Morning. Thank you so much for coming today. I'm Stacy Rasgon. I'm Bernstein's Senior Analyst. I cover the U.S. semiconductor and semiconductor space. I can't express what an honor it is to have our guest here today, Bertrand Loy, the President and CEO of Entegris. Our chat today is going to last about 50 minutes. Bertrand is going to give just a few opening remarks to start us off, and then we will move into the Q&A. If you have questions, you can submit them via the pigeonhole portal, which hopefully you have. I think it's on the QR code, but you can submit questions there. We'll have time to get to those at the end. Before we start, also, this is maybe a little bit bittersweet. Bertrand's been coming to STC for many, many years.
It's looking like this may be his last time here. He's going to be retiring as Entegris's CEO in August after 13 years on that. I am looking forward to one more chat. With that, it's my great pleasure to welcome Bertrand. So thank you so much.
Thank you, Stacy. Good morning. Good morning, everyone. Thank you for the opportunity to, I think it may very well be my last investor conference.
Oh.
I appreciate the opportunity here. As you said, it's bittersweet, but I'm leaving with actually a lot of optimism. When you look back at what this company has become over the last many years, it's just something that we are all very, very proud of. We also know that we can do a lot, a lot more. Let me give you maybe a few facts and a little bit more context for the company. I know I've seen your list of questions, Stacy, so I know you can probably keep us busy for more than 50 minutes. Entegris was created about 60 years ago, six-zero, in the very early days of the semiconductor industry.
Ever since that point of time, we've been focusing on the semiconductor technology roadmaps, contributing very unique solutions to enable the advancement of the semiconductor roadmap. Over time, the platform has evolved, and today we have essentially two major product solutions or platforms. One would be a series of enabling material solutions, which are critical to the enablement of the very complex device architectures that many customers are talking about. Then the other side of the house would be a series of enabling technologies to advance purity, process purity in the semiconductor manufacturing process. There can be advanced filters, purifiers, and high-purity fluid handling solutions, all of that enabling the miniaturization that the semiconductor industry has been striving for.
The compounding complexity of miniaturization and device complexity is really the source of significant opportunities for Entegris, opportunities that have enabled us to increase the Entegris content per wafer, generation of chips after generation of chips. That has been the foundation of our outperformance. Outperformance, if you look back over the last 10 years or so, we've been on average outperforming the industry by about four to five points. Our commitment, and that's why we're saying.
Is that in terms of, like, revenue growth or?
In terms of revenue growth, yes. The reason why I'm leaving with a lot of optimism is when I look ahead at the semiconductor roadmap, the complexity I was describing, complexity coming from the device complexity as well as the desire for further miniaturization, is still intact. We see incremental opportunities for us to increase our content per wafer, which will be the catalyst for that outperformance. That's the thesis when it comes to organic growth. That's how we've been able to sustain that top-line outperformance. The other thing I want to double-click on is the fact that when you hear a company talk about being a supplier to the semiconductor industry, I'm sure that what first jumps to mind would be large equipment makers. We're not an equipment company. Most of what we do is unit-driven.
We supply materials, chemistries, filters that are used in the daily production cycles of the semiconductor manufacturers. That profile is very unique. There are very, very few publicly traded electronics materials platform, and we are certainly one of the largest. I think many of you are generalist investors, and I think that's what is probably attractive to all of you is that while the semiconductor industry remains a volatile industry, what we're going through right now is probably a proof point to that, you can actually look that Entegris's business model is fairly resilient on a cross-cycle basis. That comes from the consumable nature of our product. That is one thing I wanted to touch on. The second point is, again, comparing the Entegris platform with the equipment makers, equipment makers are much larger companies.
If you look at the material space in the semiconductor industry, it's a much more fragmented part of the ecosystem. That's a source of opportunity for us. We have positioned Entegris as the consolidator of choice, and M&A has been a big part of our growth story, a big part of our value compounder model. I'm very proud of the way we've been able to deploy capital and create value for shareholders over the last multiple decades. Again, as I look forward, I can tell you that there are many more opportunities for Entegris to be a consolidator and many more opportunities for us to create value through capital deployment going forward, even though, granted, you know, my successor obviously will be the one doing it.
