Good day everyone, and welcome to the Entegris second quarter 2019 earnings release call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Bill Seymour, VP of Investor Relations. Please go ahead, sir.
Good morning, everyone. Earlier today, we announced the financial results for our second quarter of 2019. Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties, which are outlined in detail in our reports and filings with the SEC. Please refer to the information on the disclaimer slide in the presentation. On this call, we will also refer to non-GAAP financial measures as defined by the SEC and Regulation G. You will find a reconciliation table in today's press release, as well as on our website. I'd also like to remind you that there is a slide presentation on the results posted on our website that may be referenced during the call today. On the call today are Bertrand Loy, our CEO, and Greg Graves, our CFO. I'll hand it over to Bertrand.
Thank you, Bill. I will make some comments on our 2Q performance, how we see the industry environment, and our expectations for the rest of the year. I will also discuss the organizational changes we announced today. Greg will follow with more details on our financial results, discuss our updated capital allocation framework, and provide guidance for the 3Q of 2019. We'll open the line for questions. During the 2Q, headwinds in the market resulted in a softer-than-anticipated quarter for both the industry and Entegris. Let me provide some additional color. The memory market continued to languish as inventories at memory makers remained high. Utilization rates and wafer starts remained low at most memory customers. Production levels in mainstream fabs were somewhat weaker than expected, as escalated trade tensions impacted industrial and automotive end markets.
Finally, the industry CapEx continued to weaken during the quarter. However, on a positive note for Entegris, we continued to see great momentum with our advanced solutions in new nodes, particularly in logic and foundry. Our SCEM division, as expected, rebounded from a soft first quarter, led by record sales and double-digit organic sequential growth of advanced deposition materials. Our CapEx-driven businesses stabilized and have now a healthy book-to-bill ratio as we start Q3. Last week, we acquired MPD Chemicals, further enhancing our advanced materials portfolio. Finally, we continue to return cash to shareholders with a recently announced 14% increase in our quarterly dividend and over $50 million of share repurchases since the beginning of the year, including $15 million in the second quarter. While this has been the most challenging year the industry has faced in some time, Entegris has weathered the storm relatively well.
Having said that, Entegris' culture is guided by an intense focus on customer centricity and relentless dedication to excellence. Accordingly, we continuously pursue opportunities to improve our customer engagement and create conditions that yield greater leverage in our overall business model. To that end, we are implementing organizational changes that will enable us to be more responsive to our customers, increase our competitiveness, and allow for scalable growth as well as result in significant cost savings. These changes are focused on streamlining the organization and optimizing our customer engagement model. We anticipate the efficiencies gained by these changes will result in more than $20 million in annual cost savings or one point of EBITDA. These actions will largely be in place by the beginning of the fourth quarter this year. Last week, we acquired MPD Chemicals, a provider of advanced materials to the specialty chemical, technology, and life sciences industries.
MPD will further enhance our engineered and advanced materials portfolio, which was recently expanded with the acquisition of Digital Specialty Chemicals, or DSC, in March. The deposition materials market is one of the fastest-growing market segments in semiconductor applications, driven by the adoption of new materials in more complex chip architectures. MPD will improve Entegris scale and synthesis capabilities, particularly in organosilane materials. Existing capabilities combined with DSC and MPD will give us the technology and proven capability to effectively compete in advanced nodes. In addition, MPD will provide us access to a number of exciting adjacent markets. MPD was acquired for approximately $165 million in cash. It is expected to have sales approaching $40 million for the full year of 2019 and be accretive to earnings in 2020. MPD will be part of our SCEM business. Looking ahead to the second half of the year.
We believe the second quarter represents a bottom for Entegris. From an industry point of view, memory makers are still working through inventory, logic and foundry is solid. To be clear, our confidence is not a bet on a significant market recovery in the second half. Our confidence, instead, is based on the strength of our business. As we discussed last quarter, we are benefiting from several important node transitions, which will drive the adoption of many new products across all three divisions. In addition, after several quarters of weakness, we believe that we've reached an inflection point in our CapEx-driven products, which are no longer declining and now starting to see steadier order patterns. In closing, we believe that secular semiconductor demand will continue to be attractive. Enabled by technologies like IoT, 5G, and AI, our society will continue to need more and better chips.
