So I think we're gonna get started now. My name is Steve Kantor.
I'm the vice president of corporate relations for Entegris, and I'd like to welcome everybody to the Integris 2015 Analyst Meeting. Before we begin, I just want to, run through a few things.
So the first thing is,
our agenda, we have 4 speakers today, and I think the prepared presentation should take about an hour. First, we have Bertrand Law, our, CEO and president. We have Todd Edlund, SVP and Chief Operating Officer Jim O'Neil, our Chief Technology Officer and Greg Graves, our CFO, I'd like to ask, you all to hold your questions until the end of the presentations and then we should have enough time to cover everything. Second thing I'd like to cover too is, we may be making forward looking statements today. And as such, we encourage you to read our disclosures with the SEC very carefully to understand all the risks and uncertainties regarding those statements.
Before I turn it over to Bertrand, I do want to let everyone know in the room that we are having a reception over at the w from 5 pm to 8 pm this evening. And you should have cards in front of you that will give you the details. And if you're interested, we do have some product over there and some refreshments and, hope to see you there if you have time. And with that, I'd like to turn it over to Petron.
Thank you. Good afternoon, everyone. Thank you for joining us here at the Semiconductor West today. It's been a little over a year since we completed the acquisition of ATMI. And we thought of the best way spend our time together today would be to reflect on our recent performance, the performance of the last 12 months, and to share our views about the future and the potential of the new integrase platform that we have created.
What about the course of our respective presentations, Ted, Jim, Greg and I will be touching on all of those major, themes. The ATMI acquisition has been a resounding success. And is creating significant value for all stakeholders, our investors, our customers and our employees, We are optimistic about the prospects of the semiconductor industry. We believe that the internet of things and advances in process technology will be good for the industry and will be good for Entegris. And as a result, our SAM will expand.
We have a very unique value proposition to offer, value proposition based on a broad technology portfolio, deep application knowledge and long standing customer relationships, and we will leverage all of those capabilities to gain additional market share. We have a stable business model We are not an equipment company. Most of what we do is unit driven. Then finally, I have the privilege of leading a very talented team. I am proud of our operational and financial discipline, and I expect significant expansion of our EPS for the many years to come.
So interest has changed a lot in the recent past, and I thought that the few key numbers could be helpful. Those are not estimates, they are not projections. These numbers reflect what we have accomplished thus far. They are trading 12 months metrics. So as you can see, the top line of integrase now is exceeding $1,000,000,000.
The vast majority of our revenue 77 percent to be precise is unit driven and recurring in nature, which provides stability to our business model and stability to our financial performance. We generate very healthy levels of profits. Our EBITDA margin of 22% compares very favorably against our peers in the semiconductor space, but also against more diversified specialty chemical companies. And finally, the last 12 months have provided you with an opportunity to get a glimpse at the earnings power of the new platform, and Greg will share with you details around a pathway to continue to expand our EPS going forward. So a year ago, any 2014, Greg and I met with many of you, and we shared our excitement about the impending at the time impending acquisition of ATMI.
The transaction that we characterized is very compelling, both financially and strategically. And I'm here to say that I'm very pleased with how things have turned out. If you look at this very crude, scorecard I would say that the integration is now complete. More specifically, our sales and application teams as well our technical platforms are fully integrated and fully aligned. And Thad and Jim will describe to you why those two platforms are so complimentary and how Integris is now in a position to provide unique value to its customers.
$30,000,000 of merger synergies that was our target. Those $30,000,000 of synergies are in place as of now. And that is 6 months ahead of schedule. Furthermore, we spend less than originally planned to realize the synergies. So we're feeling good about that as well.
The acquisition of ATMI did provide the opportunity leverage the balance sheet. And in the process, we lower our cost of capital. And then we are starting to unlock EPS growth. And I would expect that to continue as we continue to grow as we start to capture the full benefits of the merger synergies as and as we deliver the balance sheet. Now having said all of that, I would say that beyond the short term financial success, beyond the larger scale that we have created, What is most exciting to this leadership team is the opportunity and the desire to create a better So one one of the major conditions to our future success will be the ability to maintain our growth momentum.
So let's talk about growth for the next few slides. And as you know, 80% of what we do ties to the semiconductor manufacturing process and more specifically to wafer starts. So this chart illustrates wafer start growth. And we are using a proxy for that. That's the MSI index.
So the 1,000,000 of square inches of silicone produced. That's the red line. And we compare that to the amount of capital that the semiconductor industry has been spending in wafer fab equipment, and that's the blue line. And to make it easier to read, we have normalized the data. We are indexing it to the activity level of 2001.
Now let me make a few comments and observations around all of that. First of all, Again, we are not an equipment company. Most of what we do is unit driven. So our business is really more closely aligned to red line. So certainly there is some volatility in our business, as you can see, but it's nowhere near as dramatic as what pure equipment companies are experiencing, and you can see that in the difference in amplitude of the cycles.
And then lastly, and most importantly, we participate, integrates best participate in the 1 segment the semiconductor industry that has been and is expected to grow So it's also fair to say that the drivers beyond IC demand have been fairly hard to predict. Diverse erratic at times in the past 15 years. We all remember the years when it was as simple as trying to estimate the new timing of the Windows product release cycles and try to understand how it would impact the demand for new PCs. And then our attention started shifting to the rate of penetration of new form factors, notebooks, first, and then tablets and most recently smartphones. I'm here to tell you that going forward, I am convinced that the internet of things will have a very significant and lasting impact on the semiconductor industry.
Cisco estimates today 10,000,000,000 devices are connected to a network in one way or another. Cisco further estimates that by 2020, 40 to 50,000,000,000 devices will be connected. So we are entering an era that will actually reshape our lives, our daily lives, an era where many more devices will be connected, and then we'll require better network performance. It will require more powerful computing capabilities, which in turn will be demanding ever larger and more energy efficient server farms. And yes, it will also most likely require less obtrusive and more user friendly and devices.
So in other words, hyperconnectivity and big data will be driving IC demand, which in turn will be driving wafer starts and ultimately, we'll benefit the unit driven business model of Entegris. Now I can already hear some of the skeptics in the back of the room whispering. Yes. But yes, the internet of things would have a big impact, positive impact on, IC demand, but many of those devices will likely be produced on tradingedgetechnology. So my answer to that is, 1st of all, who knows?
But more importantly, it doesn't matter. For Entegris, it really doesn't matter. And for those of you who are following Integris very closely and those of you who understand our business model well, you know that 2 third of our semiconductor business comes from products and solutions that are used and consumed daily in trading edge fabs where we have very strong market share. So it's true that we like to talk about the leading edge and today will be no different. We'll talk a lot about the leading edge.
And we don't do that to confuse you. We do that because every node transition is a unique opportunity for integrates to recast its value proposition. And what it means, it's a unique opportunity to increase our Sam and increase our market share. Those windows are narrow, but once we lock our solutions into the fab recipe, our solutions are sticky, and we can enjoy many years of from this slide, startups, wrong lives. So that's why we spend so much time, so much also many resources, and so much R and D money on the leading edge is really to make sure that we actually benefit from our successes for many years to come.
So the punch line of all of that is that I think that the internet of things will benefit trading edge hubs I also believe it will benefit leading edge fabs. And in both cases, integrase will benefit from this trend. The number of our important aspect of our business model is the fact that we sell solutions across the ecosystem. We sell a broad array of solutions to fab customers, of course, but we also sell high value components and subsystems to OEM customers. And we also sell filtration and packaging solutions to name only a few to materials suppliers.