Yeah. There's a lot there to keep us busy. I think I'd like to start around the content per wafer argument that you've made. And maybe, like, could you talk a little bit about how that content is actually growing? I mean, you talked about outperforming the industry by 400 or 500 waves, but I mean, a lot of the, in fact, all the growth in the industry over the last five years has been price. I think units in 2024 were effectively flat to pre-COVID to 2019 levels. I guess how, and so unit growth was zero. How has your revenue growth, I guess, like, compared to that? And I guess, how do you think about the drivers of content per wafer? What is that? I mean, is it new materials? Is it more layers?
Is it more complexity? And where, where is Entegris actually, like, helping to drive those roadmaps?
You're coming when you say a lot of the growth in semiconductors came from price. You're talking about semiconductor devices. And I agree.
Yes.
I agree that when you look at volumes of productions, if you look at wafer starts, it's been essentially flat and arguably down.
By the way, average ASPs in the industry today are 50% higher than they were in 2019, just blended across the board. It's pretty amazing.
If you look at our pricing, I mean, our pricing has been essentially flat for us over the last several years. A lot of our growth really comes from volumes. To your question about that content increase, where's it coming from? It's coming from new materials being used. Those materials are usually better-performing materials, but they're also more expensive materials. For, you know, pound for pound, I mean, not that we use pounds in, you know, semiconductor manufacturing, but pound for pound is actually more, you know, more expensive. Then you have actually more volumes, more layers, driving greater consumptions, more volumes of consumptions of chemistries and materials. Those are the two drivers on a per wafer.
The other thing for us is that, you know, we try to get exposure to new applications, applications that maybe we were not serving in the previous generations of chips. The reason we are able to expand our SAM that way is that our reputation precedes us. And increasingly, customers seek us out on new challenges, and give us an opportunity to develop solutions in applications that historically we have not served. Examples of that would be, you know, the dry-resist chemistry that, you know, Lam Research and ASML have been developing in the context of EUV. Again, if you think about how we've been able to outperform the industry, it's a combination of more expensive materials, greater volumes of materials, access to new applications, and then finally, it's share gains. We continue to execute really well.
We continue to drive innovation, and that translates into share gains as well.
Got it. I don't want to get too technical, but to be honest, I'll get buried in it. Like, I could dig into that forever. I mean, you mentioned, like, dry-resist is one, you know, driver of this. Are there, what are the types of technology transitions, I guess, that you are most excited about as you're looking for Entegris? What are the types of material changes or structure changes or anything that, that Entegris has really benefited from, excited about?
If you think right now, there's really a big inflection point in memory with the introduction of molybdenum in 3D NAND architectures as a replacement to tungsten. The reason that's actually, it's a very important inflection point for the industry is this is the first time that a solid precursor would be adopted in high-volume manufacturing. The reason, our customer.
It's not like a gas phase or, or liquid precursor. The problem, plural problems, that our customers were trying to solve was they wanted actually a better-performing material in thin film deposition. That would replace tungsten with the right resistivity performance. Tungsten does that. Molybdenum does that. The problem was that molybdenum is a very expensive material, and we also needed to find a solution to the higher cost of molybdenum. Entegris were uniquely positioned to do that. We developed a dispense system that would sublimate the solids into a gas. Molybdenum is a highly corrosive gas, so we needed to develop some proprietary coating on the inside of that sublimation column. We developed some gas purification systems for that as well. Now we were able to have a system solution providing the industry best film.
That's the moly material itself, but we have also developed the lowest cost of dispensing that material onto the wafer. That is really what is enabling the adoption of molybdenum in high-volume manufacturing. This is actually a really good example of what Entegris can do, uniquely and better than our competitors.
