course, also there, it is a great opportunity also for us to have certain spec wins. In the leading edge, we certainly, I think we displayed that sometimes that leading core, we say wealth technologies versus adjacencies. Of course, still, we are still the strongest in core, but also here, adjacencies are picking up as well.
With adjacencies, we also have a very focused, again, a very focused approach, as we are always very focused that we always play with the big players in the market.
Maybe to add to that, of course, those spec wins geographically come in waves, right? It is not a uniform pattern. However, the good thing is there, while we are very strong on the leading edge, in China, we had a lot of spec wins over the last few years, which are more on the lagging edge of the equipment. That also makes sure that we have a wide coverage of the market here. On your question reference the gross broad margin. Remember the building blocks that I introduced that were at the foundation of this 400 basis points increase from 2023 to 2024. I think we have some that are recurring, others that are non-recurring.
Our Darwin program, the continuous improvement, will yield this 2%-3% on an annual basis. This is a given. On a net basis, the impact of this for the expansion last year was about one-third of the 400 basis points. We had another third in a favorable mix, both in the customer portfolio, but also in the composition of our businesses, remarkably also in the service business. Last but not least, we have the inventory changes that also play into our gross profit margin. As we had increasing inventory levels in 2024, you had about one-third or about 1.3%-1.4% points allocated or contributed from that factor, which totally depends on how our inventories develop. On a normalized basis, the gross profit margin of last year would have been somewhere north of 64%.
From that level, we still believe that we can increase up to 66%, but obviously also have to monitor the developments in our specific businesses, especially then how the share, how the customer split develops. Plus, we also have headwinds such as our FX exposure.
Okay, yeah, we have a question here.
Thank you. It's Meihan Yang from Goldman Sachs. I have two questions. First of all, on the margin target, as you've said, the WFE market should be less cyclical from here going forward. Also, your global footprint should help you with less CHF appreciation or less headwind from the FX. What are the factors that make you expand the margin target on the downside?
I think in life, you always have to learn. As such, we also had to acknowledge the fact that in 2023 and 2024, we had so many opportunities that we could harness that any, let's say, interruption of our R&D investment plans would just not have been mindful. As such, we want to generate the space that we can also continue these investment programs as we go through the cyclical development of our industry. That is definitely one side of the coin.
The other side of the coin comes back also to the uncertainties that we have in the market to the extent that VAT still has quite a significant exposure to the Swiss franc, and then as our contributions from best cost country will increase, as we will also increase our sourcing activities in these areas, as we will then also lift the natural hedge that should provide some resilience, but we will certainly still be confronted with that challenge going forward.
Just a quick follow-up. On the service potential opportunity, you used to say it's about five times of the value for the whole life cycle. It seems like there's a bit more cautious on the three to five times. Is it because you're seeing more service that OEMs want to insource or some competition? Any thoughts would be helpful? Thank you.
I think I can take one. I think we're giving here a range, right? Valve applications are so many-fold out there. We have thousands of different applications. Not every valve is in a highly corrosive environment. There the cycles are much faster. You go much faster in a repair or an upgrade. Some, even today, get valves back. They are 40 years old, and the customer wants them back because, yeah, our founder had a good technology, and they want it back, and they don't want to have any change. That's why the average, we say it's a typical three to five in a high volume now in semiconductor. This is what we expect will happen. It's a model behind to show what our growth will evolve.
It's also important to notice that our service business is always kind of lagging from the OEM business. It always takes some time first until the service comes into the play. Sometimes because, yeah, it first has to run. And second, also our customers, the OEM, they maintain their tools until maybe five to seven years, and then they hand over to the open market.
Okay, thank you, Urs. We have one question from the phone, I hear. Operator, please.
First question comes from George Brown from Deutsche Bank. Please go ahead.
Yeah, hi guys. Thanks for taking my questions. I have two, if I may. I can take them one at a time. Just firstly on NAND, where you're well exposed, can you maybe share some more details on the drivers here for you going forward, whether that's rising layer counts and also the use of more cryogenic etching in 3D NAND? What does that mean for VAT specifically?