So Jim will tell you why dispositions integrase uniquely to develop defect reduction and yield enabling solutions for our customers. You see contamination control, safety, cleanliness, stability of process chemistries are increasingly important considerations for this industry. And they present very complex challenges that are very pervasive across the ecosystem and across the supply chain. And let me tell you, nobody is better equipped than integrase to understand those challenges and to provide solutions. So from a financial standpoint, the value of our position in the ecosystem is really around the very, well balanced and diversified, customer profile that you can see on this slide.
So how do we win in the semiconductor ecosystem? We believe that to win, you need 3 distinct attributes. You need a very broad technology platform. You need deep and real global capabilities. And by that, I mean, talent, I mean, application knowledge, I mean, technical labs, and you need a very strong ongoing commitment to operational excellence.
Todd Hedland will dive into all of those considerations in great details. And you will appreciate that number 1, Integris has all of those 3 attributes. And that we were number 2, we will be putting them to good use to create unparalleled value for our customers and in doing so, continue to expand our market share over time. So if I want to summarize my previous 4 or 5 slides, which were focused on our core semiconductor market, I would say that for the in which Entegris will be doing very well. In addition to that, we will be supplementing our growth strategy with a sharper focus on adjacent markets.
We are constantly looking for ways to leverage the integrates, platform in new areas We're looking, for example, for new applications that require cleaner, better, more performance materials, or we are looking for new process technologies that are more susceptible to complex contamination challenges. Today, those non semi applications represent about 20% of our top line, and I would this ratio to continue to expand over time. In closing, I would like to share with you our short term to midterm priorities. And I will do that at very high levels since Greg will be going in more details in his section. Let's start with the, financial objectives, which are pretty straightforward and are consistent with what we did show you about a year ago.
We want to continue to grow and we want to grow fast 3rd and our underlying industry by about 100 to 200 basis points. We want to continue to deliver very healthy profit levels in accordance to our target model. We will continue to generate strong cash flows that we will use in the short term to pay down our debt. We will continue to invest to be better at what we do and to earn the right to be viewed by our customers as their indispensable strategic supplier, and that's something we will never take for granted. And then lastly, I would say that we are very proud of the quality of our execution.
And you have the commitment of this team that we will continue to run our business with rigor and with discipline. With that, thank you. And I'll turn the mic to you, Greg.
Okay. I'll turn it over to Todd
just to really kind of summarize. You know, the key things that I take away from Trump's presentation, A, as this ATMI acquisition has gone really well. You can index our stock price against almost anything since we announced it. And we it shows up in the stock price and it shows up in the numbers I'll talk about. Being we really like the unders we like the industry, the internet of things, we think, will continue to drive unit volume, big data, hyperconnectivity.
So our underlying industry dynamics are good. And I think specifically, we like the way we're positioned in that industry because A, we're, unit driven and B, we saw everyone and we're beholden to none. What's important about those two points is it makes our model more stable. When you look at specialty chemical companies or real tech companies like filtration companies that command much higher multiples than we do. It's about the stability.
And we think within semiconductor, you know, we'll, you you know, as stable as one can be. With that, I'm gonna introduce Todd Edlund, Tom is our chief operating officer. He's been in that role for about 6 months. In that role, he's responsible for all of our business units both the CMH and the electronic materials. So with that, Todd,
thanks, Greg.
Good afternoon. Thanks for coming. I'm going to talk a little bit a little bit of a different splint than what Bertrand talked about. He talked about, you know, the integration of the companies has gone well. It's a great combination.
So I look at it from a perspective of, does it make us a better partner to our customers that enable us to do things now that we couldn't do before? And I'm pleased to say that that's what I'm seeing, for my chair, which is really looking at R&D Product Development strategic direction We're starting to really see the opportunities. I'll describe a little bit of that to you and then Jim O'Neil will follow-up with some more details about other things that are going on in the industry, affect us? We're not advancing. Oh, there we go.
Okay. Just make sure. Got it. So, we're trying to talk about this 3 pillars of success. These are the things that we need to do to address our customers' needs.
So the portfolio is really about, are we able to help customers get to 16, 14 nanometer, 10 nanometer, 7 nanometer, that's the portfolio. Do we have the solutions that they need when they need them? So be caught up, be ready, be able to be a partner to them as they as they advance their state of the art. We can't just do that. We also have to do it, because as you saw, we serve the global ecosystem of semiconductor.
We have to do it globally. And and what I mean by that is locally. We have to be able to be in Xinchu with the same level of talent that we have when we're dealing with North America. We have to be in Korea with the same level of talent that we have in Xinshu, Japan, same thing. So I'll talk a little bit more about that.
But being able to be local is the only way that you get invited into the fab to work on a daily basis or that we can get the customers to come work with us in our facilities on a daily basis when we've been able to do that. And then further, there was a time when that was good enough. You got a good product. You got the right price. We'll buy it.
That's no longer the case because the demands of, for yield and and, reproducibility of our customers' processes that are driven back to us to make sure that we've got supply chain, manufacturing capabilities, quality systems that are gonna ensure continuity supply, safety of supply and, and I'll also be able to drive down costs because we need to do that. And we need to help our customers do that, and we actually do that very well. So all three of these are really essential to being an enabled trusted partner and semiconductor. And if we do that, we're going to deliver this value proposition, which is higher yields improved performance in terms of the chip capabilities and reduce costs. And we want to help our customers achieve all three of those.
So the breadth of our portfolio, so we've probably seen this slide from us before, and I'm not going to dwell on it because Jim's going to talk about it in a little more detail and give you some specifics about how what we do in different, for different inflections happening in the industry spreads out across the company. An interesting thing to think about, if you look at Entegris, you look at just pick any of these main fab processes, and we serve all of these. These are some of the solutions that we have for them to think about what's unique about this company. So you'll get clean. So what it should clean processes, you know, we make the chemistries.
We make specialties, formulated cleans. Actually make the containers that they go in so they get the fab in our packaging. We do the filtration during the manufacturing, and then we do the fluid handling and distribution throughout the fab. And through equipment. So we actually can touch the liquids from making them, all the way through till they're used on the wafer.
So same thing in litho, we make packaging that actually takes resist and, solvents to the fab keeps them in a pristine state helps with the dispense you know, to the tool and then the actual dispense to the wafer. In a lot of cases, filtering those filters, those resist along the way, both the manufacturer and in the fab, doing gas and liquid purification around the whole litho cell, around track and scanner, and then actually handling the reticle pot. So, you know, we see so many parts of these processes that we have a unique perspective that's really a value to and to our customers to be able to have a have come in and help them advance these processes. Implant's the same way from delivering very, very toxic chemicals, gases in a very safe way. So actually providing, some of the materials used in the fab handling the wafers with our trucks doing gas purification around those processes and then providing, coatings and materials that extend the life and improve the CO of the implant tool.
So just three examples, but, you know, this kind of depth across the process gives us a unique perspective to help them find the sources of issues, help them achieve their ramps. So we've been we're we're in a lot of collaborations, and we've talked about this before, and it's not thing that you can just, want to do. It's something you have to be really invited to do by the customers. So how do we do that? We've probably seen this from as well.
And this is something Bertron actually constructed for us years ago, helped describe how we become that relevant trusted partner to the com to the companies that we work One of course, listen. You have to be there. You have to be locally. You have to be in the fab. They have to be working with you directly.
You have to be able to give them solutions to try very, very quickly. Work with them as they test them and then get to a final solution and ramp that to a reliable supply, continue with good continuity in a very quick manner. Figure out what you learned from that and apply it again quickly. And this whole cycle of learning, we have to do faster and faster. If we do that, we achieve our goal, which is to be the first company that our customers call for help, or for solutions or to collaborate.
One of the first ones, and as you can see here from our JDA agreement count, it's, it's grown very steadily year upon year. And many of these are multi party GDAs. So we might be working with the IDM, their equipment provider, their material provider, their wafer provider, altogether to solve a problem because you can't do these things on your by yourself anymore. No company can solve the problem alone. So our ability to know all of these partners is real and to have technical context there is key for us being more relevant, today than we were in the past.