I guess given all of that, is there a way to think about your forward growth formula? Is it some multiple of GDP? What's the fall through? How do we, how do investors think about that?
Yeah. We sell a lot of products. A large product platform for us is a product generating about $50 million of revenue per year. And that is $50, five-zero. That is why we do not really tell our story on a product basis because it gets really complicated very quickly. I am saying that right after having called out moly. Again, we are calling out moly because of the significance to the industry, not so much to us. I am sorry, Stacy, the question went on a different.
Oh, I was just asking about the growth formula.
Yeah, yeah. So instead of talking about products, we have tried to simplify the growth formula and, recognizing that, you know, this industry is cyclical and we do not control the industry. Our view is that the industry secular growth potential is probably twice the rate of GDP.
For materials or for semiconductors?
For, for that's the wafer starts.
Okay.
It's volumes of productions of semiconductors, and then we believe that given the incremental content opportunity that we have, and the fact that more wafers are produced at the advanced nodes, we should be able to outperform the industry by about three to six points. The formula is twice the rate of GDP plus.
Okay.
Three to six points of outperformance. If you look back, as I said, you will see that over the last 10 years, we've been able to deliver a growth rate, organic growth rate, of about four to five points of outperformance.
Got it. Maybe to touch on that cyclicality argument. I mean, clearly, people used to say that they were no longer cyclical. I never believed that. It certainly is not. They are cyclical.
Yeah.
Since you are unit-driven, would you say the cyclicality of the materials industry and Entegris is sort of equivalent to semis? Are you more or less? Are there buffers? How do we think about that in the context of industry cyclicality?
I think that the reason why it's, I believe that our business is less cyclical is that, you know, we don't have the amplified magnitude of the pricing.
Mm-hmm.
Cycles, right? If you look at our business, even in a trough, I think the amplitude of the cycle is probably way less than semiconductors would experience.
Did you guys not take price during COVID? I mean, like I said, the rest of the industry, it was pretty amazing. We've never seen anything quite like that before.
Yeah. We did take some, but not to the same extent.
No.
And commensurately, we're not bringing price down during downturns.
Got it.
I think that's a little bit of the quid pro quo that we've had with our customers.
Yeah. Got it. You know, you talked about the industry being very fragmented. Like, where do you see competition? Like, who are you competing with?
We have many different product platforms. Each of the product platforms.
Mm-hmm.
have their own set of competitors. Nobody really competes with us across the board. Instead of giving you names, which probably would be foreign to most of you, I would say we compete with two different archetypes. There would be small local competitors in China, but in Korea as well, in Japan, here in the U.S., or we compete with divisions of large industrial platforms. The reason we win is that we actually have a metric, and we are fast. That is actually, you know, we have an intense application focus, incredible scientists, very fast. That allows us to win against the large industrial platforms. On the other side of the spectrum, we compete with small local competitors with great customer intimacy but a lack of global footprint.
Increasingly, our competitors really want to have a global scale. They want to build their fabs pretty much everywhere in the world, and they want to rely on well-capitalized suppliers that can really provide them the same level of support no matter where they choose to operate. We are this intriguing hybrid from a, I would say, from a size and capability standpoint. The other thing that makes us very unique is, again, it's the breadth of capabilities. Do not take that as, I know sometimes investors will say, "Oh, you're a hardware store." No, we are everything but a hardware store. We have a very strong focus on enabling the right level of purity. Again, those solutions can take different shapes and forms for sure.
The value proposition is really enabling the purity levels that can be, you know, enabling the yields of our customers when they choose to make everything smaller in their fabs. By the way, one point of yield for an advanced fab can mean about $500,000,000 to the bottom line. $500,000,000 is about one point of yield in advanced logic. Very significant value that we can contribute as a result of using our advanced purity solutions. That is on the one hand. On the other hand would be the new materials that are enabling those novel architectures. You know, you hear about 3D NAND. You hear about Gate- All- Around. You hear about all of those new device architectures that will require those solutions.
