Good day, everyone, and welcome to this Entegris Third Quarter 2018 Earnings Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Bertrand Loy, Integra's President and CEO. Please go ahead, sir.
Good morning, and thank you for joining us today. Before we begin this call, I would like to take a minute to introduce our new VP of Investor Relations, Bill Seymour. Bill, welcome on board. And I would also like to acknowledge the invaluable contributions from Steve Cantor who has led our IR efforts for the past 17 years. Steve, on behalf of everyone at Entegris, Thank you and very best wishes for the next chapter of your life.
Bill, back to you.
Thank you for Tron, and good morning, everyone. Earlier today, we announced the financial results for our third quarter. You can access a copy of our press release on our website integrys.com. Before we begin, I would and uncertainties, which measures as defined by the SEC in Reg G. You can find a reconciliation table in today's press release as well as on our website.
On the call today are Bertrand and Greg Graves, our CFO. I'll hand it back to Bertrand.
Thank you, Ben. This morning, I will make some comments on our third quarter performance and our outlook for the remainder of the year. I will also put into context some of the recent news in the Semiconductor Industry. Greg will follow with more details on our financial results and will provide guidance for the 4th quarter. We will then open the line for questions.
During the third quarter, we delivered solid results. In line with our guidance. Results that demonstrated the strength of our execution, the resilience of our broad platform and the value of our unit driven business model. We grew our sales 15% year over year in third quarter achieving growth across all three divisions, and we generated $110,000,000 of EBITDA. Year to date, our sales grew 16%, outpacing our markets and EBITDA as a percentage of revenue improved by over 200 basis points, while non GAAP EPS was up 39%.
Finally, The third quarter was the full the 1st full quarter of the newest addition to Integra. Sales pure gas. Sales of sales in the quarter exceeding our expectations and the integration is proceeding well. Now let me start with some perspectives on FAP production levels in Q3 were largely positive across most classes of semiconductor devices. However, as expected.
And as we discussed in our second quarter call, there have been some capital spending push outs, particularly at memory makers. As you know, our sales for mostly unit driven and are diversified across all types of customers and all parts of the semiconductor manufacturing supply chain. So while we are not immune to short term fluctuations in the industry capital spending, the impact to us is relatively muted. This can be clearly seen in our recent results. While the industry has experienced significant sequential declines in tool shipments, and new fab construction in the quarter, our organic sales, as you would expect, were down modestly on a sequential basis We performed well across our geographies as continued steady wafer production driven demand and the addition of sales was partially offset by weaker sales of NAND related CapEx products.
This slowing in capital spending at several memory makers can be seen in our sales in Korea, which were up a modest 2% year over year after a record first half. We expected sales in Taiwan and China, to grow stronger than they did, up 15% and 37%, respectively, driven by higher fab production, node transitions and the impact of the SAES acquisition. Sales in North America and Japan were up 13% 18%, respectively, year over year, reflecting strong fab activity, the increased opportunities at chemical manufacturers, offset by sequential weakness in sales to equipment makers. Finally, steady production levels in mainstream fabs continued to boost our sales in Europe. Putting the short term industry trends aside, we continue to believe that secular semiconductor demand will be very attractive as demand drivers transition beyond PCs and mobile devices to IoT artificial intelligence virtual reality, cloud Computing And Automotive Applications.
As a result, we expect wafer starts will be growing at least twice the rate of GDP over the years to come. More importantly, for Entegris, the significance of new materials and the need for greater purity continued to grow as device architectures become more complex. As a result, we have never been Integris operates at the crossroad of materials and purity, and we have the broadest portfolio of solutions in the industry. From highly engineered materials and chemicals to the most advanced filters and purifiers to a broad array of solutions that moves and protect these critical process materials. At the core of our value proposition, is helping our customers to achieve higher heels and new levels of device reliability and device performance.