So, we have a full product pipeline. As I said, that's one of the important things that we need to be able to, server our customers with. Several years ago, we recognized that we weren't quite caught up to the technology road maps of the industry. The industry was going below 45 nanometer 32, 30 below 28, we needed to catch up a little bit. And so we made a choice to increase our investment in R&D, and you can see we've done that steadily over the last several years.
We did it in a focused way because we had a result that we were after. And first was half of that increase was really advanced research. Science, separation science, chemistry, basic knowledge around contamination control. So a lot of PhD level capabilities here and overseas to make sure that in Asia have grown by about a third during this time. So we've really tried to focus, make sure we've got enough people near the major customer sites semi that we can be that relevant partner and work with them daily.
If you look at our product pipeline today, most of what we're launching is really intended to serve 10 nanometer and beyond. So a lot of what you hear about today is ramping of 16, 14, 12 nanometer kind of things and 10 nanometer is really where development is coming to a close, and we've had to have the products ready for that right now and working on 7 nanometer to follow that. So we've had to have, you know, a good portion of our increase focused on that leading edge. As Bertrand said, there's a large tail of business with Entegris. We have a lot of stuff we sell in the past all around the world every day.
And they want help with cost of ownership. They want help with, you know, continuous improvement activities. So a portion a portion of increase in R And D has been focused on that as well. So make sure that we take care of that tail of business in addition to the leading edge. Most important thing I think is that we did that in a very, careful way.
We did it in a deliberate way so that we could maintain our target model. Achieve that financial performance. So how do we do that? We did it primarily by moving dollars towards R and D and trying to get efficiency out of other parts of the company to make that happen. We really look through the whole company.
So we're able to achieve this increase in R and D. It's there. It's about where we need it to be today. And, and we did it by moving dollars, to stay within our target model. I think there were unique amongst our competitors and and our folks of R and D on this industry.
So if you look at our competitors, many of them do a little bit of what we do, and they might serve other industries more than they serve Centemiconductor, we're highly focused on supporting Semiconductor and our customers are recognizing that. So, again, Bertran said, you know, we serve the ecosystem of semiconductor, and there's a common area that all of these entities are worried about. And that's, you know, technology performance, process yield, device costs. And that's what everybody from equipment manufacturers, materials, providers in device or is our word about where are we at the center of that? Because we we work with all of them.
We know the technical contacts that all of these kinds of companies for all our customers. And so we're working with them on a daily basis. When I travel around now as a as a representative of the new Entegris, I hear the things that I never heard before. You know, quotes from customers, you guys are at the center of this. We need you to help solve these problems.
We that's why you see the JDA. You are the ones who can see each part of this. You know all these different aspects You can bring it together. And and when I, you know, walk into major device manufacturers now, it's a different dialogue than it was, you know, 2 years ago. They recognize the breadth of what we do in the fab.
And so they they wanna work with us in a in a deliberate way, such as the GDA.
But, yeah, that we've seen, this
is the other things we're excited about. And Jim will talk a little bit, too, is we've seen the opportunities that the companies coming together provides from a technical perspective. I'll give you one simple example from the wet chemistries and wet surfaces. So before we understood how to filter or purify a chemical, But we didn't always, in fact, we rarely knew the exact makeup of that chemical. Well, now we're a chemical provider as well.
So we know everything about the chemistry that's gonna go into And those chemical developers know everything about how it's gonna be filtered to purify. And there's a tremendous amount of interplay between a filter and what it's filtering today. Far beyond taking out particles. And so that's one of the things that we saw as an opportunity. And it's the same for gases, gas wetted surfaces and for solids delivery.
We know many aspects of these things. So we were obviously excited to start to think about what can we do in terms of positive synergies from bringing these companies together. And that's what we're really working on now. Jim and I working very closely together on let's look at everything we do and how we do things better now than we did before. And that's just from a cost perspective, but from a product performance capability, perspective.
So the obvious things are the easy kind of close in. I can give the customer data on how this filter and this chemistry work together. I can get the customer data I want a purification does to this gas. So I can give customers data on what we can do in terms of safe storage and and what it looks like coming out of the out of the canister. So I I can tell them more today than I could tell them when we were separate companies.
So that's quick and easy, and that's stuff we're doing today. But close behind that and starting actually a couple months ago, start to work on optimizing those products, make the filters a little bit better matched to those chemistry so get the best combination as one example. And then beyond that, cert, actual brand new new product development projects, let's start working on a new chemistry. For a new application. Let's do the filtration and purification with it.
Let's start working on a new deposition material. Let's talk about the metrology that we need to provide. We can provide around that. The filtration to make sure there's no concerns about solids making it through, to the film. So all those things are underway just getting underway right now.
And then longer term, even more fully integrated technologies will bring sensing purification and, change bath life times Jim will talk a little bit about some of this, but, we're pretty excited that, you know, more than just the cost synergies we've already delivered are some opportunities to do things better. These are long payoffs, and these are under done under JDAs in a lot of cases. So we can't really talk about specifics of them, but, it's starting to happen where we see, yeah, these companies together can move faster than they could move before. So, we mentioned, you know, that we try to have a lot of these resources near customers, and that's been one of the key things that I've liked about seeing these companies come together. Both companies have made investments obviously to be, present in the major, semiconductor centers of the world.
We were pretty pleased complimentary nature of the resources that ATMI had put on the ground as well as integrase. We had a lot of manufacturing capabilities over there. They had some great tech centers it's really actually fun to bring those together to enhance the speed and capability of what we're doing and do it near the customers. So we've added We brought together our tech centers in, let's go to this advanced. There we go.
We've brought together tech centers in in North America, working on, you know, filtration, working on, purification and, chemistry, deposition materials wafer handling sensing. And then in Asia, obviously, Korea and Taiwan, we've actually combined our tech center physically now. So the people are working together in the same facility, done some expansion to bring those together and actually have customers working with us in those facilities on a daily basis to help develop and move faster that cycle of learning on new products. And the 3rd leg, you remember the 3 pillars again, the 3rd leg being operational excellence. One of the things that we also embrace several years ago is the fact that it's not going to be just about, you know, delivering something on time at the right price anymore.
There's an ever advancing requirements from the leaders in the device manufacturing world to do more green initiatives to you know, have better roadmap alignment, but focus on contamination control, apply statistical process control in a very consistent way. Tegris had started this journey, really, I think first. And one of the real benefits, bringing ATMI in as we were able to quickly start to proliferate that out across their manufacturing as well, which our customers were pleased to see. So now they can get from one resource, a company that understands all of these requirements that it takes to be that relevant trusted partner, and that's only continuing, but we're committed to do it. And really not just because, a customer asked us for it, but we really see that this is going to make us a better company, that, that Bertron talked about.
And again, it's all about, building the trust for these semiconductor companies, which are really some of the most demanding customers in the world. Are we succeeding? We've had some evidence of that. 1, of course, wins, the number of engagements that I mentioned that we have at leading edge developments, are are increasing greatly, have increased greatly. But we've also started to be recognized from a very tough, customer, a very good, important customer of ours Intel.
We were one of 19 recipients out of their global supply chain to receive the PQS award in 2014 and this Tim Henry quoted here. So about all of those things we talked cost, quality availability, technology, you've got to be caught through road map, you've got to be a reliable supplier. You've got to be meeting all those things in that stack chart I showed you. So we're pleased to get it, but we really see it as kind of step 1, and we need to continue this journey. We, we talk to them all the time about what it what's next?