The reason we are unique is that we can develop those new materials and those new chemistries. At the same time as we develop those material solutions, we can develop the best-known methods of filtration and purification for those chemistries. By doing that, we compress the time to solution. In other words, we can go to our customers with a material that performs at the desired levels but also has the right purity, which will translate into better yields. Having that faster time to solution is really, really key in this semiconductor industry because if you think about what all of the semiconductor manufacturers are trying to do, they're trying to be first to the next generation of chips.
Being first to, you know, two nanometer or 18A or whatever you want to call it is the source of competitive advantage, is a source of pricing power. So Entegris is uniquely enabling our competitors to win that race.
Got it. Maybe you'd like to follow up there, Lynn, to start to drill into the segments a little bit. You mentioned two segments. You used to have three segments. I guess there was a little bit.
We used to have four.
There were four segments. Okay. I think last year it was three. Maybe you gave a little bit of the characteristic of, I guess, the material solutions and then the purity. Maybe give a little more color on what's in those and actually the differing economics. Like, I think the margins, like, in the purity business are higher than in the materials, for example. What can you tell us, I guess, about the specifics of those businesses, the economics, and how they work?
Two segments. I think I introduced them to you earlier. One is advanced purity solutions. The other one is material solutions. Advanced purity solutions, we believe that the potential there is to grow about three to six percentage points in excess of the industry. Then we have material solutions. We expect that part of the business to grow four to six percentage points. Roughly the same potential for both businesses. The margin is a bit different. APS or advanced purity solutions, operating margin potential is in the high 20s.
Where is it today?
It's in the mid-20s, and then material solutions is in the low 20s. The reason, the difference is that we have, in the last few years, invested extensively in a fairly complete global manufacturing footprint. The material solutions manufacturing processes are more capital intensive. Of course, you know, we've been in this very slow industry environment. As a result, you know, we are not getting the full leverage quite yet on some of those investments. I think if you fast forward long enough, I think that, you know, the MS or the material solutions platform's potential is probably in the mid-20s and will be, you know, at some point approaching the APS margin potential.
Got it. It's just a matter of, like, utilization and scale?
Exactly.
Okay. That makes sense. I want to get to that, to the, you've talked about a global footprint a few times, and I want to get to that actually, particularly in the context of everything else that's going on right now. First of all, just to describe the footprint, I mean, like, I guess I don't know what the right way to ask. How many plants are there? Where are they? Are they close to every customer that you have? What's the, how should we think about your manufacturing footprint, like, by geography? How does it play out?
Yes, we have actually manufacturing capabilities in all of the major semiconductor markets close to the customers. At a high level, 45% of our manufacturing is still U.S.-based.
Okay.
55%, Asia-based. We have,
I'm assuming it's not like uniformly spread. You're not making everything.
No, we, you know, you would not like margin, if we were to do that. Every time we have enough volumes for a given product line, we're certainly making sure that there is some redundancy in our manufacturing footprint. If disaster strikes, we can actually activate the other site. We always try to do that in such a fashion that one of those sites would be in the U.S., the other site would be in Asia. In Asia, we have manufacturing in Japan, manufacturing in Korea, Taiwan, Malaysia. We have just a little bit of filtration production in China, but that's really the result of an acquisition that we made five or six years ago. That's really not for semiconductor applications.
How much of the business today is driven by, like, indigenous Chinese semiconductor manufacturers?
China overall is about 20% of our revenue. Of that, 80% would be domestic Chinese customers, so give or take 16%.
Got it. And I mean, I guess to get to some of the near-term stuff on the back end, I mean, like, the current geopolitical situation, the tariffs, and what impact is that actually having on Entegris? Have you seen any impact? I mean, and I guess there's revenue impact. There's also cost impact because, I mean, again, depending on where your parts are being made and/or where your materials are being made and where they're used. So how have you guys quantified any impact? Like, what are you seeing? And I guess how do we think about, to the extent that we can, what's coming down the pipe as, as to be fair, like, I don't know what the policy is going to be tomorrow versus, you know, end of the year.
