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Operator
Ladies and gentlemen, thank you for standing by and welcome to the MKS Instruments second quarter earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star then 0. I would now like to turn the call over to your host, David Rizek.
David Rizek
Good morning, everyone. I am David Rizek, and I am joined this morning by John Lee, President and Chief Executive Officer, and Seth Bagshaw, Senior Vice President and Chief Financial Officer. Yesterday, after market close, we released our financial results for the second quarter of 2021, which are posted to our website, mksinst.com. As a reminder, various remarks today about future expectations, plans, and prospects for MKS comprise forward-looking statements, and actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in the most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q. These statements represent the company's expectations only as of today, and should not be relied upon as representing the company's estimates or views as of any date subsequent to today and the company disclaims any obligation to update these statements. During the call, we will be discussing various financial measures. Unless otherwise noted, all income statement related financial measures will be non-GAAP other than revenue. Please refer to our press release for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Now, I'll turn the call over to John.
David Rizek
Thanks, David. Good morning, everyone, and thank you for joining us today. We delivered another record quarter with revenue of $750 million and net earnings per diluted share of $3.02, both above the midpoint of our guidance range. We achieved these results despite facing increasing supply chain constraints of certain components. I have previously highlighted the strength of our world-class operations team and our commitment to our customers, and the second quarter was yet another example of this. We're also very pleased with our gross margin and operating margin expansion in the quarter, resulting in an 86% year-over-year increase in net earnings per share. In fact, to give a sense of how MCAS has transformed in the past five years, our net earnings in the second quarter was higher than what we delivered for the full year in 2016. Sales to our semiconductor market grew 5% sequentially to a new record, and as we benefited from broad-based demand across our vacuum and photonics portfolios. Our RF power solutions delivered another record quarter, as demand for our differentiated solutions of high aspect ratio edge applications continues to grow. We believe every single leading edge 3D NAND application in the world today is enabled by our RF power solutions. We continue to invest in our RF power portfolio to help our customers execute on their technology roadmaps. Excluding RF power, the combined revenue from the remainder of our vacuum and analysis division also reached another record, including records in valves and analytical control solutions, and strong year-over-year growth in our plasma and reactive gas business. In fact, we secured multiple large orders for our dissolved ozone and dissolved ammonia systems to support seven, five, and three nanometer foundry expansion plans. This is yet another example of the differentiation of our surrounded chamber portfolio, which will become increasingly important as the industry needs to solve for increasing complexity and smaller geometries. The investments we have made in our world-class optics initiative are paying off, as we secured 10 design wins in the second quarter alone, eight of which were semiconductor applications. Specifically, we are seeing increased interest in shorter wavelength applications with a number of EUV design wins in the quarter. We continue to leverage our optical expertise and state-of-the-art manufacturing and assembly capabilities to increase share of wallet with key OEMs. But our photonics opportunity in SEMI extends beyond just optics. We secured a notable design win for our new picosecond UV laser solution for a back-end semiconductor application. and received a large gradings order for a lithography application. This is yet another example of the breadth and depth of our critical subsistence portfolio and the wide array of advanced semiconductor applications we serve. As we look into the third quarter, demand in our semiconductor market remains strong. However, due to growing supply constraints of certain components, we expect semiconductor revenue to be consistent to slightly up from second quarter levels. including revenue from photon control, which we acquired earlier this month. Barring these constraints, we would have expected revenue from the semiconductor market to be up more significantly in the third quarter. Revenue from our advanced markets accelerated in the second quarter, growing 13 percent from the prior quarter and more than 40 percent year over year. The strong results were driven by demand from advanced electronics manufacturing applications as well as a pickup in demand from a variety of industrial applications. We saw strong adoption of our leading edge capstone flex PCB via drilling solution, as customers continue to meet capacity and technology transition demands associated