Not thought possible a short time ago. We demonstrated these capabilities across our portfolio in the third quarter We reached record sales in several product categories, including advanced wet etch filters, bulk photoresist filters, AUV, reticle parts, and advanced deposition materials. In addition, we are very excited about the upcoming launch of a series of new products including a new range of sub-five nanometer filters and new materials for 96 layers and above 3 d9 devices. Finally, we are also very pleased with the market acceptance of the solutions The sales platform gives Entegris the unique capability to provide a complete portfolio of gas purification solutions for both bulk and specialty gases to address our customer's heightened sensitivity to molecular contamination. With PSS, our Instrumentation Solutions are enabling advanced logic and memory makers to perform in line particle sizing analysis.
Helping prevent costly yield issues. The integration of PSS is largely complete and we are making very good access to our global sales channels have uncovered new opportunities. And in both cases, our revenue in the second half of the year is tracking ahead of our original expectations and well ahead of In conclusion, despite some industry headwinds, we showed the resilience of our business model and we delivered strong results in the third quarter. We are very well positioned for another record performance in 2018, and we expect our positive momentum to carry into 2019. I will now turn the call to Greg for the financial detail.
Greg?
Thank you, Bertrand. We are pleased with our execution this year Through the 1st 9 months of 2018, sales of $1,100,000,000 were up 16% over the same period the prior year. On a non GAAP basis, EPS of $1.42 increased 39 percent from the same period in 2017. For the third quarter, sales of $399,000,000 were in line with our guidance and grew 15% from a year ago. Q3 included a full quarter of SAES, which contributed $29,000,000 to sales.
Excluding SAES, sales were down 3% sequentially in third quarter. The primary drivers of that sequential decline were as you would expect more tied to CapEx driven products like gas filtration and fluid handling with the primary source of weakness being the NAND market. Q3 GAAP diluted earnings per share was $0.34. On a non GAAP basis, we achieved earnings per share of $0.46. Moving on to gross margins, GAAP gross margin included SAYS Pure Gas acquisition.
Our non GAAP gross margins of 46.4% were up slightly from last year, and were in line with our expectations for the quarter. The sequential decline in gross margin was primarily driven by the one time $2,900,000 insurance gain in Q2 and the full quarter impact of SAES. We expect gross margin to be essentially flat on a non GAAP basis in Q4. GAAP operating expenses included 21,400,000 of amortization of intangible assets 750,000 of integration costs associated with the purchase of SAES Pure Gas and 500,000 loss on the sale of a small underperforming cleaning services business that was part of our AMH division. Non GAAP operating expenses in Operating expenses included a full quarter of SAES.
We expect non GAAP operating expenses to be $90,000,000 to $92,000,000 in the 4th quarter. Non GAAP operating margin was $93,900,000 Our Q3 GAAP tax income mix. The Q3 non GAAP tax rate of 23 percent or equal to approximately $0.02 per share. This reflects the increase in our core rate described above and additional discrete items. We expect the Q4 non GAAP tax rate to be 20% to 21%.
Adjusted EBITDA for the quarter was $110,000,000, dollars or 27 percent of revenue. Specialty Chemicals And Engineered Materials, or SCEM, grew 5% from a year ago. The quarterly sales growth was driven by Adjusted operating margin for SCEM was 24.3%, up from the same period last year. The sequential decline in operating margin from Q2 was driven primarily by the 2,900,000 benefit from the insurance claim in Q2 previously mentioned. Q3 sales of $151,000,000 for microcontamination control or MC were up 30% from last year.
Q3 included a full quarter of SAES, which added $29,000,000 to sales. Excluding SAES, the growth in the quarter was 6% and reflected strength in liquid filtration, offset by clients in gas filtration sales to OEMs and integrators. Adjusted operating margin for MC of $31,600,000 declined from last year. Support advanced applications. It's worth noting that we have not yet to realize any of the 5,000,000 of annual cost synergies related to the SAES acquisition.
Consistent with our original plan, we expect to realize approximately half of the synergies in the first half 2019 and the balance by the end of 2019. Q3 sales for Advanced materials handling or AMH of $116,000,000 were up 11% from Q3 of last year. The increase from last year impact of the PSS acquisition. Adjusted operating margin for AMH of 17.2% increased from Q3 last year. The realization of cost savings initiatives, as well as the favorable impact of PSS.