I mean, like, how do you guys think?
Yeah. I wish you would have that answer for me.
Yeah.
Look, I mean, yes, I mean, we operate in a complicated world, for sure. I think when it comes to China or tariffs in general, let me say that if you look at the manufacturing footprint that we have in the U.S., we do not really procure a lot of raw materials from China at this point. And when we do, we have actually been able to offset the tariff impact by driving some price increases with our customers. Those are adders that we call out specifically, and we are going to be tracking precisely with our customers. The margin impact is not going to be,
Much of the BOM of every customer's BOM is actually made up by your. I don't, I don't even know.
It's very small. It's very, very small.
There's headroom if you need to take pricing offset.
Yes, within reason.
Within reason.
The bigger issue for us, early April when the U.S. administration introduced punitive tariffs on Chinese imports, was the Chinese government retaliating with, you know, commensurate tariff increases. That was actually a big negative for us since a third of our China business is sourced from our U.S. sites. What we are actively doing right now is we are working with our China customers and really asking them to qualify our alternative Asian manufacturing sites. The good news for you as investors is that you should know that those Asian sites and investments have been made. We need the customers to qualify the sites and start placing orders on those sites. I would expect that some of that will be taking place in Q2.
More of that will be happening in Q3. By the end of Q4, I would expect that, you know, 90% of our China business will be served from our Asian site. That is the goal. By the way, that was always the desired end state. That is why we invested so much in Asia. It was really to have a local-for-local strategy. As a final maybe data point, I would say that every time we have a strong manufacturing capability in a given country, we localize the supply chains as well. If you think about Japan, 90-plus % of our suppliers are Japanese. If you look at our large Taiwan manufacturing site, over 90% are regional, not just Taiwanese, but regional suppliers. The same would be true in Korea as well.
Of course, this is true here in the U.S. as well. That is why, you know, back to where I started my answer, this is why there is not really a huge tariff impact.
Got it. Got it. Where would it show up over the next couple of goals? Just a little bit of gross margin headwind until it's qualified, or?
Yes, I think we guided our gross margin down modestly going into Q2. I think we should be able to do all of this without any significant impact on margin.
Got it. I'm going to ask a broader question. I don't know, maybe it's not fair to put it on you, but I'm going to ask. Just, I mean, you sell, like, to everybody. You sell. Do you have, like, a broad state of the industry that you might want to share? To the extent that you have any visibility at all? I mean.
No, I mean, I wish I had that crystal ball. I do not. Yeah, look, I think this industry is notoriously difficult to predict, and we have been in this cycle now for some time. That is, you know, sorry to disappoint, but I do not have that crystal ball. I think, like you, you know, we have been frustrated with the lack of recovery. This is arguably the longest down cycle that I have experienced, and I have been in this industry for 25 years.
We never quite saw an up cycle like the one we had in front of it, though.
That's right. I mean, we never see these up cycles when they come. We always get surprised. You know, as an operator in this environment, what we're doing is we're focused on what we control. What we control is the engagement with the customers, continuing to develop those very specialized solutions that I was mentioning, making sure that we continue to grow the content opportunity per wafer so that we are really positioned ideally for when the industry turns, and it will turn. Likewise, we have continued to make investments in capacity, because we believe in the long-term potential of the industry. We believe in the long-term potential of the Entegris platform, and we want to be ready when the industry snaps back.
And, you know, from my experience, I mean, the longer you stretch that rubber band, you know, the sharper the recovery. And those recoveries are, I mean, obviously, you print much better numbers, which is something that I know you will appreciate, but those ramps are really, really hard to manage. So you want to be, you want to be ready for those ramps.
Mm-hmm.
That's what we're trying to do. It's really striking the balance between navigating a lukewarm industry environment right now while getting ready for a potential upturn.