I can start that one, yeah. So NAND, certainly, we will see growth in NAND or our customers, first of all. They will see the growth in the NAND technology. As I mentioned before, we are qualified in all the different technologies. This year, I think it's more or less upgrades what's happening in NAND, and expansions will follow in the years to come. There will be more layers. That's certainly something that will happen. More and more layers means more chambers as well.
As you also pointed out, yeah, if you see these layers counting up, they always have also to the vertical drilling down again, and this is this special edge that comes into play. More process step as well that need leading edge technologies behind. Here, of course, the more leading edge, as we pointed out, the better for VAT.
Okay, brilliant. Just a second question, maybe a longer-term question. Just in the field of adjacencies, I know you launched a MEMS pressure sensor not too long ago for the most advanced applications. Do you have any plans to push further into advanced sensors by 2029 or maybe a little bit beyond? If so, would you be competing with the likes of MKS or Inficon here? Any comments there would be helpful. Thanks, guys.
This was the portion that also Finn pointed out in his presentations, more the five to ten years horizon. For us, as I mentioned, we are a pure play in vacuum technology. And our bread and butter is actually our pendulum control valve, so controlling the pressure in a chamber. There are many parameters, many elements playing into that, that we have the optimal pressure control. It's algorithm, it's faster actuators. It's also knowing what's coming into the chamber. That's why we have these upstream initiatives as well. Yes, there is also sensing around, but the sensing is for us not the primary focus. Can add on, but it's not our primary focus. It's not that we will become a sensor company.
Now we are a vacuum valve company, an integrated system, and components like sensors, but also heating and cooling and lifters play all into that system as well.
Okay, thank you, Urs. Now I hand the mic over to Chris, who has two questions from the webcast.
Thanks, Michel. The questions come from Nabil Aziz at Redburn. There are two of them, and I'll just read them in turn. Number one, could you discuss the dynamics in China and how you expect your China business to grow relative to the group over the medium term? That's question one. Question two is, could you discuss some of the assumptions in relation to your 2027 guidance of CHF 1.5-1.7 billion? What would be some of the puts and takes to cause this to hit the low end of the range? What would cause this to trend to the higher end? Thank you.
I can start with the first one, and then Fabian can think about the second one, right? China. China is really a very interesting field for us. I think we are here in a little bit different position than our customers are. Our customers last year had a lot of sales into China, and you could read it everywhere. Up to 40%-50% of their machines went into China. This is now, of course, expected to reduce over the next years. We were never focusing on that business going through our OEMs into China. When we are displaying numbers, it is always our direct business with Chinese OEMs as well. They want to increase their self-sufficiency rate. They are roughly at 20% today.
They certainly have a plan to grow that to the 60%, 70%, or even more. This already shows to increase the self-sufficiency rate. That is a great business for us as well in our direct interaction with China. The portion as displayed will be roughly at the 30%. I would say year over year, this will hover around this 30%, maybe 35% going forward.
On the milestone 2027 at CHF 1.6 billion midpoint, if you do the math, you have two years of sequential 20%-ish growth. That number is where consensus is also for 2025. We have commented earlier on that we feel still comfortable with that number. I think the 2026 story heavily depends on the NAND push. Ultimately, we need consumer, also corporate spend in smartphones, in PCs to come back up.
On the acceleration options, I think we have to go back to what we discussed earlier on, which is certainly at the forefront, the technology shifts. We are increasing at tremendous speeds. These leading edge chip starts. You have seen on the chart, there's a CAGR of around 200%. These fabs are all busy building, expanding. I think ultimately that the pace of the industrialization again depends on the pull from the consumer. If there is going to be this ultimate need to drive performance and even probably becoming more and more important, power consumption, right? Remember what we also told you from a 5-nanometer chip to a 3 to a 2-nanometer chip, you have about 30%-40% lower power consumption. I think with the current discussions on renewable energy transitions, we will run into a threat of not having enough power.