Wrapping up AMH, I'd like to note that late in third quarter, we divested a small non core cleaning services business with approximately $8,000,000 in annual revenue. The divestiture will have a modest upward bias on operating margins going forward. Cash flow from operations year to date $221,000,000, up 7% from the same period last year. Free cash flow year to date was $146,000,000, or 13% of revenue. Our cash balance at quarter end was $295,000,000 and total long term debt was approximately $651,000,000.
I'd like to note that we're exploring a possible refinancing of our term loan and putting a revolving credit facility in place. Uses of cash during the quarter included $28,000,000 of total CapEx We expect full year CapEx to be 105000000 to 115000000 in 2018. Consistent with our capital allocation strategy, we used $10,000,000 for our quarterly dividend and $10,000,000 for stock repurchases during the quarter. We have approximately 75,000,000 of availability under our share repurchase authorization and we expect to be more active with share repurchases FX sales to range from $380,000,000 to $400,000,000, and that includes the impact of the small divestiture previously mentioned. At these revenue levels, we In summary, we are pleased with our execution.
For Q3 despite a weaker than anticipated industry environment. We demonstrated the resilience of our predominantly unit driven model, Our recent acquisitions are performing ahead of Tegris.
And we'll take our first question from Toshiya Hari with Goldman Sachs. Please go ahead.
Hi, good morning, and thank you so much for taking the question. Bertrand, obviously, there's there's a bit of a slowdown in the CapEx side of your business. My understanding is that it's about 25 30% of overall revenue for you. How meaningful and how significant is the decline in that 25% to 30% of your business today? And what's the outlook for the 6 months or so?
Of our business represents about 30% of our total revenue. The CapEx business for us was up sequentially 15%, including of, the benefit of the SAES acquisition. If you exclude SAES, our CapEx business was down sequentially about 10%. To be honest, it was a little bit more than we originally expected. And that's due to a much sharper contraction than expected in our in line gas filters dispense systems, flow controllers, a series of products that we sell to equipment makers.
On the bright side of things, as I mentioned in my prepared remarks, a number of CapEx product lines did actually really well during the quarter. Our FOUP platform continues to perform at record levels. We are actually in the process of adding capacity in Malaysia. Capacity that is expected to come online later extremely well. Those product lines have very strong backlogs.
The book to bill ratio continues to be greater than 1 as we enter the 4th quarter. And those 2 product platforms will continue to benefit from the need for greater process control, the need for greater purity in the advanced labs. So the point I'm trying to make here is that we have a number of very diverse product lines that we call, CapEx and Entegris, some of which are clearly tied to equipment sales. And we saw very sharp contractions in those product lines. Some of our CapEx products are tied to new fab, and we saw also moderation in our revenue for those products.
And then finally, we have a number of product lines that are really almost in a class of their own. That are more tied to the need for greater purity, the need for better process control. And I would expect those products to continue to defy the the gravitational forces of the industry CapEx somehow if I can put it this way.
Okay, great. Thank you. And then as a follow-up, on the wafer start side of your business, it seems like there are multiple puts and takes when I think about your different segments and your different customer base. I think memory is kind of steady despite the price declines because they tend to to keep utilization rates high, perhaps logic is a little bit stronger and maybe lagging edge might be a little bit weaker. Given the weakness in automotive And Industrial, but over the next 6 months, how do you sort of view your overall wafer start business trending?
So wafer start was essentially flat quarter over quarter for us. And we believe that wafer starts will continue to remain relatively attractive, putting aside the seasonal slowdown that we expect to see in Q4. But if you think about MSI, if you think about wafer start on a more secular basis, We continue to believe that all of those growth drivers remain absolutely intact.