Got it. Is it lukewarm everywhere, though, or are there pockets? Or I know, I know, you know, industrial's been on a 10-quarter downturn, maybe more. There's been some, at least among semi guys, some talk about cyclical bottoms of recovery, although I, I personally don't know if that's a real cyclical recovery or if it's like pull forward in front of all the tariff stuff. Automotive, you know, has been in general weaker, but more recently, and we definitely have seen some pull forward there. I personally think we're seeing a good amount of pull forward in the PC space. I don't know if there's are you just seeing this sort of just like universally across everything, or?
I think you're right that we are hearing a lot of pull forwards, which usually means that there will be an implication in the second-half outlook for many of those companies. I think the bright spot remains AI-related applications, right? I mean, we certainly benefited from that last year. Our largest customer is TSMC. TSMC historically was a 12% customer for Entegris. Last year, that number spiked up to 16%.
Oh, wow.
Very significant growth at TSMC. Again, that's just validating what I was mentioning to you earlier, increasing the content per wafer opportunity and then capitalizing on, you know, the increase in wafer production. We have not seen that anywhere else.
Yeah.
I mean, memory mainstream has been flat to down now for many, many quarters.
Yeah. Yeah. I mean, where else do you benefit on AI? I mean, clearly there's the wafer content. Do you benefit like on the packaging, on the HBM?
We are benefiting on the HBM in terms of materials.
Uh-huh.
and, you know, we have pretty significant opportunities, slurries in particular in, in HBM.
Mm-hmm.
That's, you know, that has benefited our material solutions platform. HBM historically, you know, HBM and HBM chip is really essentially a DRAM chip with more I/Os. The DRAM process typically does not really require advanced filters. They can really laser repair the chips, so they did not really need to have a lot of proactive, you know, engagement in terms of advanced filtration. This is changing. I mean, HBM are chips that you cannot repair. There are larger chips that cannot be repaired, and then the yield penalty as they stack up those chips on the package is very, very costly. We are seeing actually, it is very, very recent. It is literally, you know, six months old. We are seeing all of the HBM manufacturers coming to us looking for more advanced filtration and purification solutions.
I think that the answer to your question will change if you ask it again in a year from now, which is actually very promising.
Okay.
That goes back to the high-level theme I was mentioning to you earlier. You know, the reason we are excited at Entegris and the reason we believe we can continue to outperform the industry is really the result of that compounding complexity that comes from miniaturization and then the introduction of new materials.
Got it. That makes sense. You talked about slurries, right? I want to talk maybe, maybe it's a good time to talk broadly about your M&A strategy. So slurries would have been about CMC, which does chemical mechanical polishing, but you've also been doing ATMI and SAES and SinMat and Global. Maybe could you talk first just a little more broadly about how you guys think about M&A and some of the capabilities that you've picked up over the years inorganically? Then I'd like to dig a little bit more specifically into CMC, given that was the most recent one.
Sure. There were, I mean, if you again, I'm going to try to provide some historical perspective without going too deep into the details, but to compete effectively in this market, we knew years ago, decades ago, that we needed to have enough scale to invest locally in Taiwan, in Korea, in Japan. I am not just talking about manufacturing capabilities. I'm talking about development capabilities and having tech centers. You cannot do that. You go back, you know, 15 years ago, the company was $300 million in size. Today, we are, you know, exceeding $3 billion. You need scale to afford those investments in tech centers and manufacturing and get the returns that you're all expecting. M&A was important for us in that context.
Now, doing M&A just because you want to get bigger, that's not a strategy. What we were trying to do is to also just choose certain elements of value proposition that we wanted to, to bulk up. Originally, it was about purity. It was enabling the purity with the filters and then preserving the purity during transportation with high-purity packaging. That led us to the merger between Entegris and a spin-off from Millipore Corporation, which brought the filtration platform to Entegris. That's actually how I got to Entegris. I came from that filtration background. As the industry roadmap became more complex, we were realizing that it was really getting harder for us to innovate fast enough on the filtration side.