Greater materials intensity and greater materials purity will be the two defining factors of the next generation of semiconductor performance. Our unit-driven business model is resilient, differentiated, and defensible. Entegris has never been better positioned and more relevant for our customers to achieve higher yields and the targeted levels of chip performance and reliability. As we have shown with the reorganization announced today and the recent acquisitions, we are continually assessing and dynamically managing our portfolio to drive growth and improve returns. While results were challenging in the second quarter, we have continued to make the necessary capital and R&D investments in our business to enable long-term growth. Finally, we expect 2019 to be a record year for Entegris, and we are reaffirming our annual guidance. We expect our sales in 2019 to be approximately $1.6 billion, and we expect both GAAP and non-GAAP EPS to exceed $1.90.
I will now turn the call to Greg for the financial details. Greg?
Thank you, Bertrand. Our overall second quarter performance was mixed relative to our expectations. Q2 sales of $379 million were at the bottom end of our sales guidance range and were down 1% from a year ago and 3% sequentially. Q2 GAAP diluted earnings per share was $0.91. GAAP EPS included $122 million of net proceeds we received from the terminated Versum transaction. On a non-GAAP basis, EPS of $0.39 was below expectation. Moving on to gross margins. GAAP and non-GAAP gross margin were both 44% in Q2. The year-on-year decline in non-GAAP gross margin was driven primarily by the addition of the pure gas business acquired from SAES to the portfolio. Lower sales volume, weaker product mix, and an insurance claim in the prior year that was one-time in nature.
We expect gross margin to be approximately 46% on a GAAP and non-GAAP basis in Q3, driven by higher sales volumes and improved mix. GAAP operating expenses were $111 million and included approximately $17 million of amortization of intangible assets and other discrete charges totaling approximately $5 million. Non-GAAP operating expenses in Q2 were $90 million, in line with our guidance. We expect non-GAAP operating expenses to be $92 million-$94 million in the third quarter. The sequential increase from Q2 is primarily due to the additional OpEx related to MPD Chemicals. GAAP operating income was $55 million, and non-GAAP operating income was $77 million. Our GAAP tax rate was 25.9% for the second quarter and included a total six percentage point impact in discrete items related to new tax regulations and the tax impact of the Versum termination payment.
We expect our full year GAAP tax rate to be approximately 23%. Our non-GAAP tax rate was 20.4% and does not include the discrete items previously mentioned. We continue to expect our full-year non-GAAP tax rate to be approximately 21%. Adjusted EBITDA for the quarter was $95 million or 25% of revenue. Turning to our performance by division. Q2 sales of $128 million for Specialty Chemicals and Engineered Materials, or SCEM, declined 5% from a year ago. Strong growth in advanced deposition was offset by declines in the rest of the portfolio. Sales trends improved from the decline in the first quarter, with sequential sales up 2% in the second quarter, driven by advanced depositions, specialty gases, and specialty coatings. Adjusted operating margin for SCEM was 19.4%. The decline in operating margin was driven primarily by the lower sales, unfavorable mix, and investments in manufacturing capacity in previous quarters.
In addition, as a reminder, the second quarter last year included the benefit of a $2.5 million insurance claim. Q2 sales of $150 million for Microcontamination Control, or MC, were up 20% from last year. The strong year-on-year growth in the quarter was driven by the addition of the pure gas business acquired from SAES. Sales declined 5% sequentially, driven by liquid filtration, which had a record quarter in Q1 as we benefited from the initial phases of node transition. Adjusted operating margin for MC was 28.7%. The modest decline from last year was primarily due to the addition of the pure gas business to the portfolio. Q2 sales for Advanced Materials Handling, or AMH, of $108 million was down 18% from last year.