If I could squeeze one last one for Greg. You talked about the divestiture in AMH. I think you mentioned the product group, had about $8,000,000 revenue on an annual basis. But the improvement it could drive on the profit side of things can you help us with the magnitude there? And in terms of how you think about OpEx into 2019, you talked about the potential cost synergies with SAES, but for Classic Entegris, obviously, you guys continue to be committed on the R and D side, but how are you on the SG and A side, if there is a more serious and meaningful downturn in semiconductors?
Thank you.
Okay. Yes. So first of all, with regard to the AMH divestiture, you point out $8,000,000 in revenue Given the relatively small scale, I mean, when I said modest, it's probably literally like 20 basis points of tailwind. So it's not significant, but it's certainly an upward bias. With regard to I'm sorry, the second part of your question.
OpEx into 2019?
OpEx, yes, with regard to OpEx, So our OpEx has been pretty consistent through this year at right around $90,000,000. I mean, it stepped up between Q1 and Q2. As a function of in Q2 was the addition of SAES and then in Q3 it stepped up a little bit again as a result of PSS act was backwards. Q2 PSS, Q3 says As we look at kind of that core OpEx going forward, I mean, I think we would expect next year to just really inflationary increase is the other thing I would note though in terms of flexibility in that. I mean, we do have a number of areas, where we've got or discretionary, things like travel and entertainment.
We use a lot of project costs on the ER and D side. So those things could flex down We also have a fair amount of flexibility in our variable comp at the revenues levels that we're running at. Now our variable comp number is pretty meaningful and that would obviously flex down if the environment were to soften significantly. So I continue to believe our cost structure is quite flexible.
Okay. Thank you so much.
And we'll take our next question from Patrick Ho with Stifel. Please go ahead.
Thank you very much. Bertrand, maybe just as a follow-up to the previous question regarding wafer starts and maybe specifically for your specialty chemicals and engineered materials business. Given some of the volatility that's going on right now in the 3 d NAND market, how do you look at that business segment given that that's a very strong growth avenue for the company but it's also one that does require a lot of advanced deposition materials and other specialty chemicals. How do you see the outlook for that as we go through kind of a correction stage with 3d NAND.
I think the outlook is actually very bright for our SCEM division. If you look at 3, this division actually, if you think about Advanced Materials, if you think about our graphite business, those 2 product lines delivered record sales, in Q3, record sales for that division in China, record sales in the division in Korea. So a lot of those solutions are consumable products. So it is true that there is a softening in the 3 d NAND level of CapEx, but I don't expect that to meaningfully impact the prospects of SCM. A lot of the opportunities are really around consumable products.
That will be introduced as the industry transitions from 64 to 96 and later on from 96 to 128. So I think that the growth prospects remain absolutely intact. Remember that FCM year to date has been growing at 10%. We expect industry or right now the industry MSI is probably growing at 6% to 7%. So that's about 3 to 400 basis point over the industry.
So really good performance this year. I would expect another really strong year next year.
Great. That's helpful. And maybe as my follow-up question in terms of some of the trailing edge stuff, we've heard now from some of the the leading analog and I would say mature device makers provide a little bit of a softer outlook at least in the near term and there appears to be some digestion on their end as well, particularly inventory front. Given that you still have very good exposure to the trailing edge, which is part of your whole mix strategy. How do you look at that marketplace over the next few quarters?
Yes, it's a good question. And I would say, Patrick, it's a hard question to answer because the answer is very much customer specific. And that's one of the things we're trying to capture in our guidance for Q4. I think that we would see probably greater than normal seasonality at some of those mainstream fabs. I don't expect that this softness is really here to stay.
And as I mentioned earlier, I would expect wafer starts to be very attractive going into
And we'll take our next question from Sidney Ho with Deutsche Bank. Please go ahead.
Good morning. Thanks for taking my question. Just following up to last couple of questions, this may be a little early, but do you have a view on how CapEx and MSI will do for the first half of next year versus second half of this year and also the full year of 2019. Clearly, investors' concerns have been on the CapEx side, but do you think MSI will also slow down as well given how strong they have been in the last 2 years?