That might really be another driver for that besides the transitions that we have discussed in all areas in logic, in NAND, but also in DRAM. That is more to the upside of it. For the base case, I think we will really see this unfolding based on this NAND pickup in a combination also with the spec wins that we have accomplished. We will see a rejuvenation of our service business, which has definitely been hampered by the low utilization levels, which did not bring us in a window of opportunity both on the OpEx and the CapEx side, where we expect this to come back. Momentum is good at that front. Last but not least, also our advanced industrial business has had quite a disappointing year on very weak solar business.
Also on that front, over the course of the next two years, we do expect quite some favorable contribution to the top line.
Another question from the webcast, and we'll come back to you shortly. This is from Sandeep Deshpande at JP Morgan. First, VAT talked about higher growth from the leading edge that is below 7-nanometer market, which is more vacuum intensive. However, VAT has grown significantly at Chinese suppliers in the last few years, but they are not in the leading edge, i.e., below 7-nanometers. Would that exposure not slow VAT growth? The second question is, in terms of U.S. restrictions on SPE companies, VAT has not seen any impact. Has the company had any conversations with the U.S. on this, as they have been more restrictive on what they want to be supplied to China? Is there a risk that VAT gets impacted by trends seen by other equipment suppliers? Thank you.
I think in the China story, the OEMs in China are now designing all possible applications, all possible applications in sourcing from the Western world. There is so much additional business at the moment going, an additional drive to do innovation in China. I think that is kind of part of even our growth story as well. They are, as pointed out, yes, they are not yet at below 7-nanometer, but still they have to catch up with what the Western world has done in the last 10 to 15 years. They do it at a completely different speed than we are used to in the Western world. They are much faster than we are.
Not only the trains are faster there, but also their speed in innovation, it's much faster. They will also, of course, have challenges. They will go through the same challenges we had with, as I mentioned, with particle speed, yield. All these challenges will come, but they will manage that. I think here we can be a partner as well. Still with the strict firewalls, we can, of course, not use technology we have for other customers, but with our know-how and our IP, we still can support these customers as well. No, we don't talk politics here. We are a Swiss company, pretty neutral on this planet, try to stay that as long as we can. We are following all the rules we have. We are compliant. That's very important. We have to also here earn the trust from all the customers every day.
Going forward, we still see opportunities also to bring in technologies. They are not that critical and not under the radar of sanctions to the Chinese customers.
Thank you, Urs. I'll come back to you, Michael. Jørn, you have a question?
Thank you. Jørn from UBS.
We had lunch together, right?
That's right.
I have questions.
That's right. But I have to limit to two, as always. The first one would be pleased to get a little more details on your 2029 outlook. You can come from different angles, but the semi-wave equipment CapEx you are looking for, the $150 billion is a 10% CAGR roughly versus 2025. You're also saying your wealth business, your service business, your industrial business is growing 12%, 13%. So this alone would fill out already the low to mid-teens. And then the adjacency should come on top.
Why is it not, for example, 15%-20%? Or the other way around, when you are saying of the mid-teens growth, 50% is coming from adjacencies, 50% from underlying, this would mean your underlying is growing below semi-wafer equipment CapEx. The question is at the end of the day, sorry to make this long, is there also that you have a little curvy step up, for example, seeing in 2028, 2029 again, which is not so beneficial for you? Is it just that these are rough numbers and it's a little bit more detailed how I look at it?
I think ultimately you are at the essence of the different building blocks here. One also needs to remember, I pointed that out before, that our industry remains cyclical, right? I want to say that here very prominently.
Most probably up on or in the five-year period, we will also see a certain correction, which to a certain extent we have also factored into that guidance of low to mid-teens. I think the individual building blocks have been thoroughly forecasted, but I would say with a balanced approach then towards the overall number that we are set to achieve.
The second question, if I may, the adjacencies, the CHF 350 million you're roughly targeting plus minus by 2029, can you split this a little bit for us? What is upstream valves? What is the modules? And what will be the pin lifters?
We could, yeah. I think that goes into too much detail of our product portfolio. Sometimes it's always very, very close then to some customers. I have to be here as the firewall to our customers. I hope you can understand that.