with new 5G smartphone designs. We also secured our first multi-unit capstone order in Korea, with an initial focus on standard PCB production, but with the possibility to address more advanced applications. We are pleased with the progress of our HDI solutions acceptance in the market. As you may have seen from an announcement last week, we received our first HDI order from TTM Technologies, a major technology leader in the HDI PCB manufacturing market for their facility in Guangzhou, China. We are excited to support TTM in their manufacturing needs and are focused on driving continued adoption with our differentiated geode HDI drilling solutions. We are gaining traction with our picosecond UV laser platform. And in the second quarter, we commenced volume shipment for a meaningful advanced electronics design win that we previously announced. And we also secured three new design wins in the quarter. Moving to the third quarter, we expect revenue from our advanced markets to decline sequentially, primarily due to normal seasonality in our flex PCB via drilling business. Even with this sequential decline, We expect revenue from our advanced markets to grow considerably on a year-over-year basis. Before I turn the call over to Seth, I want to share a few thoughts on the closing of the photon control acquisition and the announcement that we entered into an agreement to acquire Adatech Limited. We are very excited to welcome the photon control team to MKS. Photon control brings to MKS a rich history of innovation in the semiconductor industry. Its flagship fiber optic temperature sensing solutions fit right into our surround-the-chamber portfolio and enable key trends such as the growing complexity in etch processing. And we believe we can leverage our broad customer relationships to drive cross-selling opportunities for Photon Control's portfolio. From a financial perspective, the benefits are clear. The gross margin profile is attractive, and the acquisition was immediately accretive to earnings per share. We have been and will continue to be a key enabler of semiconductor fabrication, which has been the key driver of miniaturization and complexity for the past 60 years. We believe the next frontier to address these trends is optimizing the PCB interconnect, which connects chips, sensors, and devices. The interconnect is critical to enabling advanced electronics designs, and that is exactly what we are addressing with our agreement to acquire Adatek. Adatek will bring leading process chemistry and equipment expertise to MKS, which will build on our leading VIA drilling expertise, so we can optimize the VIA formation workflow to solve challenges for next-generation architectures. We also see attractive cross-selling opportunities given our complementary strengths, as Adatek can benefit from MKS's expertise and leadership in flex PCB manufacturing, And MKS can benefit from Adatek's leadership in HDI PCB manufacturing. This combination should give a strong competitive differentiation room to grow with an estimated $4 billion PCB laser drilling and chemical processing SAM. Adatek also brings a robust gross margin profile and an attractive recurring revenue stream to MKS. where we anticipate about 40% of the combined pro forma company revenue would be recurring in nature. In addition, we expect earnings per share accretion in the first year and strong pro forma cash generation, which gives us the flexibility we like when looking at deleveraging post-deal. In summary, these acquisitions position MKS to become a driving force for miniaturization and complexity in semiconductor and advanced electronics manufacturing and we're excited about the opportunities that lie ahead. With that, I'd like to turn the call over to Seth. Thank you, John. I will cover our second quarter results, then provide additional detail and guidance for the third quarter, which will include a partial quarter's results for a recently closed acquisition of Photon Control. Sales for the second quarter were a record $750 million, up 8% sequentially and up 38% year over year. Our record performance reflects another quarter of robust semiconductor demand, as well as a strong acceleration in our advanced markets. Sales to semiconductor market set yet another record at $431 million, up 5% sequentially, and up 34% year-over-year, reflecting wide-ranging demand across memory, foundry, and logic applications. Our broad-based product portfolio is leveraged to all of these applications. While growing supply constraints of certain components impacted our second quarter results, we are very pleased with how well our global operations team has responded to the unprecedented effect of the global pandemic. Given perspective of how our team has executed since the start of COVID-19 disruptions, we've grown our vacuum analysis semiconductor revenue by 75% compared to pre-COVID levels in the fourth quarter of 2019. Not only does this reflect our world-class operational execution, but also our flexible and asset light manufacturing model. Complementing our strong vacuum analysis results, we also delivered record revenue in our light and motion division sales to the semiconductor market as we were gaining traction with our photonic solutions for lithography, metrology, and