The year-over-year decline in sales was driven by continued softness in capital-driven businesses and the impact from the divestiture of a small non-core cleaning business last year. Sales declined 7% sequentially as industry capital spending continued to decline and we experienced weakness in sales to certain chemical customers who were negatively impacted by the continued decline in memory. Adjusted operating margin for AMH was 14%. AMH margins were primarily impacted by the lower sales volumes. As Bertrand indicated, sales signals for our capital-driven businesses have improved, and that will be helpful to AMH going forward. Cash flow from operations for the second quarter was $231 million, and free cash flow was $205 million. Both operating cash flow and free cash flow were favorably impacted by the Versum termination fee. Uses of cash during the quarter included CapEx of $26 million.
We expect to spend approximately $110 million on CapEx in 2019 to support new product introductions, improve technical capabilities, and growth in our filtration and liquid packaging businesses. During Q2, we used $9 million for our quarterly dividend, and we repurchased 400,000 shares for approximately $15 million at an average price of $36. As Bertrand set up earlier, I'd like to spend a few minutes to lay out more formally than we've done in the past our capital allocation principles. Over the last six years, we've allocated approximately $3 billion of capital, including investing $640 million in ER&D, with the goal of growing the business and returning cash to shareholders. To start, I'd like to lay out a few principles on our liquidity and capital structure, which is intended to ensure our financial flexibility while retaining sufficient firepower for potential opportunistic acquisition.
We target a minimum cash balance of approximately $200 million globally and a debt rating of Ba1 or better. Our capital allocation priorities are the following. The first priority is internal investments in R&D and CapEx. The second priority is value-accretive acquisitions. The third priority is return of capital in the form of dividends and share buybacks. Let's look at each of these more closely. Internal investments in R&D and CapEx have been a key component to our growth and generated very good returns historically. All R&D and CapEx are decided upon and prioritized based on rigorous ROI analysis. We would expect to continue investing approximately 8% of our annual sales in R&D and 7% in CapEx. Acquisitions have historically been the largest area of capital allocation for us and have been a key component of our growth.
As shown with the acquisition of MPD, we will continue to be active in M&A and intend to be a consolidator in the industry. Our overall criteria are acquisitions that broaden our technology and product portfolio in our core semiconductor market and other adjacent markets, specifically within the scope of engineered materials, filtration technology, and advanced packaging. Our targeted financial criteria for acquisitions include accretion by year two that is greater than we could achieve through buybacks or debt reduction, high single-digit ROIC by year three, and growth-enabling capabilities or market expansion. The third priority is return of capital with dividends and share buybacks. Our target is to return 60% of our annual free cash flow to shareholders through dividends and buybacks. For dividends, we intend to pay an ongoing dividend with incremental increases as free cash flow warrants.
For share repurchases, historically, we have targeted approximately $10 million per quarter of ongoing repurchases. Going forward, we expect repurchases to be approximately $15 million per quarter as we did in Q2. In addition, we'll continue with opportunistic buybacks like we did at the end of last year when appropriate. Naturally, these capital allocation parameters could change depending on the level of acquisition activity. Turning to our outlook for Q3, as Bertrand said, we expect that Q2 represents the bottom for Entegris, and we expect Entegris-specific drivers will allow us to outgrow the market in the second half. On margins, we expect sequential improvement to come primarily from higher sales volumes, improved mix, better execution, and the start of realization of cost reductions associated with the organizational changes discussed earlier.
Putting it all together, in Q3, we expect sales to range from $385 million-$400 million, and we expect GAAP EPS to be $0.29-$0.34 per share, and non-GAAP EPS to be $0.42-$0.47. In summary, we continue to be confident with respect to the industry and our own prospects for the future. Operator, we'll now take questions.
Thank you. If you'd like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will now take our first question from Toshiya Hari with Goldman Sachs. Please go ahead.
Hi. Good morning, guys.
Good morning.
Good morning. I had three, if I may. First, in terms of the operating model improvements that you guys talked about, I was hoping you could elaborate a little bit more, in terms of what you're doing exactly. Perhaps like segment or product line to the extent possible and the split between COGS and OpEx. That would be my first question. Thanks.