We concluded that we did not have enough material science within the company, and we did not really have enough understanding of the chemical interactions between our separation, our membrane, and the diverse chemistries we were expected to filter out. That led us to the acquisition of ATMI. As we increased the materials knowledge through that acquisition, we were able to increase our market share in filtration significantly. We were, in the past, the leader with about 40% market share. After the ATMI acquisition, in probably the four or five years after that acquisition, we were able to increase our market share on average to about 60-70%. In the more advanced applications, that market share is even higher than that. We have done that actually across multiple product lines. With ATMI came again that chemical platform.
and then the question became, and that chemical platform usually enjoys about 30% market share. We are number one or number two in the applications we serve with about a 30% share. The question then became, you know, what would need to be true for us to create a catalyst to get from a market share of 30% to something greater? To do some, what we did on the advanced purity solution platform. The conclusion was we wanted, we thought that the best way to differentiate ourselves was to really have the full suite of capabilities from deposition materials to the recessed chemistries, be it etching, polishing. Then at the end of all of that, you have a cleaning step.
If you look at the many acquisitions that we've done over the last five years, it's really to complete that set of capabilities so now we can engage with the customers and really tell them that not only can we develop the best material, but we can actually develop that suite of solutions, which ultimately de-risk the adoption of the new deposition material. Back to a point I was making earlier in a different context, compresses the time to solution, which is very important for our customers. That's the context for the acquisitions that we did. Again, all of them have been great contributors to our outperformance algorithm.
And maybe to dig into the latest one, CMC, so that was one of the bigger ones you've done and put on some leverage to do it. I guess what is that? What did that actually bring to the table?
Before that, we had deposition materials. We had etching chemistries. We had cleaning chemistries. We did not have polishing. We needed polishing to be that full solution provider that we aspired to being. CMC Materials was bringing the slurries and the pads used in the CMP, the chemical mechanical planarization process, which is a highly sensitive process. I mean, essentially, it is putting sand on the wafer and you scrub it, and you are supposed to do that at atomic level. It is a very inefficient process, and yet it has been used for decades, and requires an extraordinary amount of precision. CMC actually brought us that. Back to your question about what has worked well, I would say that the two companies were very synergistic from a technology standpoint, as you understand.
The cultures were very closed. We executed on the integration very rapidly, which is a guiding principle of mine, which is, you know, when you do those transformational deals, you really want to get the synergies and savings as quickly as we can, get the people impacted by those, you know, integration programs out of the organization quickly so that we can really turn to the positive, engage with the customers, and then really get, you know, everybody's mind on the task. We did just that. Within a year, we converted everyone to SIM systems, generated, you know, about $125 million of savings.
Now we've been, obviously, for several years, we've been working on the innovation strategy, on the commercial strategies, and those various products have been doing extremely well, growing very fast last year in spite of a fairly muted industry environment, but doing very well again in the first quarter. The challenges that we faced was that there were, I mean, we took on some debt. That was the only way for us to, you know, to structure that deal in a way that would be acceptable for the sellers. We made a commitment to bring down the debt to below four times gross leverage, and we have not been able to achieve that quite yet, simply because our original assumptions were counting on an industry environment that would be a little bit stronger than what it has been.
Having said that, and I'm not looking for excuses, I would say that, you know, we've done everything within our control to pay down as much debt as possible. We have paid down $2 billion already, as a result of applying every excess cash to debt paydown and also, you know, divesting non-strategic parts of the portfolio. Some work to do still. Very, very happy with the way the integration has proceeded and the value we have been able to get from a, you know, from a technology standpoint and customer engagement standpoint.
Got it. I guess on the further to leveraging from here is just, does the cash flow just go down to pay the debt until the leverage is where it needs to be?
Yes, exactly.
Got it. I guess beyond that, though, what are your broader, like, thoughts on capital allocation across? Clearly, M&A is still going to be part of longer-term strategy going forward, but how do you think about use of cash going forward?