Of course, you can see it in a way. We started first with modules, right? Modules is something we have done since many years. We have, of course, over the time, a lot of modules business and spec wins already. We are, let's say, ahead of that. Also, modules in size is also more value, right? If you see a small pin lifter, of course, the volume is not that high, or even sometimes the pin lifter is in the module. You can kind of factor out. When we come in now the first time with a new adjacent product that we just had last year, the first spec wins, you can kind of imagine that maybe that is not yet the big portion of the adjacent products without giving any numbers. This is kind of the ranking of the volume behind.
Thank you.
Okay, let me quickly look here to the left side of the room. It has been rather quiet so far. I think they choose to remain quiet. We have another question here in the middle.
Hi, Gavin Gregg from Morgan Stanley. Thanks for the presentation today. Just coming back to China, if you do not mind, if I look at your sales from major Chinese OEMs like Naura, Pico Technology, AMEC in 2024, which is probably in the region of around CHF 220 million given your 30% revenue share from China. If I look at consensus estimates for those three companies, COGS in 2025, it suggests your selling is about 4%. I am wondering, do you expect that to continue indefinitely or do you see that normalizing to around 1%-2%?
Certainly, as I mentioned, these customers will gain more share in China itself. They will have to develop more processes. They are not yet, they cannot fully cover all the process steps required for the chip manufacturing. There is a growth potential, a new ecosystem coming up, right? Yes, of course, we hope that we can even outgrow or have even higher sales there. Also from the experience in China, they are not yet that mature in building up that industry. Everybody's now ramping. It is also the risk that there will be kind of a pause, right, in the next year. We have to be flexible also there, be very close to the customer.
That's why always the most important KPI is the spec win, because this is kind of what we can drive together with the customer to have the design into the tool. The market is not in our hands anymore. We are ready and inspecting when the market is ramping. China, it's certainly an even higher potential on the other side, but also a risk, right? You never know what's happening on this planet with the politics behind. Thank you.
Hi, on your right, just on your right. Thanks for taking my question. My first one is on AED valves. You're involved with the leading player at the moment, but in the roadmap going from 71% market share in semiconductor valves to 85% market share, is there an anticipation to win all customers for ALD, or is it coming, let's say, is it an upside on this market share target?
I would say important to mention that the market share is on our core valves, on a vacuum valve. It's isolation valves, control valves, and transfer valves. The ALD is part of our adjacency. We are not yet there that we have market share numbers on our adjacent products, only on the valves. What you have seen today, the 77% of semi-market share is in valves.
Okay, that's clear. Maybe in adjacencies, if we go back to the 2022 Capital Market Day, adjacencies were supposed to be 15%, around 15% of sales in 2027. Now it's 10-15. Maybe what is different now versus two to three years ago, why maybe it has not ramped up as fast as you previously expected?
Yeah, we are still very close, right? And it's a forecast. In the end, it's a split. It's all about the wave of fab equipment split that there is where the music plays. If more lithography is coming in, and in the last year it was quite high with lithography, there, of course, valve content is pretty small. Even if it's a vacuum system, the valve content on the bill of material is really minor. It's almost a screw for that machine. I think this is playing in as well. We know more how the split is evolving. This is a kind of big portion.
From the spec wins and what we want to achieve on the share of wallet, I think we did not talk a lot on the share of wallet. Market share is kind of what is our, if you just focus on core, on our valves, what is our market share? For me, even more important actually is with the account teams in Finn's team and with sales. I want to understand the machine. There is a machine and I want to see, we want to have all the valves and then what's more. What is our share on that machine? This is how we drive the business. This is how we drive priorities and how we drive our spec wins.
Okay, we have another one back here. Hold on a sec.
Hello. Hi, Oliver Wong, Bank of America. My first question is regarding your market share.
Could you share a bit more about China versus non-China for that current 71% and future projected around 85%? My second question is, how would you characterize the biggest differences in what you've seen in the market from your last CMD in 2022 versus now in terms of kind of the future projected growth? Thank you.
I think in market share, we don't go in the details. Again, here it's kind of confidentiality of our customers as well, because it's just a few out there. We can't disclose that. Certainly, if you see the pure sales number, it must be pretty high there as well. The second one was, can you repeat that?