Yes, so I can provide views on the second half of this year. And I think we are somehow suggesting that in our guidance. So if you think about the second half versus the first half of this year, we expect the industry CapEx to contract in the high single digit. And we expect wafer start to be modestly up and second half of the year versus the first half of and again, this year, I'm talking about 2018. And that's really the context at which we expect to operate in Q4.
As it relates to 2019, it's just too early to provide a quantitative view of 2019. But having said that, as I mentioned a few times on the call today, We continue to expect a positive wafer start environment in 2019. We expect more node transitions in logic, in foundry, in advanced memory next year. That will bode very well for a number of new products that we've been developing in very close partnership with the technology leaders in these areas. And finally, as I said, we feel really good about our recent acquisitions.
They've been performing very well. They have a very strong, order book. And I would expect them to be once again very strong contributors to our growth in 2019. So while I will not put that in numbers for you quite yet, I would say that I think that 2019 will likely be another record year for Entegris.
Great. Just to follow-up on that, if I look at your full year next year 2019, curious if you think a 10% growth rate year is possible given just anniversarying your sales acquisition alone gets you like four points of growth?
Srinet, as I said, you would have to wait until the February call for me to translate my quantitative comments into numbers for you.
All right. That's fair. I'll try another one. There have been some concerns on the macro front side. Maybe just some inventory adjustments in the semi Semiconductor Land.
If we assume the economy will hold up well, based on your experience, how long do you think these adjustments will last And what are some of the data points that you'll be watching for and how quickly can you adjust your operations if things do slow down?
So certainly, this is a factor that we are watching very, very closely. It is very hard for us to really understand the level of inventories of our direct customers, and it's even nearly impossible to understand the level of inventory of their customers. But certainly, this is going to be a very important factor for the industry going forward. I would only say as Greg mentioned earlier, that we have a fairly flexible business model. We have demonstrated time and time again that we can flex up and down, as our level of business fluctuates, This is the reason why we have set out some of those target models at different revenue levels to give you full visibility on the type of bottom line performance that you would expect at different revenue levels.
And those scenarios are backed by very precise and very actionable plans within the various divisions. So we don't expect very significant contraction in the industry and in our business going forward. But if it was to happen, we are ready to deal with it as we have done in the past.
All right. Thank you very much.
And we'll take our next question from Mike Harrison with Seaport Global Securities. Please go ahead.
Good morning guys. This is Jacob on for Mike. In AMH, could you guys quantify how much the cost saving actions benefited Q3? And then are there any incremental cost savings that are going to be rolling in Q4?
What I would say in that business, Jacob, I mean, we're watching the cost structure very closely. We really talked about a year ago. We talked about 3 different things happening. 1 was exiting a facility, which we did in Q2. 2 was divest this business, which we did in Q3 and then cost reductions the cost reductions that we made, I mean, if you if we were to look at the OpEx of that business, the cost reductions that we made in the later part of last in the earlier part of this year have essentially stuck, so to speak.
But what we've seen in that business is just as we've undertaken these initiatives, the volumes have come down and that's probably our highest fixed cost structure business. As we look at that business going forward, however, when we view the operating margins being stable with an upward bias as volumes come back.
Alright. And then in SE, you had a peer that reported today that saw double digit revenue growth in their consumable business and then they guided to double digit revenue growth next quarter. So comparing this to your 5% growth, I guess, was 5% in line with your expectations? And what do you think the market grew at in Q3?
Yes, so it's a good question. I think that, as I mentioned, some business units had record quarters. I mentioned or graphite business or Advanced Materials businesses. And they've been growing in the mid teens. Year to date.
So very strong showing for those business units. What we experienced in Q3 3, however, was we saw actually a little bit of contraction in our coating business. Then we saw a little bit of contraction in our specialty gas business. The reasons are slightly different. If you think about the coating solutions, those are, what we do is we coat chamber components Those chamber components need to be refurbished.