inspection applications. As John highlighted earlier, the target investments we are making in our world-class optics initiative Our yielding results will continue to leverage our scale and technical expertise to drive additional design wins with key customers. Sales to our advanced markets accelerated in the second quarter, setting a record at $319 million, up 13% sequentially and up 43% year-over-year, led by strong demand in advanced electronics applications, in particular for Flex PCBV drilling systems. We are very pleased with the performance of our equipment solutions division, with revenue of almost $100 million in the second quarter, and as inclusive of the revenue headwind from our discontinuation of low-margin semiconductor market products that occurred late last year. In fact, the disciplined returns-based approach to our portfolio, combined with strong revenue and favorable mix, has led to a record equipment solutions gross margin of over 53 percent. For the second quarter, The revenue split between our semiconductor and advanced markets was 57% and 43%, respectively. Second quarter gross margin was 47.4%, up 100 basis points sequentially, and up 210 basis points year-over-year. The strong performance was due to higher volumes, product mix, and effective cost control. Second quarter operating expenses were $147 million, up $4 million sequentially, primarily due to higher R&D product costs and variable compensation due to our strong financial results. Second quarter operating margin was 27.7%, up 190 basis points sequentially, and up 610 basis points year-over-year, which reflects the strong operating leverage in our financial model. Adjusted EBITDA in the quarter was a record $229 million, resulting in an adjusted EBITDA margin of over 30%. Net instance expense for the second quarter was $6 million, and our tax rate was approximately 17%. Net earnings for the second quarter were a record $168 million and a record $3.02 per diluted share. On a year-over-year basis, our EPS increased 86 percent, more than twice our revenue growth rate, exceeding a long-term target operating model that we announced at our analyst day. Exiting the second quarter, we maintained a strong balance sheet and liquidity position, with cash and short-term investments over $1 billion, and $100 million of incremental borrowing capacity under an asset-based line of credit, subject to certain borrowing-based requirements. Our term loan principal balance was $829 million at the end of the second quarter. We exited the quarter with $210 million net cash balance, up over $130 million sequentially. In terms of working capital, day sales outstanding were 52 days at the end of the second quarter compared to 55 days at the end of the first quarter. And inventory returns were three times in the second quarter compared to 2.9 times in the first quarter. We remain focused on improving our cash conversion cycle. In second quarter, operating cash flow was a record $165 million, up 19% year-over-year increase. Free cash flow in the second quarter was also a record $149 million, a 26% year-over-year increase. We increased our dividend in the second quarter by 10%. It made a dividend payment of $12 million, or 22 cents per share. I'll now turn to our third quarter outlook. Based on current business levels, we estimate third quarter revenue of $720 million, plus or minus $30 million. It's worth noting a few items that are impacting our third quarter outlook. First, due to typical seasonality within the flex PCB market, our advanced markets revenue is expected to decline sequentially. However, we expect revenue from our advanced markets to grow considerably on a year-over-year basis. Second, increasing supply constraints on certain components are expected to be a headwind in the third quarter. Excluding the impact of these component constraints in given current business levels, we have expected our overall revenue to grow sequentially. Based on anticipated product mix in revenue levels, we estimate third-quarter gross margin of 47 percent, plus or minus one percentage point, and operating expenses of $149 million, plus or minus $4 million. For the third quarter, net interest expense is expected to be approximately $6 million, and our tax rate is expected to be approximately 17 percent. Given these assumptions, we expect third quarter net earnings of $2.74 per diluted share, plus or minus 26 cents. I'd now turn the call back to the operator for Q&A.
Operator
Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touchtone telephone. If your question has been answered or you're listening to yourself in the queue, please press the pound key. Our first question comes from Sidney Ho with Deutsche Bank.
Sidney
Great. Thanks for taking my questions. I have a few questions on the supply constraint side. Can you quantify maybe the revenue impact in the second quarter, and how does that compare to your assumption in your second quarter guidance? And for the third quarter guidance, does the revenue impact hit both semis on the advanced market, or it just sounds like it's just semis? And is there any margin impact that we should be thinking about as part of this supply constraint? And lastly, do you have a guess as to when these supply constraints start going away?