Just I was wondering if you could talk a little bit about compared to your last CMD in 2022, what are the biggest differences in the dynamics and the marketplace or in your future growth trends, just in your words?
Yeah, probably I did not actually watch it back too much. We are also looking ahead, but I think AI was not yet at the big hype at that time. It was kind of the internet of thing theme at that time. Today, nobody's talking about the internet of thing anymore. It's just here. We are connected. I think this was kind of the driver. Underlying, probably it was the same story that semiconductors will grow and already there, the $1 trillion was kind of a goal and a vision that the industry will go there.
With the auto wafer fab equipment, probably at the same level, I think this did not change a lot. What changed now over the last three years is kind of the environment was changing. Suddenly we have a decoupling, we have bans, we have restrictions, we have tariffs, I do not know what is coming next. Overall, and that is the positive of this industry, it is going to this $1 trillion. It will always outgrow GDP, not only in the next five years, but in the next decades. That is why we are so positive and optimistic that we are in the right market. That is why we are investing also ahead of the cycle because this is a growing market, whatever happens around us.
Okay, yeah, Nate?
Nate from Octavian. Maybe on the first question, we have not spoken about it yet much, but maybe on the tariffs.
I mean, there were some other companies in the sector. I mean, for example, Inficon that mentioned maybe they're going to have up to 200 basis points impact on the margin. Is that also for you guys? I mean, you have a different exposure, but can you maybe comment, could there be some negative effect in the coming quarters?
In general, we are working with our customers to overcome and find solutions on that. That's the most important. Also here, in such situation, you can prove to our customer that you are a partner and find solutions. There will be also changes and nobody knows what kind of changes will come. There's a lot of discussion ongoing what kind of tariffs. Today we have tariffs on aluminum and steel mainly. Some say maybe semiconductor will get an exemption.
Some say the aluminum will stay, but different way will be weighted. That is why I do not want to go now to guess what will happen. I think we have to follow up on what you are doing, all the options, and be very close to the customers and find with the customer alignment and that both will benefit out of that and get out of this trap. The big customers anyway, they are global. Our biggest customer, US customers, they are global. You know them, we mentioned that they are sometimes even our neighbors in Malaysia. This is also not affected. There is a way around it, not completely, of course, but it is also not that dramatic at the moment that we immediately have to react.
We can be patient, calm, and come once we know what's really happening, come with the right solution for us and our customers.
Some building blocks we have to take into consideration when trying to model this impact is the exposure to the U.S. in terms of sales, which in our group is around 20%. We need to factor in the Incoterms. Who is importer of record? This for a large part of the business also plays in our hands. Last but not least, as Urs just mentioned, we also have a global footprint. We are working on solutions with our customers in order to minimize the burden. Bottom line is also reference to your example here. At this point of time, the impact that we see is not at all material.
Maybe on my second question, you mentioned you have a 30% RAM capability quarter over quarter. I mean, is this something you've had for the past five, ten years, or is it more that due to the volatility seen in 2021, you now just are going to go forward with maybe a bit more heightened capacity? This explains maybe why some of the margin improvement wasn't maybe as high as some would a ssume.
We have seen that we invested quite a lot now in infrastructure. I mentioned that we have now a capacity of more than CHF 2 billion. At the moment, we don't need the full capacity yet. It's not everything installed, of course, as well. We still have to install more machines and upgrade also clean rooms. The installation is there that we can act very fast.
If you see there is some, our customer needs more. I think here is the most important thing that we are very close again with our customers, aligning with them, their build plans, what they need in the next quarters to come. We are very flexible and fast now to adjust. That is why I am confident that Thomas, who is in the back there with the team, they will be capable to ramp it up. It is not only us, all right? As you have seen, we have 25% is internal. We also have to work with our supply chain where we have 75% of the parts. Also, they have to be capable to ramp up that fast.
I think that's one of the big topics as well from the supply chain team to make that happen for the footprint here in Europe, but also for our footprint in Asia.