Yeah. Toshiya, let me give you maybe a high-level context for what we're trying to do here, which is really part of a broad strategic initiatives that we started in the fall of last year, and that we put on hold during the merger discussion with Versum. As a company, we're always looking at ways to improve our operational efficiency, improve our customer intimacy. What we really want to do is to make sure that we can find ways to reduce our time to solution, and ways to more closely align our development and engineering teams, with our customer-facing teams. You should expect, actually, the reorganization to have an impact across multiple financial statement lines, most notably in SG&A, but it will really impact each of the three divisions.
The whole idea behind that, again, is to make us more responsive to customers, more competitive, and also allow us to be more effective in integrating future acquisitions.
Got it. Thank you. Then my second question is on the second half outlook. Bertrand, you talked about setting pretty conservative assumptions for the broader market and more kind of relying on company-specific drivers, and I think that's consistent with what you had said three months ago. Curious, what sort of assumptions have you embedded in your second half numbers or your full-year guide, both in terms of wafer starts as well as CapEx in the second half, perhaps relative to the first half? Then more on the company-specific stuff, if you can remind us what the goals are in terms of some of the product lines that you talked about three months ago, like graphite, specialty coatings, some of the node transitions at your customers, things like that. Thank you.
Yeah. Let me start with some of the industry assumptions that we used for the second half of the year. As you said, we are using what I think is a set of fairly conservative assumptions. We expect MSI to be flat in the second half of the year versus the first half. We expect CapEx to continue to slide and to put that in a quantitative form, I would say CapEx down probably another 9% in the second half versus the first half. A lot of the growth that we expect to generate in the back end of the year will come from node transitions. We have felt a little bit of that already in Q1 of this year. We expect to see actually additional momentum in logic and foundry in the back end of the year.
We also expect to see the benefit of a number of memory customers transitioning to additional layers in the back end of the year. The impact will be felt mostly in Microcontamination and SCEM, and as you mentioned, it's going to be specialty coatings, deposition materials, selective etch chemistry, as well as advanced liquid filtration solutions.
Great. Then my last one, in terms of some of the geographical information that you give out in your deck, I was positively surprised by how Korea kind of hung in, and I was negatively surprised by how weak Taiwan was in Q2 on a sequential basis. I would've thought, given customer commentary in memory, I would've expected weaker performance in Korea. Then on the flip side, given the largest foundry customer's comments into Q3, I would've expected better trends in Taiwan. If you can kind of comment on both regions, what went on during the quarter and what the outlook was into the second half. Thank you. That's all I had.
Sure.
Sure. Let's start with Korea. Korea, sequentially, good performance. We saw a stabilization of level of activity in the memory fabs, so no further deterioration, which was good. We picked up actually some activity on new fab construction in Korea. That's really what explains the relatively good performance in Q2, given the overall industry context. We expect the picture to continue to improve in the back end of the year as we expect some modest improvement in fab activity and memory in Korea. In the case of Taiwan, if you look at the first half performance, we are growing actually 6% organically in Taiwan, first quarter of this year compared to first quarter of last year. That's what I would have expected. We knew that we benefited from a number of unusually high orders in Q1 related to a number of ramps and tape-out activity.
As we said in our Q1 results, we really were expecting a softening in microcontamination in particular sequentially, and we saw that in Taiwan. Going forward in Taiwan, we expect a big re-acceleration in the back end of the year, and we expect Taiwan to have a very solid year for us.
Great. Thanks so much for the detail.
We will now take our next question from Sidney Ho with Deutsche Bank. Please go ahead.
Great. Thank you and good morning. My first question is, I appreciate you reaffirm your full-year guidance of $1.6 billion. Based on your Q3 guidance, it would imply the pretty healthy rebound of sales in Q4 of at least 10% and EPS of $0.55 or more. Can you maybe walk us through, I know you talk about Q3 dynamics, but what exactly driving the Q4 growth assumptions there?
Sidney, I would probably reiterate what I was just saying answering Toshiya's question. It's all about the node transitions. We expect additional momentum coming from that both in Logic as well as in Memory. That will primarily impact positively the Microcontamination and SCEM businesses, and you should expect a sequential increase or increases in Q3 and then in Q4 for both of those divisions.