David Rizek
Hi, Sidney. It's John. Well, welcome back to coverage of us. There are like four questions there, so I'll try to remember every one of them. I think the easiest one to answer first is Q3 constraints, whether that was mostly in our semi-market versus advanced markets. We see it mostly in our semi-market, so it's pretty clear just because of the high volumes of products going to the semi-market. So that's a fairly easy one. Impact to Q2, there were some impacts, you know, in terms of the overall revenue, but we believe in working very closely with our customers that we were able to, you know, allow them to ship what they needed to their customers. I think the impact in Q3 is a little worse. We're planning on that. We're being prudent in our guidance. But as you know, these things can change quickly, and, you know, if materials comes in, we could have a fair amount of upside to the numbers we guided, but we want to be prudent. There's electronic components. There's also, you know, the outbreak of COVID, again, in certain regions that are quite important to the semiconductor supply chain, as you can imagine in Southeast Asia. So we're trying to be prudent with our guidance there. And then I think your last point was, you know, do we have a view of when this might recover? We really don't, Cindy. I think everybody in the supply chain is working very hard to try to recover. There's a lot of demand. You've heard it from our customers and other people in the supply chain. This is really a robust environment for CEMI. So everybody's motivated to fix these things. And so we look forward to working with our customers to continue to make sure that they can meet their customers' demands as well. Yeah, just to add your question on the gross margin, you know, question going forward. So, as you know, we've got a pretty robust, we call it profit and cash recovery program we've had in place for a number of years. So, our DNA is always a kind of work on our cost structure and be more effective going forward. We are definitely seeing some, you know, surcharges on some components in the semi side of our house, the vaccine analysis division. But we're working hard to kind of offset that elsewhere. I think you see our Q3 guidance at 47% plus or minus a point is pretty much in line with our operating model, those volumes. So we're kind of working pretty hard to kind of offset any additional headwinds we see on the cost side, which is, again, what we've done for a number of years. But there is some definitely headwinds there we're sort of managing through.
Sidney
Okay, that's great. Maybe a follow-up question is, In terms of visibility, how would you characterize your visibility beyond Q3, especially on the semi side? I would assume your backlog is kind of building and giving you away by constraints and all the lead times are stretching. But curious, some of these revenue that you miss in Q3 and maybe Q2 as well, do they just go away or do they just go into the backlog and build better visibility beyond the current quarter?
David Rizek
Yes, as you know, we don't guide beyond this quarter, but I would say we are in agreement with the rest of the industry that, you know, the outlook over the next, you know, several quarters is very robust. So if anything pushes out to the right, I think it just gets made up in the following quarter. The bookings, we usually don't guide that, but they're certainly very, very strong. So we're working hard to try to meet that demand.
Operator
Okay, great. Thanks.
David Rizek
Thanks, Sidney.
Operator
Our next question comes from Joe Patroshi with Wells Fargo.
Joe Patroshi
Yeah, thanks for taking the question. Just another one on the semi side. Just curious, how do we think about if you're unable to ship a specific product to one of your customers, their ability to insert maybe one of your competitor's products into that place to get their tool out the door? Is that common or should we think about those as being a little bit more sticky in that If you can't ship, then they kind of can't ship either.
David Rizek
Yeah, that's a good question, Joe. I think the kind of critical subsystems that we've been designed in with our customers, they're very important to how their tools work. And so I think it's very, very difficult for folks to just try to change that on the fly. So it is a very sticky business. This is the legacy of CopyExact and the semi-industry You know, making a chip is 3,000 steps. Nothing can change because all 3,000 steps have to yield. So I think it's a very sticky business. So we're really not concerned about that, Joe.
Joe Patroshi
Perfect. And then just as a follow-up, you know, another quarter of impressive optics wins that you announced. Can you just remind us, you know, how big is that business and how do we think about, I guess, the growth profile of that looking forward, especially I think you started to talk a little bit more maybe about some wins in EUV?