What do we need to get that level and get further into controlling of our supply chain ourselves and so forth. And that's all, the kind of activities that we're working on today. So at the start, we're very pleased and proud to have gotten this re this award has recognized the work we've done. But it's really, again, just the beginning of where we're gonna head next. So I'll have Greg come up, make a comment, and then Jim will talk about some of the things happening specifically in the technology world and how that impacts Integris.
You feel back that, you know, 8 or 10 slides that Todd went through, what I really, what it's all about is it's our competitive advantage. It's why do we win And the reasons we win are A, we're pervasive across that fab environment. The fact we're pervasive across the supply chain puts us in a position where we've got much greater applications expertise than our customers. If you think about it, we come at it horizontally, I said, our customers, most of our competitors come at it from a vertical perspective. So Paul is coming at it.
They're looking at filtration. Somebody else might be looking at flow control. We're looking at it across the piece. That applications, expertise, really separates us. The second, thing is that we're doing is the term investing.
I think about it as resource allocation because we're investing in that we're allocating more resources to We're now seeing more resources things like our new product development process, like improving our internet site, like expanding the global platform, but we're doing all of that within the target model. So it's about making smarter investments and smarter choices, and those are all things that are going to help us advanced the ball and continue to become more competitive. With that, I'll introduce Jim O'Neil. Jim is our Chief Technology Officer. He came from the ATMI side of the house previous to that.
He had a long career in IBM's semiconductor process development area. So with that, Jim. Great, thank you,
and good afternoon. This is a really exciting time for Entegris from a technology perspective I'm gonna continue Todd's story of how we're gonna grow the new integrase by talking about how the major technology changes in the industry are really beginning to play into the strengths of this new entegris. So as you're aware, Moore's law has driven semiconductor technology development for the last 50 years. And historically, this has really been a story about miniaturization, making things faster, making things denser by making them smaller. But today, the story has changed a little bit.
We have begun to reach fundamental limits in patterning and process technology. And we're beginning to experience inflection points in many areas, including things like lithography transitioning from single exposure processes to multi patterning techniques. And the types of device architectures we're seeing from planar devices to now three-dimensional devices like FinFET or 3 d NAND in memory. And the industry has implemented a whole host of new materials that are intended to improve performance and rely ability. And all this is really in an effort to keep pace with the spirit of Moore's Law, but it's come at a tremendous expense in terms of process complexity and increasing yield challenges.
And, really, this is where Entegris comes into play because as a company integrase strengths is really all about helping our customers achieve yield in a timely manner.
So if you consider
the impact of new materials alone, you know, as chips become more advanced that is higher density, more functionality. The processes used to make them become more complex and more reliant on new materials. In fact, new materials are the dominant contributor to device performance improvements over the last several technology generations. So the introduction of new materials brings with it, the increase in the number of process steps and therefore, process complex, process complexity. And this in turn makes the our customer's job, the device manufacturer's job, of improving yield for their technology even more difficult.
So there are already difficult product introduction cycles are even more difficult to achieve. And this is really the the crux of the problem that Entegris is trying to work with our customers on to overcome using our strengths and materials discovery materials development and critical materials handling capabilities. So materials are increasingly important in advanced semiconductor technology development, they also happen to be part of a very long and complex supply chain. And there's significant opportunity to introduce contamination throughout the supply chain from the point where the materials are manufactured to where they're delivered on the wafer. And So the ability to protect materials and deliver them safely throughout the supply chain is absolutely critical.
And with a fundamental understanding of chemistry and materials interactions and how materials are used in the fab, Entegris is sort of uniquely positioned to enable defect free material solutions throughout the supply chain from the point of production all the way to the point consumption. So let me just remind you of the types of, technologies that our customers are struggling to implement in their most advanced technology nodes. These are things like multi patterning, 3 d structures like FinFETs or the whole host of new materials on an effort keep pace with Moore's law. And the impact of any one of these changes ripples throughout a large portion of the integrated process. It's not just isolated to the sector where that process change has been implemented, and that's what's really important here because an ability to recognize the interplay between materials allows Entegris to leverage the breadth of its product portfolio to enable to help our customers enable any one of these implementations.
And so let me show you a few examples of how this works and how the breadth of our product portfolio really plays into, the strengths of Integris to be able to help our customers implement these rather difficult changes.
So you've seen this chart before
from Todd depicting the breadth of the Entegris portfolio. And so let me explain why this breadth is so important in executing these inflection point technologies. So if you consider the example of multi patterning, technique used to improve the ability to achieve ever decreasing line widths and improve patterning control. The effect of multi patterning is not just limited to the lithography sector where the photo sensitive resistance dispensed in the actual imaging occurs The effects ripple throughout large portions of the rest of the process, including deposition where patterning stacks are deposited etch sector where there are patterns, the clean sector, which follows. And then because of the multiple patterning steps, which occur, there needs to be an increased attention to overall defect management and control.
So in effect, the overall impact of multi patterning is felt throughout the integrated process And ategris' broad portfolio of products is really what enables us to help our customers implement, technologies like multi patterning. Similarly, you could look at 3 d NAND. This is a a technology or an approach that's that's used in memory to improve memory density. Speed. Such three d structures drive changes throughout the process from how chain how materials are etch to how they're deposited and cleaned.
They place increasingly stringent requirements on how devices are dealt. And again, increased attention is required on overall defect management in control. So in short, the implementation of 3 d structures ripples throughout the entire integrated process. And each of the challenges that are posed by this ripple effect can be addressed with an Entegris solution. So again, the breadth of Entegris' product portfolio plays very well into our ability to help our most advanced customers implement difficult changes like this.
Last example I'll give is the exam is one of,
depositing a new material. This is Cobalt. As a new material that's being explored to improve interconnect performance and reliability. The use of Cobalt requires more than just new deposition precursors and new precursor delivery vessels. It requires new formulated cleans that are compatible with, with the material, both after etch and after polish.
And then those cleans require new filtration and fluid handling capabilities. So again, you see the effect of changing one material in the wiring stack for, for the interconnect structures ripples throughout other process modules where Integris plays quite strongly.
So just dive to dive
a little bit deeper into the technical aspect of this, you know, Cobalt is considered to be applicable at the finest wiring levels in the circuit. Those are the levels just above the transistor. And, you know, at these levels, the resistivity and the reliability of copper, which is today's commonly used material, begins to degrade as the line width gets smaller. So new materials are being explored in Cobalt is one of them. And so whether it's being considered as a new replacement for contacts or a barrier layer or a capping layer or a new via layer, you know, each one of these implementations drives the implementation of a new precursor, a new precursor delivery system, it also requires an entirely new infrastructure that's compatible with it from the cleans that prevent galvanic corrosion to new CMP formulations that are suitable for removing cobalt.
And each of those materials in turn drives new fluid handling capabilities and new filtration and purification capabilities. So you see that all of this ripple effect plays into integris' strengths and being able to provide not only the material, but the material handling capabilities to enable, the implementation of new materials like cobalt. But it's really not just about having an aggregate portfolio of products that touch a sector that, our customers are working on. So can consider the example of a wet clean module in a factory. Entegris has a whole lot of products that are useful, in this, in this sector.
From the fluid materials to the purifiers, to the, filters, the dispense tubing, the containers, the nozzles, soap on the tool, and then the sub fat What's really important here is how we take those components and put them together in a way that brings value member will take this aggregate of products and assemble them in such a way that harkens back to giving them a process that performs one that yields and one that can be executed at an affordable cost. But today Entegris can do this. We can provide much more comprehensive material solutions so our customers don't have to invest their time in doing that, they can focus on more important aspects of the technology such as the product performance in the device design. And I spent a lot of time traveling to many of our advanced customers with this message about how we can put the pieces together and our customers acknowledge the value that we can bring the table. Now our challenge is really to, like, to work with them to identify what are the specific problems that we need to work on for them and what tailored solutions can we bring to the table to solve their problems.