Okay. That's helpful. Maybe switching to the gross margin. The gross margin obviously in Q2 was a little challenging. I think you guys talked about the year-over-year decline. I just try to understand the quarter-over-quarter decline as well. Does that kind of seem to cross the different segments? Related to that, Q3 is kind of back to 46%. What's driving the recovery of that on a sequential basis?
Yeah, I can let Greg potentially add some more financial details to your question. Before he does that, I'd like to provide maybe some high-level perspective. What I want you to appreciate is that sometime halfway into the quarter, so say mid to late May, we realized that the environment would be a little bit softer than expected, and then we also realized that the mix would not be very favorable in Q2. In other words, we realized in May that we were most likely testing the low end of our EPS guidance. As a management team, we looked at our options. We considered slamming the brakes. In the end, we decided not to do that. Instead, what we tried to do is really to curb some discretionary spendings. Again, we chose not to really flex down the labor costs, SG&A or R&D.
I really think it was the right decision. Why was that the right decision? Well, first, if you think about margin and cost of goods sold, we were getting in May, and of course, today, we even have further evidence that the back end of the year will be very strong for Entegris. We felt that it would have been very foolish to flex down our direct labor in the plants in Q2, only to have to rehire and retrain workers a few months later. That's the way I would answer your gross margin question. To extend my comment to other parts of the P&L, I would say that we also chose to continue to spend in R&D.
I mean, our development teams have been working very closely with customers on a number of promising opportunities, and it was very important for us to allow proper funding, both in CapEx and in R&D, which we did, in order to continue to increase the quality of the opportunity pipeline. Don't get me wrong, it's not pleasant not to deliver on an EPS number and to be slightly below the guidance. In this particular instance. It was a calculated choice, and I think it was the right choice.
Yeah. Sidney, just to follow up your question, the decline really was across divisions. Our volumes were down in two of the three divisions, and then the third division, which would be SCEM, where volumes were up, we were impacted more by mix.
Okay. Great. Thanks for the color. That's great. Maybe one last question from me. In terms of the MPD Chemicals acquisition, how much should we expect the revenue contribution from them in Q3? Greg, when you talk about accretion next year, what magnitude of accretion are you kind of expecting? Thanks.
In Q3, we'd expect revenue to be in the high single digits. We don't own it for the whole of the quarter. When we think about accretion next year, we think about kind of $0.05-$0.10 per share.
Great. Thank you very much.
Once again, if you find that your question has been answered, you may remove yourself from the queue by pressing star two, and if you would like to ask a question, please signal by pressing star one. We will now take our next question from Amanda Scarnati with Citi. Please go ahead.
Hi. Good morning. Just want to talk a little bit about the China business. It looks like it was up quite a bit in the second quarter. I've been hearing a lot lately that China's increasingly tying subsidies or incentivizing subsidies to use sort of non-U.S. suppliers. Have you been seeing any of that in the market? Sort of what drove that strong growth in China this quarter?
Yes. Good morning, Amanda. Let me just say that our business has not really been directly impacted by any of the trade tensions or export restrictions, and we don't expect that to be the case going forward. What drove the nice sequential growth is really a number of new wins at actually some of our large Chinese domestic fab customers. Very pleased to see that we've been able to find ways to continue to engage with domestic Chinese fab customers and continue to win new business in spite of being a U.S. supplier. As of right now, we have not seen any of that impact meaningfully our business.
Just going back to the margin question. As you sort of work through your due diligence with the Versum acquisition, did you notice anything different in how they approach margins and different ways in which you can sort of expand your EBITDA margins? I know that you talked today about the little bit of restructuring that you're doing. Is there anything in there that could be something longer term that you could work on in your model?
Amanda, I think we've implied before, we certainly learned some things, not from a competitive perspective, but around sort of business process and organization. I think some of what we announced today, and Bertrand has already talked about, would be a byproduct of that. As it relates to the gross margin specifically, I would say we didn't really learn anything specific. I feel good about how we execute and how we manage our gross margin line, more specifically how our team manages the supply chain and the factories.