David Rizek
Yeah, in general, you know, the semi part of that business, which is, you know, where a lot of the world-class optics are focused on, you know, that's well over $100 million to some of the key customers there. We haven't really, you know, given the detail exactly how much it is, but it's growing, and we're really happy with these design wins. As you know, these design wins in these kinds of tools are very, very sticky, even stickier than, I think, in the vacuum area. these are very, very specific optics and optical sub-assemblies that are intimately designed into the tool.
Chris Sankar
Thanks.
David Rizek
Thanks, Joe.
Operator
Our next question comes from Patrick.
Patrick
Thank you very much, and congrats on the nice quarter. John, maybe just following up on some of the supply chain questions, and I know it's a moving topic, There are a lot of moving parts in that dynamic. But can you give qualitatively, you know, how much of it is coming from the inability to get the required volumes, given that demand continues to be very strong and actually is increasing, versus just the inability to get certain components? And what I mean by that is, like, you're just not able to get certain parts at this time. How much of it is one or the other, or, you know, are there a lot of, you know, different factors involved?
David Rizek
Yeah, Patrick, that's a great question. We can add a little more color for sure. You know, I think in almost all cases it's about quantity. So the whole entire supply chain for electronic components is constrained, and so there's a lot of allocation going on, and as Seth mentioned, price increases that we're working through. But it's really about quantity, Patrick, not that you can't get any of it.
Patrick
Great, that's helpful. Maybe my follow-up question in terms of the advanced markets, again, a lot of nice wins you've talked about on the PCB side of things, and the ESI business is finally, you know, starting to show the value, you know, when you acquired it. Can you talk a little bit about the light and motion side of that business and and what type of recovery you're seeing there. Are we starting to get the economic recovery that drives some of those businesses, or is that something that, you know, we should be looking at more for 2022?
David Rizek
Yeah, no, we're seeing it right now. We saw it, I think we started seeing the recovery in the light and motion businesses in Q4. We talked about the continued recovery in Q1, and it continues in Q2. We see it continuing to be the steady recovery in all their markets, and certainly this quarter we expect that as well. So we're really happy that those markets that Light in Motion has leveraged to have come back and are growing nicely now. Great. Thank you very much. Thanks, Patrick.
Operator
Our next question comes from Chris Sankar with Talent & Company.
Chris Sankar
Yeah, hi, thanks for taking my question. I actually had three of them. First one, John has said, can you quantify what your September quarter revenue guidance would have been if you had no supply constraints?
David Rizek
Yeah, sure. I thought you were going to ask all three at once. I'd have to remember it. But, you know, I think we maintain the guidance range to be a little higher than normal, but it's the same as Q2 just because of that uncertainty. So, You know, we're guiding 720. We're trying to be prudent about it. We expanded the range to plus or minus 30. So that kind of gives you a sense, I think, of the potential upside if material constraints get relieved throughout the quarter.
Chris Sankar
Got it. Got it, John. And then just to follow up on that, you know, are these constraints that you are seeing, are they more just like a transient issue that should normalize soon? The reason I'm asking is it is. So look at one of your large customers who guided last evening. Their guidance is not as bad as yours. And we're just wondering, are they pulling in from inventory, or is this just a temporary thing that should normalize in a couple of quarters on the constraint side? And then I had one final follow-up.
David Rizek
Yeah. Yeah, no, I think if you peel back our guidance in this coming quarter, Remember, E&S has their normal cyclicality, annual cyclicality. So as you saw, E&S was $100 million in revenue at 53% gross margin in Q2. In Q3, because of the seasonality, that could be on the order of $50 million less. And so if you take that and you do the math, I think we're fairly consistent with some of our customers in the semispaces.
Chris Sankar
Got it, got it. And then just a final follow-up, how much in your September revenue guidance is photon control?
David Rizek
We're not guiding by subgroups, but, you know, prior to that, photon control was kind of at a run rate of, you know, between $13 million to $15 million revenue a quarter. And these are record quarters for photon control. And so, as you know, they're levered to semi. And so those are the kind of ranges of numbers for photon control.
Chris Sankar
Got it.
Operator
Thank you very much, John.
David Rizek
Thanks, Chris.