So let me give you one example of a portfolio that we're beginning to assemble to bring product synergies to bear to our to our customer. And that is, again, an example from our way etch and clean sector. This is a a copper post etch. Clean process intended to remove the residue that's left behind after the etching process. Well, Entegris has long been a company that's providing provided leading formulations for, cleaning advanced metallurgies after etch Today, these formulations are matched with our best filter technology to provide lower defectivity cleaning solutions.
Moving forward, we're working to co optimize the formulation and the filter to provide the optimized cleaning solution. And we're also bringing in our in view process, sensing capability to understand how the formulation batch ages and when it needs to be replenished. And we have the goal of providing developing and providing purification capabilities that remove impurities that build up in the bath during the cleaning process. And so this is an example of a synergistic combination of the breadth of our portfolio that provides benefits from a performance yield and cost perspective
for our most advanced customers. But I
think the real question is, so what does all this really matter to Integris' business? Each of the inflection point technologies that I described requires solutions that Integris is really uniquely positioned to provide. Of yield or containers or fluid handling capabilities to safely deliver clean chemistry to the wafer, All of these inflection point technologies are really good for Entegris and our ability to help our customers adopt them is a key element of our growth strategy. So our participation in these challenges and working with our customers on these inflection point technologies I think is what's really going to enable us to outpace our competitors and outgrow the market by 100 to 200 basis points. And that's really our goal here.
Thank you, Jim. So I think bottom line materials are becoming more important in the semiconductor manufacturing process. You go back to 45, 90 nanometer 45 nanometers. It was lithography, it was scaling. As we come down below 45, materials become much more important.
We're in a unique position of being able to integrate sort of materials with the delivery of those materials, whether it's a high purity chemical drum, the and cleaning those those chemistries and and bring that all to bear on on behalf of our customers. I think the last point Jim makes is, you know, as you run around this, Semicon West, you hear people talking about FinFET and Cobalt and all of these advanced technologies, In each, in each of these advanced technologies, we play a role, and those things are all going to be important to us as we sort of drive toward that goal about growing the industry. So now let's switch over, talk a little bit about, Integra's from a financial perspective. This chart is actually the was the last chart in Bertrum's deck, but I'll I'll spend it. No.
I'm really. Okay. So I'll talk a little bit about the financial objectives, our investment priorities, and the target model. The financial objectives, really, this
is what we want to be
graded on by you. It's what we grade ourselves on. For us, it's about we want to achieve growth in excess of the market by 100 to 200 basis points when I consistently achieve that target model We're focused on reducing our debt, and ultimately we want to grow the earnings per share. We do continue to invest heavily in the business, whether it's the r or R and D or some of the things that the other things that Todd talked about. And now we have a continuous drive to be among the most profitable companies in the sector.
And when we compare ourselves, we're comparing ourselves both to, you know, small and mid cap semiconductor companies as well as filtration companies, specialty chem companies, but those beyond kind of that semiconductor universe. And we stacked up as Bertrand said quite well. K. I wanted to just give you kind of my our our perspective on the scorecard or a report card. If you think about 2014 on a grade point average, that would give us a thread, say we had a 36.
We made 3 A's and a B minus. In other words, we hit the we achieved the target model. We paid down debt. We grew EPS nicely. But we didn't grow as rapidly as the industry in 2014.
And that happened for a number of reasons. The fact that we had currency headwinds Some of the migrations to the advanced nodes didn't happen as quickly as we expected. We had some capacity constraints in some of our filtration areas. The point is we made a B- in 2014. In 2015, we're much closer to you know, that A average.
If you think about the 1st year over year in Q1, we're up 5%. Our revenue is up 5%. That was even in light of about a 2% headwind from currency. So we had very nice year over year growth in Q1. And then on the rest of the metrics, we continue to do well in Q1.
And I'll talk about those other metrics now. So starting well with the with the target model. For us, the target model internally is kind of our Holy Grail. We've been operating to to A model Since 2000 and late 2009, we've only changed it twice. We changed it once in 2012.
And we changed it last year when we did the ATMI acquisition. So the way this model works for us focusing on the top half of this page, is going at different revenue levels 2528310. What can you expect us to deliver from an operating profit perspective and an EPS perspective. Like I said, we started out using this as a Wall Street tool, but internally of our businesses has a model that rolls up to this. We have business reviews.
The talk is all about how do you do relative to the model? So this has really given us great discipline internally. The bottom of the page, just shows how have we done against that model? The orange bars or what was our operating margin operating margin should be. And you can see in the last twenty one quarters, we've made, we've delivered on that model or delivered on our commitment, 20 out of 21 quarters.
So when you talk about, you know, that that score I mean, they give us an A that I think 20 out of 21, says we're doing quite well. So it relates to, you know, let's shift a little bit to the balance sheet here. Today, I feel very good about our balance sheet, very confident in the balance sheet. We've got about $740,000,000 in debt, $340,000,000 in cash, So a net debt position of 400,000,000. It's about, it's a ratio of sort of 1.7 times, EBITDA.
In the up and through the first quarter of this year, we had repaid $75,000,000 of the acquisition related debt We said we'd repay $150,000,000 of it within 18 months of the acquisition, which means we've got another $75,000,000 that were committed to repay by the end of Q3. So the balance sheet continues, like I said, continues to be in good shape. And I think you can expect to see that leverage continue to to come down. Last thing on that sort of report card was earnings per share growth. The chart, up on the screen now shows a earnings progression from 2012 through 2016.
Really want to focus on that period in 2013 to 2015. So it really shows sort of the power of what this, of the ATMI Act was this In 2013, we made $0.59 a share. In 2014, we made $0.69 a share. So 14 over 13, we had about 15% earnings per share growth. Ship to 2015 versus 2014.
The strength at $0.80 for 15. So $0.11 improvement over where we were in 14. So another year of sort of a 15% earnings per share growth. Think about where we are in, 15 in q1, we did 18¢. You take the tie, you know, you take the top end of our guidance in Q2 or within our guidance range.
And we're essentially halfway to that $0.80 after Q2. So the $0.80 is not, you know, it's the straight in it, but it's not, it's certainly not a number that we we view as kind of way out there. 2016, we think we can do close to a dollar per share. So when we talk about that earnings per share growth. We've delivered a nice progression and we think we'll continue to drive good earnings per share.
So how do we get to, you know, something close to a dollar in 2016? If you look at 2014, the far left, those are published results, 962,000,000 in revenue, $0.69 in the EPS. And we owned ATMI for the full year, our revenue would have been a 1,000,000,000 in 76. So baseline in terms of revenue is $1,760,000,000. Industry, we expect to grow, but about 2.5% a year, that essentially assumes CapEx is flat in 20152016.
And wafer starts are up somewhere 2.5 to 3%. So that growth plus a 125 basis points of outperformance would take us to a $1156,000,000 in revenue by the end of 2016. If you take the the the operating, the the target model, which has significant leverage in it as you move that 250 that we showed on the prior slide to 300 were flowing through about 40¢ for each incremental dollar of revenue. But, so you get up to that, to the, the, the, the, the, the, 1, 56 number, we expect operating margins of about 19%. If we hadn't reduced any of the debt, our interest cost to be about $38,000,000 those numbers come down to a 95¢ per share number.
As we do leverage, if we were to deleverage $300,000,000, from where we started. I mean, we're halfway there already to the end of 2016. That adds another essentially nickel per share to earnings per share and brings us to that dollar number. Our cash flow historically, as a company, those of you have filed us for, and can we be a very good cash flow generator, In 2014, we had, cash flow from operations of a 126,000,000 think that will bump up to somewhere in the range of $160,000,000 in 2015. That big increase from 4 18 to 15 is really driven by 3 things.