As a single source supplier, this conditio sine qua non that you have to search capacity available. As such, we have had this. We still have it. The impact on the margin is not there.
Okay, we have the first one, Michael, and we have,
yeah, we're here in the room still. Okay, I guess I could take it. Thank you. It's Michael from Sekebi. Also, obviously, two questions. The first one will be on Amenday. Amenday is not, or also hasn't been, I guess, in the last presentation, a big part of your presentation. Obviously, you don't need to actually do it.
I mean, with all the organic growth possibilities that you have. You did something in the pressure sensor market a couple of years ago. We've touched on it. Do you have actually an M&A strategy? I mean, do you have people that are actually screening the market, looking for maybe new developments or new technologies in all the areas you're present? That would be something that I'm interested in. The other question is probably a little bit more philosophical, but when we look at the semiconductor market, I mean, a company with 85% market share in a key component, at what point is it actually a risk for your clients that there is almost only one company delivering certain kinds of vacuum valves?
I mean, don't you think that, isn't there a risk in a couple of years someone can grow, maybe not to that size, but to become a relevant competitor maybe in China?
Yeah, I would say with today's already 77%, I would say the risk would be there already, right? I think we are already over that threshold. What we say, if our customer needs a second source, we want to be their second source. That's why we say we can produce the valve here in Europe, in Switzerland, but we can also produce it in Malaysia. They have the security, they have the same product from two sides. This gives them the business continued planning. They don't even have to qualify that in theory because they get the same product out of one hand, but two sides. I think that's already happening in the industry.
The industry anyway is consolidating, right? We were part of this consolidation from semiconductor. If you look back in the 1990s, there were many, many dozens of chip manufacturers. Today, leading edge is one, right? Then maybe two, three are following. It is clear consolidation happened. We are part of this consolidation in a very niche product as well. That is why we always say it is also an obligation now to serve the industry when they need it. That is why we invest ahead of the cycle. We do all these investments in R&D. We have to anticipate what they need in the future because they have to rely on us as partners as well. I think we are already in there, I would say. That is why this close collaboration with the customer is so important.
To the M&A questions, maybe I can start and feel free then also to add, Fabian and Finn. Actually, we are open and we have appetite for M&A, right? It must be in line to our strategy. It's not that we just want to do an M&A to be a bigger company or because it's fancy to do M&As. No, it must be a clear fit into our strategy. I always ask then myself, what's in for our customer as well if we do something like that? What's in for us, what's in for our customer, and of course, what's in for our shareholders as well? I think these are the elements we discuss already. Yes, we have done a very small M&A. We spent a lot of money at that time, right, for this very small startup.
Of course, it's also a learning for us, but the appetite is here. Most important is to be still this pure play focus, our strengths. We don't want to lose our DNA and our strengths. You also mentioned we still have so many opportunities to organically grow. Sometimes that's not the fastest, but in the end, it's quite a profitable way as well to grow. Nothing to add.
Okay. Yeah, the huge spend that Urs was mentioning was about CHF 1.5 million. You can see that in the 2021 or 2022, I think, cash flow statement. I have questions for Fabian. Your balance sheet will soon go from very good to outstanding. Would it make sense to look at more active buybacks maybe towards the end of 2026 as you get to outstanding?
Yeah, that's always a consideration that we're also looking into. I think for now, we have been quite happy and so are our investors. Whenever I talk to you, that's the feedback that I get mainly from the Swiss investors. Now, as we go forward, you're absolutely right. We might see also potential jumps in our dividend. What I would actually like to stick to is that we have a gradually increasing dividend over the cycle. As I said before, I believe that the business will remain cyclical. What I don't want to do is give you a dividend here and then the other year we go back again. I want to have this continuation that we have seen in the past.
Now, there are certain elements that you can then also chime in, which is a special dividend where we have actually set the foundation in the last AGM's adaption of the articles of association and/or share buyback, whereas actually we also inserted the provision in the articles of association already last year. I think the instrument is definitely in the realm of our thinking. As we then get there, we will then choose wisely what we're going to apply and to what extent.
Okay, now back to Michael where we started. Maybe there will be some more questions after that.