Operator
Our next question comes from Scott Graham with Rosenblatt Securities.
Scott Graham
Yes. Hey, good morning, John, Seth, David. How are you? Nice print.
David Rizek
Thanks, Scott.
Scott Graham
I wanted to understand a little bit more on the supply chain, you know, beat the old dead horse here, but can the fourth quarter, let's call it a gap, could that be larger than the third quarter?
David Rizek
Well, the bookings and the demand could lead to that, Scott. I'd just say that. I think it really depends on how the supply constraints get relieved, how fast the industry catches up. But the demand is there for that kind of a scenario, and obviously we're not guiding out that far, but the demand is there for that kind of scenario, Scott. I'd leave it at that.
Scott Graham
Thank you. And then, you know, much like Chris's question just now, at least I think so. The demand part of the equation remains quite good, yet here we are with essentially the IDMs and people sort of at the top of the rock, giving next quarter guidance that just seems to be a little bit better than those of us here in the chain, so to speak. And I guess what I'm wondering is, you know, obviously you're always putting your best foot forward. Everybody's always putting their best foot forward for their customers and will take on, you know, some extra expenses to that end and all that. But at what point do you think that, you know, the demand side of the equation maybe starts to run off a little bit? And what I mean is, you know, Normally, when you have demand that is outstripping supply, that could easily elongate a cycle. I'm just wondering if there's a situation where your customers are maybe talking about a little bit of concern about a fall-off in demand, which would actually not elongate the cycle, and the demand might be lost. Are you hearing anything like that?
David Rizek
Yeah, you know, as far as we can see right now, Scott, we don't see any of that. You know, our customers and their customers, I think, are continuing to pull because they see demand. And we always pivot to the long-term growth of semi. And I think you would agree it's a great market to be in, and it's a long-term growth for the semiconductor industry. CapEx intensity, you know, is ticking up. It's still within historic norms, I think, but it's kind of on the high end of it. So I think long-term we're really pleased to be a key supplier in the semiconductor supply chain. And so it's probably best to ask the chip guys whether they see a demand drop. But from what I've read, to your point, they're all up and to the right.
Scott Graham
That's fair. Thank you. I just want to maybe sneak one more in here. So on AdderTech, the acquisition, obviously a very exciting time, I'm sure, inside the company. you know, what's always crucial in these things is like the first hundred days. And I'm just, you know, kind of wondering if you, you know, I'm sure that you've already mapped a lot of this out. What are your initial points of focus with that acquisition and with its, uh, expected closure in the fourth quarter?
David Rizek
Uh, yes, Scott, you know, and we have to be a little careful, uh, you know, before close in terms of any commentary. Um, but you know, Adotech is a well-run company. Um, And so, you know, our first mantra is do no harm. They're doing well. Their markets are growing. And then, you know, obviously we've talked a little bit about the potential revenue synergies of the combination. We talked a little bit about it in the script. We talked a little bit about it in the announcement for the Adatech acquisition. And I think if you, you know, kind of listen to even some large chip companies' presentation this week, there was a lot of discussion about advanced packaging, the ability to connect these really amazingly powerful chips to other chips so that you don't have limitations in communication speed. And this is now being enabled by the PCB interconnect. We call it PCB, and I think a lot of people think that's the old stuff. It's really high-density, very dense PCB, and this is the kind of, technologies that large chip companies are investing in, and that is exactly the kind of things Adatech is levered to, in addition to the entire rest of the PCB supply chain. So we're really excited about closing this acquisition. It's a great team. We've met many of them now, and we look forward to integration. Thanks, John. Thanks, Scott.
Operator
Our next question comes from Paratash Misra with Verdenburg.
spk09
Thank you. Good morning. Can you provide some more color on your RF power business this quarter, how much were sales out, and what sort of supply chain issues you're experiencing in that business?