1, we'll appoint ATMI for the entire year in 15. We only owned it for 8 months. In, 14. 2, in in 14, we had very significant, integration related costs And the other thing in 14 is we had not achieved the synergies. So as we come into 15, we we have much less in the way of integration costs.
We've achieved the synergies. That step up is, is a realistic number. And then that that moves to a 180,000,000 in 2016. The free cash flow, so only the course of a 3 year period will generate $465,000,000 in cash from operations. The CapEx or the orange area, we're assuming $65,000,000 in 20 15 $65,000,000 in 20 16.
That's slightly higher than we've talked about before. It relates primarily to 2 specific areas where we've got meaningful growth opportunities that we're related to the the specialty gas business at ATMI. So the the points in the chart is very strong cash flow generation. Then the question becomes, what are we going to do with that free cash flow? If you think about the world that we live in, the job of the management team and, Bercone and I specifically, our number one priority is capital allocation.
Today, we've been using most of that capital to reduce debt, which is really all about giving us maximum flexibility. As we continue to drive that debt down, we'll start to look at other priorities. But for today, I think I think think about it primarily, as a debt reduction story. So Keith take away from the meeting today, from the finance section, and we're thrilled with how the how the ATMI acquisition has gone. We believe in stableer place than most of the other companies you'll think about in this industry, because we have a diverse customer base, because we have a diverse line because we're 80% unit driven.
And then I think the final point is, we're we're we're pro we're proven executors. We show that when we, you know, what we've done over the last year on the ATMI integration, how we've delivered on the target model, think as we continue to execute, the leverage we'll generate will continue to drive growth and earnings per share growth specifically. So with that, I'll bring the rest of the group up and we'll take any questions.
Hi. Thanks for taking my question. It's Gerard Mitsinode. So, first on the revenue performance of 100 to 200 basis points per ton does that include the revenue synergies you would expect? Going forward, or is that, and could that add to that, that, that, that number?
It is inclusive of it. And as, James actually, presented in his, section, you could see that a lot of the additional growth momentum that we expect will come from the positive synergies that we expect to realize as we combine the capabilities of the legacy integrys and the legacy ATM So Jim did present a few examples, although only a few examples, I think we're working on more. I hope that there could be more than that, but I think we have enough conviction today to actually commit to that 100 to 200 basis point overage.
Greg, just one question on CapEx. You mentioned some kind of gas delivery systems. Can you elaborate on that or
Yeah. So the the specialty gas business or the SDS business at ATMI, we own essentially the cylinders or the delivery system for that product line. As we introduce new products there, which we're introducing more of them than we initially expected. You can't take a canister that you've used for one gas and shift it and use it for another gas. So as we introduce new products, we're having to invest in what we refer to as our fleet of canisters.
And that number has, I would say, has proven to be higher than we initially expected in part because we're introducing new a lot more new mixtures than we initially expected. First,
the IoT that you mentioned, Bertrand, you said that it doesn't really matter if it's on leaking, leaving edge or lagging edge. Is there, you know, a benefit on the margin line if it's on lagging edge on the revenue line if it's on leading edge, or does it kind of balance out between the 2?
So it's a good question. I'll try to keep my answer simple. We could go into a lot of complexity, but at high level, I would say that the size of the opportunity for us at the leading edge remain larger. Number 1. But having said that, I would say that the margin profile, the market share profile at a trading edge or just as appealing as what we are seeing at the leading edge.
And that's what I was trying to say in my comment. And, Amanda, I think about that as the operating margin because essentially what's happening at the trailing edge, you may have slightly lower gross margins, but you have essentially no E R and D. Whereas at the leading edge, you're probably going to have higher gross margins, but you also have higher investment.
And then just one more question. On the the net leverage, you said that it was about 1.7 times EBITDA currently. Correct. What is, a leverage ratio that you feel comfortable with going forward.
And I think as we think about the story in somebody, so what's how does this play out in perfect picture is we de lever down to kind of 1.0 times and then we are presented with another nice like the ATMI situation. And we take it back up to 2, 2.5 again and sort of continue that vicious circle. I would say I think you should look at the 360,000,000 of notes largely as permanent capital. I mean, those are 8 year bullet repayment. And so that that leverage level is likely to exist for a relatively long period of time.
But not to play on words, Amanda, I think we are comfortable with the current leverage ratio. You know, we generate a lot of free cash flow The reason why we are really spending so much focus on paying down the debt is first of all, we want to demonstrate to all of you that we can manage within a levered world, and we made a commitment to pay down the debt. So we want to deliver on our commitment. But again, we are paying down the debt to regain flexibility so that options couldn't open up down the road. Christian Schwab, a quick question.
We're going to pay $75,000,000 in
the next two quarters, Greg.
We paid $75,000,000 through Q1. And we said in Q2 and Q3, we'll pay another $75 total.
Right. When is the total debt reduction for your fiscal year goal, is that another 75? Is that is that equal 150,000,000 of the term loan note, or is it more than that?
I would at this point, I don't want to say exactly, pin ourselves on the capital allocation for 2016. We'd certainly be in a position to reap to make that kind of repayment if, I mean, from a what we'll generate and what we'll repatriate.
And then quickly remind us, what is your $341,000,000 at the end of March with percentage of that is offshore? Approximately
order magnitude, $100,000,000 in the U.
S. Okay. And then if we go to that customer slide that you had on your diverse business mix, it's a little bit different than it was I don't have the slides with me, but I know it's different. Than what you had last year, your largest customer is a little bit bigger and your neck two customers are a little bit smaller than I believe they were last year. Could you walk me through some of what happened in the marketplace that that shook that around a
little bit. But first of all, here, you're looking at trading 12 months numbers. I don't know exactly what was the basis for what we presented last year. But our number one customer is a large Taiwanese our customer, they had a phenomenal year last year and so did we. And I think that's the primary reason for, to bump in terms of their importance in our customer mix.
Thank you, Dick Ryan. So, Greg, on the chart where you had the towards the dollar in EPS. I don't know the
slides in front of me, but I think earlier in
the year, you kind of had a bottom line number of a buck 10. Now I don't know if that was off of a different base to start with, but was there anything changing in those assumptions?
I would say that the only thing that is different that might be different in those assumptions from what we've shown in the past is the industry growth rates are probably slightly lower. I don't remember showing a buck 10, though, but it doesn't it doesn't mean it didn't happen. But I I I I don't Just
putting words in your mouth.
Yes. I know. And on the CapEx, can
you talk maybe a little bit more behind where that extra investment's going to be made in 20, was it this year and next?
I I mean, I I
would just say we have a a an opportunity, we we really have a we have a significant opportunity within our specialty materials business, specifically in the coatings area. Would be one. And we've got we also have a relatively meaningful opportunity within the graphite area. And those are not you know, they're not board on conclusions that we're going to make those investments. But as we look at as we're as we're running the analysis now, we look pretty promising.
So the growth related and its capacity as well as capability related.
Are the levers to push to increase the exposure to the aerospace side of the business?
They did actually hurt both. I'll just say broadly. They're both they're both electronic focused. We have some exposure to aerospace, but it's pretty small on the scope of the company.
Thank you. You're saying the
graph ID and the code is being all the time?
Yes. And that's one of the growth opportunities. The other part of the growth opportunity that will require additional CapEx would be the cylinders. For specialty gases. As you know, the way we differentiate ourselves from our competitors would be we believe that we have safer packaging solutions, but also we continuously introduced better gases and those are new mixtures.
Every time you introduce the new mixtures, you need to invest into a new fleet of cylinders. And that's what we're doing. If you look at
the the slide that was Entegris wet etch and clean roadmap example at the end of your presentation. So you've got sort of these different year share 14, 15 16 with the escalating impact. I think it'd be helpful maybe just
to hear from, you know, the different members of the team who are
responsible for those different steps. What was sort of the selling process on selling them? We can do A, B, and C what was the technical implementation process on, we did our internal work to figure out how to do A, B, and C. And then what's the sort of capital and revenue benefit.