Great. Thank you.
We will now take our next question with Chris Kapsch from Loop Capital Markets. Please go ahead, sir.
Good morning. I just had really a follow-up on the formal comments that, Bertrand, you had about sort of witnessing an inflection of sorts or a stabilization of orders. I'm just wondering if you could characterize that by either fab, foundry logic, memory, just any sort of characterization about why you feel that there's some evidence of inflection. Any sort of color around that? I have one follow-up.
Usually, the greater level of visibility that we have is directly related to those node transitions. We are seeing that in advanced logic and foundry and in advanced memory. The other area, which was actually a very important signal that we've been waiting to see, is really in our CapEx-driven business. Across all of our CapEx-driven business lines, we are actually seeing very healthy book-to-bill ratios. That's the first time in a very long time. In other words, we believe that we are no longer trying to catch a falling knife on that part of our business, and that gives us a lot more comfort for what's ahead.
Okay. That's helpful. Then just the follow-up is on the sequential rebound that you're suggesting you see in margins. Maybe the answer to my other question sort of explains that, but is it just a function of the node transitions driving demand for advanced products that's helping margin sequentially and continued weakness from the equipment side? If you could just provide some color there. Thank you.
The sequential improvement in the margin really, Chris, is we expect things to return to a more normalized level in terms of both mix and we expect some moderate increase in the volume. If you look over the last six quarters or so, with the exception of early last year where we had some peak margins, we've been right at about 46%. There's nothing systemic on the margins. Our ASP trends are good. We continue to execute well. It really boils down to continuing to see some improvement in mix and some better volumes.
Okay, thank you.
We will now take our next question, by Patrick Ho with Stifel. Please go ahead.
Thank you very much. Maybe first off for you, Bertrand, in terms of the materials intensity for logic and foundry, it's clear that their new device structures, the smaller line widths are driving more materials engineering. Can you give a little bit of color whether you're seeing new materials used in either advanced deposition, etching, areas like that, or it's just that the content for existing materials has increased at some of these new node shrinks?
Patrick, this is actually, we are seeing both. We are seeing greater materials intensity as a result of greater gate density in the new architectures. We also, the material intensity is also defined by the introduction of new highly engineered materials. That is certainly an area where we see growth far exceeding the industry growth. This is an area where we have the objective of establishing Entegris as a leading supplier, and that's really what has led us to the acquisition of DSC and MPD. We wanted to increase our capabilities in that area. We wanted to have access to high volume manufacturing synthesis capabilities. We wanted to take greater control on our supply chain.
We wanted to be in a position to purify the materials that we are supplying to our customers and really offer to our customers a very complete series of capabilities from synthesis to purification and delivery of those new materials, all of which present daunting challenges that I believe Entegris will be uniquely positioned to solve. Again, what we're seeing on the logic side of things in terms of industry roadmap is very exciting. What we're seeing on the memory side is also equally exciting, and that's why we're so focused on those opportunities.
Great. That's helpful. Maybe Greg, as my follow-up question in terms of R&D investments, you guys continue to make a pretty strong play on that front, which has led to a lot of these new products that are now starting to pay dividends. How do you look at R&D spending over the next year or so in terms of, I guess, future product development and opportunities that are still forthcoming in future years, particularly on the material side of things?
First of all, I would just say on ER&D, any project of any significance has an ROI attached to it, and it's a very sort of analytically driven approach in terms of where we invest our ER&D dollars. I think I said as part of the capital allocation discussion, we were at 8% of revenue in the most recent quarter. We've been trending sort of around that 7% level. Our commitment going forward is to be in that 8-ish range. If you look at our OpEx year-over-year, we've been pretty consistent on the ER&D front, in terms of that's the lifeblood of the company. I think you can expect us to continue to prioritize spending on ER&D even as we make adjustments in other areas.
Great. That's helpful.
We will now take our next question from David with CL King. Please go ahead.