David Rizek
Yeah, Paratash, you know, RF power was another record. We don't break it out specifically, as you know, and that's, you know, on the growth and market share gain of 10 points. 10%, sorry, 1,000 basis points last year, 2020. So we're really excited about this. I think you heard some of our customers talk about, you know, how VNAND, vertical NAND or 3D NAND scaling continues, and that's enabled by these really high aspect ratio etch, which is enabled by our RF power. We think this continues. This trend towards verticality is not just 3D NAND. It's actually DRAM. People are working on 3D DRAM. So when that takes off, I think you'll see another step up in the need for vertical process tools.
spk09
And any supply chain issues that you experience in that business this quarter?
David Rizek
Not any more than all the other instruments and products, critical subsystems that we have. Any product that has electronic components will have that constraint. I think our competitors are seeing that or the rest of the industry is seeing that. So not anything more than just electronic components for everything.
spk09
Got it. And then if you could let me talk about your laser business within the light and motion segment in terms of what are you seeing there or and perhaps any color on the order book, and which end markets are driving demand growth?
David Rizek
Yeah, you know, as I talked a little bit about the light motion group growing, you know, sequentially quarter and quarter and quarter. Part of that is lasers for sure, and that's driven by just the, you know, several industrial applications, but also solar and then advanced electronics manufacturing using, that use lasers. And then more importantly, we're seeing, you know, the first volume shipments that we have in our picosecond UV laser design. We've talked about a lot of design wins over the last 18 months, and some of those are now turning into volume orders. So that's another growth area where we have, you know, we're coming from very low share, and we're starting to see that momentum grow as well for lasers.
spk09
Great. Thank you. And perhaps the last one from me on your acquisition at Adutech. In terms of closing, any progress on that process since the announcement, and what's your current expectation as to when you think you can close the transaction? Thank you.
David Rizek
Yeah, Paris, nothing changed. You know, at the announcement, we said, you know, late 2021, you know, give or take, and a lot of it depends, obviously, on the HSR filings and approvals from the various countries. So nothing has changed.
spk09
Understood.
Operator
Thanks, guys.
David Rizek
Thank you. Thanks, Prakash.
Operator
Our next question comes from Mark Miller with the Benchmark Company.
Mark Miller
We're at another record quarter, and just wanted to talk about some of the deep air manufacturers are increasing their forecast for capital spending because of a transition to EUV. Are you starting to see that, or is that yet to come?
David Rizek
I don't think we could point to specifically EUV causing any kind of uptick in the demand market. I think it's really today really driven by just the need for more chips and more applications and all the things that we've all talked about. You know, certainly EUV is a great driver that is for the future, and more and more EUV adoption is occurring. We've talked in the past that EUV is an enabler. for more depth etch because you're actually able to make the smaller transistors and therefore shrink everything else. And so more multiple pattern has to occur, et cetera. And then beyond EUV is what I talked about earlier about 3D structures where you're trying to get around limitations on lithography, vertical man being one of the poster child in the last couple of years. But we think 3D DRAM eventually will also be, uh, a driver for that as well. So EV is a big, big driver for, you know, shrinkage logic, uh, now DRAM, uh, but there's also the shift toward vertical structures as well.
Mark Miller
Uh, you've guided up, uh, by approximately $2 million on, on OpEx, uh, even though sales will be somewhat lower. Is that coming more in, in R&D or SG&A or split between them?
David Rizek
Yeah, it's, uh, Seth, uh, Mark, so it's really more variable compensation moving around a little bit. I don't think there's really much fundamental changes in our cost structure. And it can bounce around a little bit by quarter by quarter, but it's probably variable comp is probably the bigger piece of it. And the way that rolls out, it's annual computation. It kind of is based on a year-to-date type accrual-based approach. That's probably the bigger driver. Other than that, there's really no major changes. We are adding a few people, obviously. making some investments in R&D. It might be a little more leaning into the R&D side, I would say, back after the year.
Operator
Thank you.
David Rizek
Yep.
Operator
And I'm not showing any further questions at this time. I'd like to turn the call back to David Rizek for any closing remarks.
David Rizek
Thank you, Kevin, and thank you all for joining us today. And for any interest in MKS, operator, you may close the call.
Operator
Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.
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