So I'm going to take a first crack at it and then I'll turn to Ted. You can explain it in the business spot then maybe on the technology side, Jim, you can actually provide some more details.
But again, remember what Todd
said in his presentations, first of all, increasingly, when you did with the advanced nodes, you worked actually more closely with the customers than ever before, and you're really literally invited to collaborate and to co develop. So that gives you a lot of insight into their challenges. And it is really allowing us to really tune the types of solutions that, you know, that we can develop with them. So I would say that for the last year, all of us And many more within the company have spent a lot of time on the road telling the story about the value of the new integration platform and reminding our customers that we could do a lot more for them than what they've been used to seeing from either integrase and TMI. So, so let me turn to you, Todd.
And Yes. I mean, you covered it, but, really, there's 2 things we did first came together, Jim and I had, you know, the technical leaders of the company together and what what do we wanna learn from each other? What do we always wondered about what the other could do in our products and and and those pretty funnels that gave us those Three Blocks of, you know, wetted surfaces, gas, wetted surfaces. And and that that led to some ideas around that. And then as Bertrand said, really, we we visit a lot of customers and talked about the new company.
Show those graphs to the breadth and depth and how we've touched all these processes and they give us ideas back. Hey, with all that, you should be able to do this. Be able to help my cost of ownership. We should be able to enable this process. If we bring these things together, I'll have to help as a customer because I'll have things a little differently myself, but it's gonna be a payoff for me.
And those kind of balances, these are the way commercial investments. I mean, so we kind of narrow it down onto kind of 8 to 10 things that we're working on right now that we think are going to feed into that. And Jim gave you a little bit of a view there of, what some of that looks like specifically terms of a Path Life extension, improving cost of ownership, enabling the next nodes. Yes.
And I think one of the most exciting parts of bringing of integrating the 2 companies was throwing 2 highly technical teams together and sort of letting them go at coming up with new ideas. I mean, both teams have been out in front of the customer, understood what the customer those problems with were from their perspective.
And then when they got together, they came up with
a lot of new ideas. Did we get it right the first time? No. But what we brought to the customer sparked the discussion. And the discussions really led to much better refinement of the ideas that we're now working on.
And these have to be continuously validated as we generate data. But I think, you know, in doing things like this, so bringing the 2 companies together, getting the 2 technical teams together, we've opened up a path for increased dialogue with our customer. And if nothing else, that's probably the most valuable thing that, you know, we can do as a technical company is engaged with them technically, get a customer's input and then develop according to their needs as opposed to developing things and trying to push them.
It was really interesting for us. I would say that, you know, some customers got it they want. The minute we announced it on and I had calls from some customers saying this is wonderful. We need to get together now. And you said the merger is not even closed, cannot do that.
But I'm glad that you understand the value that we're going to bring. Other customers, it took a little bit longer, but not very long, and very soon, they were saying, well, as you said, but you don't understand. You're really now in the middle of it, and your value has grown tremendously. And some of the customer it took much longer. And it took several meetings, which tried to get some easy things to do.
Demonstrated its value and now we are at the state where we said, oh, well, we could maybe do a lot more. So I think, again, every customer has had a different pace of adoption or understanding of the new value proposition, but I would say today that most everybody gets it. And that's really, really exciting. I just add one point from a process perspective, and that is sort of picking the, you know, 8 or 10 projects that Todd talked we're working on or
evaluating our
R and D pipeline and deciding where to invest. I mean, it's a very formal us for us. I mean, next week, we'll have 3 days of meetings, what's called a portfolio. It's essentially portfolio review committee. With all the business leaders, their technical leaders, their finance people come together, and everybody goes through kind of, here's my pipeline.
Here's what I'm working on. Here's what I can use your help. Here's what we need investment. It's actually a very, it's a very rigorous process and happens every quarter. And I think that's a good point.
I mean, we are managing the company different would argue that in the past, a lot of the business units were really managed in a silo way. And Todd and Jim are doing a great job really making sure that there is a lot more cross fertilization between the bees. And we do that in a very prudent and careful way. In terms of what we share and what we don't share, even between the BUs internally. But this is happening too much greater, like, externally ever did before.
I got the mic now. Westlake Pacific Crest. So I have a question on the leading edge demand. So last year, you only grew the model a little bit because there weren't as many or there wasn't as much in terms of advanced node transitions as you expected. And I'm wondering, are you seeing any change in either the cadence of node transition or the number of wafer starts at advanced nodes and how is that impacting your thinking moving forward?
So you're right. I think one of the headwinds last year was this lack of activity at the leading edge. One customer, a Taiwanese customer had a lot of activities there. They did well. We did very well.
And that's shows in the customer mix that I presented to you. But besides them, there was really nobody else that was really active at the leading edge. So I think that you know, if they had it their way, the case would probably intensify, but as Jim said, this is really get becoming really, really more complicated. So, In terms of the number of wafers being run at the leading edge, it was less than we expected last year. This year, most likely, it would be also probably a little less than we expected.
But again, as I said at the beginning, I think you know, we're not an equipment company, what we the type of opportunities that we won at 20, at 28 are generating very nice, steady revenues for us. And so I think that the leading launch is the home, if you want. That's the incremental growth that we are after. I would say that this year, we have a lot of room for them already in the portfolio. So we can ask if we see more wafers coming from 1416.
My guess is that we will do well with or without it. Okay. And I
didn't see in the slide deck here, maybe I missed it, so I walked in late mix of leading edge versus lagging edge? Like you've done in the past, did you have that number today?
Yeah. It's it's sort of, thing for us to get us. But I mean, if you think about the way we usually approximate that is we look at the new products that we have been introducing over the last 3 years and typically those products go into the leading edge. And that's somewhere between 25% 30% of our revenue. So that's how we we come up with the approximation that
we made. Okay. And then finally for me, just, you have some non semi revenue you talked about in adjacent markets except when you talk about your long term model, you're still talking about outgrowing the semi industry. And so I'm wondering why you don't back some growth in adjacent markets. So maybe if you could just comment on that, what your expectation is?
Well, it's because we tried to keep it I mean, I think we've been a very complicated index. There will be the aggregation of multiple index. And I think you will be all be scratching your heads and saying what does that all mean. So we try to keep it simple. And and at times, it's probably gonna be, an easier comparison and other times probably would be a harder comparison, but we decided to go for simplicity.
To be clear, we're definitely we're talking about where we're investing. I mean, we continue to invest in some of those adjacent markets, some of the newer technologies that ATMI owned around carbon around, resource, rack on the air, efficient air. Evolve as they call it. As well as we've made investments in, new business development people for the first time. We've got real professional new business development people helping us look at those new
for a memory wafer versus a logic wafer? Is it much different? And if so, could you just share it?
Pass it on to that in a minute. But I think, I mean, it's a hard question. And we don't track that this way, as a matter of fact, we are trying to change our systems that we would have a little bit more visibility to that, but, we don't really have a precise way of tracking. At the high level, I would say that the size of the opportunity for what we do is usually a little greater in logic environments. But this has changed and this is changing actually pretty rapidly and that's getting actually interesting even on the memory side as well.
James, do you want to add anything to that? I think that you think about the complexity of the to collect through this process that's generally good for us. And there's also differences in how those kinds of customers use our products. Some of them will try use a longer, shorter, different dilutions, etcetera. So there's a lot of factors that play in, and it'll depend on the note that they're memories at as opposed to the node that logic at, but I think that Bertron generalized it the right way.