That's why we call those coating solutions consumables. But we are in the very early innings of that opportunity. So a lot of that business is still subject to the first tool shipments. And as you know, the tool shipments contracted a little bit more than expected sequentially in Q3. So that was kind of a headwind for SCM in Q3.
The other thing was specialty gases. We had actually some distributors that, manage their inventory a little bit more aggressively than we were expecting the inventory of gas cylinders. Frankly, this is really not something we're concerned about. We have, in the past, described similar situations, numerical, the situation in Taiwan last year, where we saw pressure on that particular product line. We were expecting that the business would come back and it did come back very strongly in Taiwan.
This year, it was happening in Japan. We saw some pressure around specialty gases in Japan. We expect that business to come back very strongly. I have no reason to believe it or not.
All right. Thank you very much.
And we'll take our next question from Chris Kapsch with Loop Capital Markets. Please go ahead.
Yes, good morning. So toggling back and forth amongst a couple of calls. And so apologies if you touched on this already, but if I look at your revenue trends by geography. And it looks like you have a nice chart year to date by country essentially. But if we compare that to what you had posted for the first half of the year, it looks like, if there is sort of sequential softening, it was most acute in in South Korea and Japan.
And I understand these numbers can get distorted by specific year ago comps in any given quarter, but But generally, it looks like the so year to date, Korea was up 19% in Japan. 32%. Through the first half, it was 28% 40% for those 2 countries. So suggesting to me where it's Taiwan, it looks like it was stronger. So this suggests to me that if there's some push out of demand trends, it's in those 2 regions.
So wondering if you could just speak to that, I think we can conclude that the issues in CRE are tied to the memory market. Would you characterize that and do you think this is temporary or how much of this can we extrapolate to 2019? And then maybe if you could just elaborate a little bit more on what you just touched upon with respect to Japan?
So Chris, I think you did an exceptional job answering the first part of your question, but you're right. I think if you think about the sequential trends that we experienced in each of the major countries, first I mentioned in my prepared remark that we were expecting to see the strengthening in our Japan in our Taiwan sales for the back end of the year. We were expecting to see increased fab we're expecting to see no transition and that happened and that translated into a sequential increase in the high single digit and that's excluding the SAES impact, I mean, the SAES Pure Gas impact. If you think about China, Excluding, once again, the favorable impact of sales, China was down modestly on a sequential basis. And in China, we saw actually 2 very conflicting factors.
On the one hand, we saw record sales of SCM products. During the quarter, but that was offset by, as you mentioned, as you would expect, by significant contraction in AMH revenue, as several new fab projects were either completed or slow down. The other regions behave as you would expect, given where we are in the industry cycle, Japan and North America were down sequentially in the low to mid single digits. And it's really mostly due to the contraction in our equipment business. Remember that Our revenue to OEMs, customers represent about 12% of our global revenue.
But Japan and U. S. Are where the vast majority of our equipment customers are based. So that's where we saw the biggest impact obviously. And as you mentioned, Korea was down 9% roughly sequentially.
And again, we saw a record quarter in our Advanced Deposition actually in our SCM business in Korea. But that was offset, as you mentioned, by a quite a reduction in our fluid handling sales, as we saw a decline in investment in new fab new non fab, in Korea. So that's the background. I think your question about to what's my view on the overall business environment? Is it a short term phenomena?
Is it a longer term phenomena? We don't really know. And I think that's one of the reasons we decided to go ahead with a range for our guidance that is a little bit wider than usual. We're trying to account for different types of scenario going into Q4. Having said that, as I mentioned, I think that the secular growth drivers for the industry remain absolutely intact.
And as I mentioned, I think that we will have a very strong 2019 as a company.
Can I just follow-up on one customer specifically? Because I believe from prior meetings I've had with you guys that intel specifically, for their 10 nanometer node was, I think you have I want to say disproportionate, but a number of additional process of record wins for that node. And that transition has been delayed multiple times, but there's some evidence that that's now, being resolved. So just wondering if you've started to see any benefit from that node transition yet or is that something that was more likely to benefit, I don't know, the fourth quarter were really more of a 2019 kind of event. Thank you.