Yeah. Hi. Thanks very much. I guess a couple of questions. First one would just be kind of on a baseline. I think, Bertrand, you mentioned that you expect second half of 2019 to be flat sequentially with the first half in terms of MSI. I don't recall, but could you just clarify what your expectations are for the first half? In other words, what the baseline for the first half might be, whether it's MSI or wafer starts or whatever you consider the relevant metric. Thanks.
Right. The first half of 2019 compared to the first half of 2018, MSI was down about 2% as per our estimates, and CapEx was down about 12% as per our estimates. Is that your question, David?
Yeah. Just wondering how you're looking at the market. Thank you for that clarification.
Yeah.
The second thing.
If you-
Excuse me. Go ahead.
No, I was just maybe trying to provide a slightly different perspective on our full year 2019 guidance. We are assuming strong industry headwinds to the tune of minus 8% year-over-year, so '19 over '18. You get there with the assumption that CapEx will be down in the high teens year-over-year, and MSI will be down 3%-4% year-over-year. To offset that, we expect to pick up about 600 basis points from a number of acquisitions that we did over the last 12 months. We expect to generate about 500 basis points of organic growth in excess of the industry. The only thing that has changed really between this quarter and last quarter is the view that the market and the industry is probably a little bit weaker than we were estimating a few months back.
Well, no, that's interesting. Just a quick follow-up, but the 500 basis points of organic growth above the market baseline, that's higher than your traditional targets, I guess your longer term targets for your overall business mix. Is that correct?
That's correct. Our long-term target would be 200 to 300 basis points over the industry. We expect we will be actually beating that target, which is something you would expect us to do given the number of node transitions that we are seeing this year.
Yes. Okay. Thank you for that. That was more than I anticipated. Appreciate it. I wanted to ask a quick question maybe for Greg, and I hope I'm not too confusing, but you laid out your M&A criteria very clearly, and I wanted to focus on accretion with this year's two acquisitions, I guess, Digital and MPD. More than $200 million of CapEx and, or sorry, of expenditure. I'm assuming, or should I assume that the combination of those two will be accretive over the next 12 months? I also would ask you to maybe parse the $20 million of cost savings. In other words, would the acquisitions be accretive ex the implementation of the $20 million in annualized cost savings? Is that inclusive? In other words, is there a little double counting there?
Does a meaningful portion of the anticipated efficiencies come from integrating MPD and Digital, or is it more broad-based and they would be accretive and meet your targets on a standalone basis?
Yeah.
Thank you.
Yeah. They're really two very kind of discreet events or projects, so to speak. With regard to MPD, we had the question a little bit earlier and we said $0.05-$0.10 accretive in 2020. I mean, DSC is a much smaller transaction, but we would expect that to be accretive in 2020 as well.
All right. Thanks very much.
We will now be taking our last question from Krish Sankar with Cowen and Company. Please go ahead.
Hi. Thanks for taking my question. I had a few of them. First, on Bertrand, did I break out your revenue by end customer type, like DRAM, NAND, Logic, et cetera?
No, we don't do that with a very high degree of precision. We have given some directional perspective to that, but we don't do that on a quarterly basis.
Got it. That's fine. How much of the weakness you saw in Q2 was related to some of your memory customers throttling back wafers?
It wasn't really coming from our memory customers directly, but we saw some indirect impact from their supply chains, particularly bulk chemical manufacturers lowering their production levels, and that had an impact on both our FluoroPure drums, and that's AMH, but also sales of some liquid filters, and that would be MC. That's something that we have not really probably well forecasted going into Q2.
Got it. The last question, Bertrand, is if some of your memory customers are talking about moving wafers from DRAM into CMOS image sensors, if they do such a thing, is that good, bad, or is it agnostic for Entegris?
I think it's a case-by-case answer, and I wouldn't want to go into customer specifics. You should not be worried about those types of rumors.
Got it. All right. Thank you very much.
Thank you.
Thank you.
That is all the time we have for questions. I'd like to turn the conference back over to the presenters for any additional or closing remarks.
That'll be it for today. Thank you for joining the call. Have a great day.
This concludes today's call. Thank you for your participation. You may now disconnect.