So, hi, just one quick question on the, the volatility of the, your most power with regards to the ups and downs of the fab utilization. So for example, whether there's one person for twenty people in this room, we need to keep the lights on anyway. So I
was just wondering if this would be
an, adequate analogy for your unit driven products from the perspective of your clients? Well, I think the first thing to think about is that if you think of semiconductor units, they've only been down sort of twice in the history of the world in 2001 and then in the 2009 time frame. So We don't really think about I mean, it it it it can happen, but it's clearly a much stable. And if you look at how many times capital's been down, it's been much much greater than that. If you think about our cost structure, one of the things that the target model has done for us though is it's created much more discipline around variableizing cost.
So when somebody says, hey. We wanna add this functionality, or we're gonna invest more here. We're we're always asking the question. Is there a way tend to make those costs variable. So we don't lock ourselves into a situation where we can't flex down if things were to get really ugly.
Thanks. You guys talked a couple of times about not being an equipment business anymore. There are a couple pieces that still look a little bit like an business, maybe the food business looks like an equipment business. Is there a possibility of perhaps divesting pieces of the business, not specifically that one, if you don't want to comment on it,
but are there pieces that you might call from
the portfolio over the next several years, right? I mean, I think that the way we the reason why we try to discriminate between unit driven and more capital type of products, it's really to make it easier for you to follow and understand the trends in our own business. Frankly, we have some really exciting, CapEx types of product lines who being one of them. If you think about contamination control, the contamination control, in terms of the micro environment around the in process wafer great and are very significant. And we add actually a lot of value to our customers by helping them develop new solutions for their advanced nodes.
So yes, it follows a different buying patterns, but the margins are good. We have an incredibly high market share. It's a good product line. And it belongs in the portfolio. It's consistent with the overall value proposition that we're trying to provide to our customers, which is being the leaders in contamination control, advanced chemistries, etcetera.
I think I would just add to that that, we do look at every business I have a lot of business to look at and decide where to place our bets kind of every day. Certainly, every quarter, as Greg mentioned, in our portfolio review committee, but it's really about where we can get do the most for the customer, get the best return on our investment agnostic of, really, which product line or business unit it is. And that's where we really require our business unit leaders to be very mature and think about the good of the overall company. And we'll make those bets in the right places. So we may see parts of the business where we feel like we're not so certain about the growth perspective there.
So we're going to make sure we get funding in the right place, so it's going to provide the most growth for the company kind of on a daily basis. So it's really a portfolio for my view, and I try to do the best allocation I can.
So, to me, the the gyms of the business are the filtration part of the business and the chemistries part of business. Now that you're on the ATMI for a year, I guess what I'm a little surprised about I didn't hear much about the chemistry side. I mean, on your SCS, which is chemistry, I understand. And then you guys are talking about the graphite and coatings area. One of my concerns about ATMI, I think I've told you this was that they were getting picked off on certain applications like 1st process CMP clean, by little Asian guys.
And have you do you see a road map now that you've owned it for a year and changed to be able to differentiate the chemistries enough to maintain it or strengthen your position in chemistries and to just take longer, and so we're not hearing about it now. I don't know if you could just discuss that. And I'll let Go ahead, and Jim,
and and so the second part of your question, but I would just tell you that in general terms, as I stated at the beginning, I'm very pleased with, the results of the integration and the acquisition of ATMI. And then that includes the quality of the overall portfolio. So the reason we didn't talk about when you probably noticed, we didn't talk about products at all today. We didn't talk about filters. We didn't talk about chemistry.
We didn't talk about products that was by design. We didn't have a lot of time. And as you know, we have a very broad portfolio. So in fact, we didn't want to fall into the trap of singling out one product line and not another one. So we kept the message at a much higher level And actually that message is very consistent with the way we're trying to engage with our customers today.
We talked about what we call internally our Blue oceans strategy which is really trying to distill it down to quintessential value that we can bring to our customers. And a lot of the discussions we're having with the customers is really around the value proposition of contamination control, advanced chemistries, etcetera, not the individual products. And that's the big difference in terms of how we are approaching customers today versus how we were approaching customers in the past now. In terms of the ability to differentiate the chemistries or the mixtures, I'll turn to you, Todd, but I like what we see in in the portfolio. But yeah.
Yeah. So it, is, Jim covered there's a lot of cross effects as they change one part of the process. So they bring cobalt and there's a lot of concerns about the formulating claims and what sort of what the effects of that's gonna be kind of throughout the other process steps. And and what I'm seeing, I'm I'm liking the chemistry part of the business. Because I'm seeing, especially at advanced nodes, you know, 10 nanometer and beyond, there's a whole new set of demands that really weren't there.
And and not only for the formulation, but also for the purity consistency ability to deliver that chemistry, which I think we're going to be uniquely capable to do. So we'll stay in that specialty world where we can really, bring differentiation through our chemist around the world and do something different and delivered in a very clean way to the customers. But, I think those demands are really growing. If anything, I think maybe in a little bit of a low in that in the last, you know, couple of years, but I'm encouraged from what I'm hearing from the market. Yeah.
I mean, on the technical front, every customer's applicate every customer's integration scheme, the way in which they build a chip, it's a little bit So increasingly, we're finding that our chemistries need to be tailored off of a backbone kind of chemistry. So one point. The second point is that we with greater exposure to, the overall customers' needs through the combination with with integrase, we're identifying areas where, our products are working much closer together, not just materials handling in chemistries, but one chemistry with another. So, you know, formulating claims and deposition is an area that absolutely right for,
significant acceptance by our customer base at this time.
And the scenario that we're pushing quite hard, both preparing surfaces for deposition, cleaning materials that are new to an integration scheme. And because of the breath of our portfolio, you know, we get a call one day, and you have this precursor. Then they say, oh, we need a clean. We get a call the next day. It's for the clean.
Well, you know, we got both.
And I would tell you, Tom, and maybe I shouldn't go down that path, but when
we're doing the
due diligence on ATMI, I was very skeptical about the appeal of the deposition returns. And and I I really thought it was most of your commodity business, and it was dead wrong. I would argue today that we have some really, really exciting opportunities on that side of the business. I'd like to be fully involved that way, believe me. So now we need to put the pieces together.
And, and, and, Jim, gave you a glimpse at how we're doing that. But that's actually a very, very nice and very sound business.
So maybe we're almost out of time,
but if, is one last question
we can take. Otherwise, we'll wrap up. Okay, Gerald.
You mentioned, on 2014, you capacity constraints were never hurt you by. And but now with the membrane I2M facility being done, is there a way to quantify it hurt? And how much it could be you could benefit this year? And
Do you want to comment on that, Todd? I I don't know if I could. I don't think we lost any market share. Do that. And if customers hung with us, we tried different combinations of products, try to keep them satisfied while we brought it back to M Center.
Now it's up. It's got almost all of the membranes of volume qualified and we're kind of late in the PCN process with our customers are starting to convert to supply from there. So we're starting to see that relief. But there's been other areas where we've been constrained as well. We've been constrained in our chemical drum business, but we've had capacity that we're quickly filling up actually in Minnesota.
We're gonna be adding more capacity in Asia, very soon because we're full there. So there's a lot demand and some other parts of the business that are going to start to free up as well. I don't think we lost any share in it. I think we have some opportunity actually to grow. We see some good opportunities for said filters was the gem in your eyes.
I like it too. And I do see that, growing as we unlock that capacity and just because of the demands of, advanced chemistries and resist, going forward. But to be clear, I think that the filtration opportunities probably one of our largest growth opportunity going forward over the next couple of years. And it doesn't necessarily only have to do with removing the capacity constraints. It has more to do with the adoption of that particular UPE media into a number of applications.
All right. Well, again, thank you all for being with us and for the good questions. I was actually Very nice. We enjoyed the dialogue. Thank you.