Yeah. Short-term debt paydown, I mean, we, I mean, again, the debt structure is rock solid. There's no maturity until 2028. It's fully hedged, but we committed to paying it down, and it's a matter of credibility.
Yeah.
That's what we're going to do. Going forward, yes, we believe that we have been a very capable acquirer. We believe that the material space remains very fragmented and will be the source of many more opportunities for us to act. We've been engaging with a lot of investors in terms of what do they believe.
Mm-hmm.
An acceptable level of debt is, and then, you know, we're going to continue to have those discussions, and that will inform us in terms of, you know, how we finance the next, the next transactions.
Got it. We've got about five minutes left. Should we go to the lightning round? By the way, if you do have other questions, you can feel free to submit them. We will get to them if we have time. First, can you talk a bit more about what sort of competition disruption you're seeing coming from China? How do you compete with them, and are they moving out of China?
Yeah. We've been competing with Chinese competitors for many years. They are making progress, but so are we. I think the base of competition in this industry is technology differentiation. As long as you can actually create a device performance benefit for your customers, as long as you can provide them a yield benefit, you win, and they come back to you. It is true in China. It is true in Korea, Japan, and anywhere else. That is really our strategy, coupled with offering our Chinese customers the ability to procure the Entegris products from our Asian manufacturing sites. To a question about do we see domestic competitors outside of China? Yes. I mean, they are trying to get outside of China. They have been trying to.
The same rule of competition applies outside of China as they do in China.
Got it. How much of your M&A and R&D is customer-driven versus where you think the market is going?
I mean, yeah, I mean, it's.
Not necessarily.
Yeah, yeah. I mean, look, our interactions with the customers inform us on where we think the market is going. I think it's a little bit of a, you know, chicken and the egg question. But yes, I mean, our innovation is very much customer-driven. We have very regular roadmap discussions with our semiconductor fab customers, with our equipment partners. That's really, again, how we continue to advance our offering, how we maintain the differentiation in everything we do.
Got it. Why have prices been flat? Can you discuss competition and commoditization?
Yeah. I mean, for us, you could argue maybe there is a better model, but the model that we've been operating under is, you know, we have an opportunity to set the price when we introduce a new product. Usually we introduce a new product when a new node is introduced by our customers. At that time, we usually discuss a price curve over time that ties to volumes. Usually, again, you know, your price trends downward as volume increases. The real question for us is really the shape of that curve. The two points are really pricing it right, which usually is a function of really understanding the value you create for your customers. I think we have become much better at that.
We used to, you know, have a cost-plus approach to pricing. That's no longer the case. It's really a value-based pricing. I think we have become also a lot smarter around managing the price over the lifecycle of a product.
Got it. One more here. I'm going to ask it anyways. Why step down now? And any comments on how David might lead the business going forward?
Look, I mean, I believe in refreshment. I've had a discussion with my teams all the time, and, you know, we are in the business of obsoleting ourselves and changing and embracing change. When I announced me stepping down, I actually linked that decision to so many other discussions we've had and saying, "Look, it applies to me." The same way it applies to everything else we do. That decision is hard at one level because I love this company. I love what I do. It is also easy because I think David's a great guy, and I think, you know, he's going to do a phenomenal job.
What makes him great is that he is someone with extensive experience in the semiconductor industry, 20 years, worked in the fab, knows our products, used our products, understands the applications we serve. A great operator. I like his demeanor. I like what I've seen in the boardroom and the way he has been interacting with my team today, which, you know, will become his team. The culture is right. For all of you, another important consideration is, I think he's a really great, you know, allocator of capital. I mean, he knows what shareholder value is. I mean, he has been a CEO. He has been a CFO. I think this is a rare, rare blend to have someone who is an operator, likes to be with the customers, but is also actually, you know, a great capital allocator.
I'm sure you will like him very much.
Got it. I can't wait to meet him. With that, I think we're out of time. I think we will close it out here. Thank you so much. Great.
Thank you.