So, Chris, I will not characterize our competitive position at any given specific customer, but as I said earlier, in general terms, we've been doing extremely well at the very leading edge. We are looking forward to no transitions in logic in foundry and in advanced memory. We are we've seen a little bit of a benefit in the back end of this year. I would expect more benefits as we and hopefully that helps you.
And we'll take our next question from Christian Schwab with Craig Hallum Capital Group. Please go ahead.
Actually, my question was regarding Intel and its potential positive impact on you. I don't have any other further questions. Thanks.
And we'll take our next question from Amanda Scranati with Citi. Please go ahead.
Hi. Just sort of follow-up on that. Can you, in any way, quantify the impact that you would see from a steeper 7 nanometer ramp at TSMC and 10 nanometer ramp at Intel, kind of in an environment that's offset by weakness in sort of the lagging edge industrial and automotive environment?
As I mentioned, Amanda, I will not quantify opportunities by customer. But remember, I mean, the reason why we have cast our growth objective on a relative basis is in fact to try to capture the benefits of all of those various opportunities. And overall, again, we've said that the opportunities that we are seeing across our portfolio, across our customers at those very advanced nodes will put us in a position to, continuously outpace the market by about 150 to 200 basis points. If you look at our guidance for the full year this year, this is what we will do. We're looking at an organic growth of about 10%.
In an environment where the industry will be growing at about 6%, 7%. So we should be doing really well and growing nicely above the industry. We've done that last year. We've done that the year before. And as we expect a number of node transitions into 2019, I think that this will set the stage for us to perform once again very strongly in 2019.
Can you just clarify a little bit more the guidance for next quarter? Is this still assuming that most of the decline is coming from the CapEx side of the business with some sort of stability in the unit driven business or is there also some weakness in unit driven as well built in?
It's a good question, Amanda. We expect our unit driven business to be up sequentially next quarter in spite of what we would expect, seasonal softness in terms of wafer starts. But that will be offset by continued decline in some of our CapEx products.
Great. And then the up despite the seasonality, is that mostly driven because of space or is that just because of the different node transitions that we're working through at this point?
Did you ask if it was driven by SAES? No, it's not, I mean SAES, SES has been performing very well in Q3. We expect SAES actually to perform, extremely well in Q4. If you recall, we had an expectation of the SAES Pure Guys product line to contribute $50,000,000 to $55,000,000 in the back end of the year. That expectation has moved up and we now expect sales to be contributing $55,000,000 to $60,000,000 in the back end of the year.
And again, that's, I think, a fantastic performance given the prevailing industry CapEx environment. So great performance by the team over there.
Great. Thank you.
Thank you.
And we'll take our next question from Toshiya Hari with Goldman Sachs. Please go ahead.
Yes, sorry, and thank you for taking the follow-up. Bertrand, you talked a little bit about your business with the OEMs, and primarily in North America and Japan. I'm just curious, how much visibility do you have when it comes to how much inventory they have, whether it be gas filters or any other components that you would sell into them?
Not as much as I would like to have, Toshiya. And it's one of the things that frankly caught us by surprise in Q3. Our especially our inline gas filters went from quarterly revenues in the very high single digit to almost something next to 0. And it's very hard for us to understand exactly where the gas panel integrators or the equipment makers inventory sit right now. And obviously, that's going to be a big factor, in terms of what we can expect in Q4.
We have no doubt that this part of the business would snap back actually very strongly The real question is, will it happen in the middle of Q4 at the end of Q4, or will we have to wait until the beginning of Q1. So I think it's temporary. We our competitive position is strong or even stronger than ever. But, the level of inventory will dictate how soon this business will actually snap back. But it will snap back.
Okay. I guess if it's close to 0, there's not much downside. So that's a good thing.
Thank you.
And at this time, there are
no further questions.
And I would like to turn it back over to Bill Seymour for any closing remarks.
Thank you again for joining the call. Have a great day.
And this does conclude today's call. Thank you for your participation. You may now disconnect.