Yeah, thank you. Just two follow-ups, one for Fabian. Cash conversion obviously is an important value driver. If you could just help us understand what triggered the decision to increase that target and whether that's a trend, whether we can expect more going forward. A different question would be, you're talking about a lot of growth. Do we actually have the talent or the skills available out there in the market to support that growth, be it here in Switzerland or in other countries?
On the cash conversion, maybe first, then I also start on the talent and then give it over to Urs. Look, what we have seen is a front-loaded growth CapEx-driven free cash flow profile over the last years. Now, I expect that our maintenance and growth CapEx will be more balanced going forward. Also, the overall CapEx over sales will gradually come down. This is also already providing us some additional upside on the free cash flow.
Secondly, much more importantly, also from an internal steering is our trade working capital, which those of you who are familiar with the numbers have seen quite some increases since the IPO, especially from the inventory development, where we have seen increases in the first massive wave following the 2018-2019 downturn. We had all the supply chain disruption followed by our ERP transition in Malaysia, in Switzerland, where we then again had to build some safety stocks in order to secure supply to our customers. Now is the moment when everything is in place where we can also drive this down again significantly, which will then allow us to return back into this trade working capital target range of 22-26%. Always being mindful about the position that we have. Michael, you mentioned about the criticality of being a single source supply.
There is certainly something in that as well. We have our two flagship factories in Malaysia and Switzerland with their individual supply chains. For critical products, I think this is what everybody learned back in 2022, that we also have some safety stocks for components which we can stock with, which have a long shelf life. Therefore, this is also considered in that. Overall, the drive to increase the free cash flow conversion rate is coming from reduced CapEx and this improvement of the trade working capital. Now to the capabilities before Urs can talk a little bit about our approach and the workforce planning. I introduced VAT2B as our corporate transformation program. In that, basically, we are building the foundation to scale the company. I talked about processes that circle mostly around the implementation of our harmonized global ERP.
We also talked about now how we create the structures to grow, i.e., the footprint. Last but not least is also the people. On the people side now, I'll let Urs elaborate how we're going to accomplish that target. I can take that also. Urs talked about our foundation, which got us here over the last decades, which is the apprenticeship program and all the, I think, excellent education which we find here. I think we continue with that because when you see in the teams and the engineering teams today who do design, but also in operations, we have great people, capable, skilled people who groom this way. I think that's a very important foundation for us. However, that's not sufficient for sure.
This is why, and we're building up new competencies going beyond pure mechanical engineering, going into electronics engineering, going into software development, and so on and so forth. This is why we also build up new sites like in Mendrisio, where we have a software development team where we benefit from the proximity to the northern Italian universities. Second, Zurich, we have an incubator team where we also benefit from the talents to the universities there. We see that, of course, we have to go beyond of what we have done. I think this works quite well .
Yeah, maybe add on here just because talent is really close to my heart as well. All right, all perfect. Just to add some more passions and emotions. You all have been here today and you have seen our operations team, right? You have seen innovation center people guiding you through. They just do that on the side on their normal job as well. That is normal they do. They also have the opportunity to go out into the world. They do not have to stay here in Haag. The best engineers I want to have in front of the customer. We have many, many good examples that they went out to California, they can go to Tokyo or Seoul and stay there for a while, learn and come back. That is a win for the company as well. It is a win for the customer. It is also a lot of IP protection for us. The best engineers are out there working with the customer and coming back. I think that is how we are living it as well. I want to keep driving that as well.
If you go one floor down, you will meet all these people and they are just enthusiastic. Even some would say, yeah, sometimes it would be better to live maybe in a city if I'm a young fellow. I think most of them, they also appreciate. We always say we are living here where others do vacations. That is also a good argument.
Okay, any more questions? I know we do not have any on the webcast or on the phone. Maybe not. There is one again.
Just going back to the non-flash point. Are you getting any indication from your customers that there is a likelihood of a pickup towards the end of the year or into next year? What are the current conversations like? When I look at the midpoint of your 2027 guidance, it is about, give or take, 20% growth year on year through 2025, 2026, 2027. Your 20% growth in 2025, I think, has some element of an inventory correction improvement. On an underlying basis, are you already assuming some improvement into 2026, 2027 in your guidance at the midpoint?
I can take the first one with non-flash. Yeah, there are certainly customers out there. The official statements are that they see a pickup, but it is more kind of upgrading current tools today. That is certainly what I think is the market consensus. It is also preparing for the next technology before there will be expansions. I think that is what we see first. Certainly, logic is more interesting to us today and the DRAM. In the third, there will be the NAND.
Yeah, and on the inventories, I think what we observe, what we also read as you do, and what we get from engagement with our customers is that inventories have been largely consumed or digested by now. We are operating at normalized levels. Based on what I mentioned to you before with these underlying growth drivers from the technology transition, but also in the service space, in the ADV space. Hopefully at some point, we also see the inflection from a more confident consumer spend, which will then ultimately also boost this transition. I think last but not least, we should not forget that at the IDM front, we have currently basically one player who is paving the way and two others, they are occupied with internal issues. I think also there we need these players to come back at full strength and then really drive these roadmaps forward.
Understood. Thanks.
Good. Thank you. Before handing back to you guys, I would like to ambush two people at least here in the room you have not seen in the last capital markets today because they have not been in the function. It will be our Head of ADV, Loik. Loik, maybe you still quickly stand up. He will certainly give you a deep dive on the ADV business, maybe in the second half of this year or beginning of next year because we want to do more events like I elaborated at the beginning. Loik is certainly here today. If you have a very urgent question to him, I am sure that he is more than happy to answer that.
The second person you might not have seen is Mark. Mark is our Head of the Global Service Business as well. He will have his dedicated session on his business because we were kind of like just skimming up the top. That is here. The one gentleman that you have seen in the previous Capital Markets Day or the one before, he is still here as well. It is our dear Thomas, who is responsible for operations. He is Chief Operating Officer. He makes sure that whatever we told you now about having enough capacity and running this smoothly. He is the man. Thank you, guys. With that, I would hand back to you guys for the outro. The boss, by the way, will leave around 4:00 P.M. He is at the right address, so you do not have to walk back to the place where he threw you out without further instructions. Back to you guys.
Thank you, Michel. Thank you, Chris, as well for organization. You see, we have some talents. Young ones do not mention anymore. Okay. I think as a summary, maybe Fabian, you want to kind of recap the numbers? Yes, I think we alluded to our key guidance parameters now during the course of the presentation, but also to the Q&A. I will not focus on this one, but probably more on the additional guidance elements that I have not introduced so far. Return on invested capital, also for us, a very key metric, especially when we evaluate the SAS business cases. When we look at payback periods, hurdle rates, it all needs to pay into that.
Here we also would like to stay above 45% over the cycle. Trade working capital, I have mentioned to you on the leverage. I want to maintain the very solid balance sheet, also slightly increase the equity ratio as a consequence of our profitable growth. With that balance sheet, also support our growth targets, be they organic or inorganic. Last but not least, the dividend policy will stay as it is.
Yeah, and I was hoping at the very beginning that after closing the day, that you have all the information you need to believe our growth story and that you are also convinced, as convinced as we are, that we will outgrow the wafer fab market by 2x. Of course, this is kind of an ambitious we have, but underlying you see all around the technology shift will happen, all driven by the AI and digitalization and the new consumer electronics that will come into the market. To manufacture them, you learned today that a lot of wafer fab equipment you needed, and there are more than 100 fabs under construction today. The shelf will be there. For this wafer fab equipment, more and more leading edge will be required and more vacuum processes. This will grow much more than just the wafer fab equipment. We will benefit from the work we have done in the last years with our spec wins. Our share of wallet on these tools will be higher. This all together will turn into our sales number, which we presented today.
Thanks a lot for coming out here, spending the day with us. I hope you had some good impressions in the operations on our tour in the innovation center and in our new restaurant. First time we have a restaurant. We call it Siegfried, so named to our founder, Siegfried Schertler. Thanks a lot for coming, and we stay in touch. Thank you. Safe travels.