MKS Inc. (MKSI) Q1 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the MKS Q1 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Paretosh Misra, Vice President of Investor Relations. Please go ahead.

Good morning, everyone. I'm Paretosh Misra, Vice President of Investor Relations, and I'm joined this morning by John Lee, President and Chief Executive Officer; and Ram Mayampurath, Executive Vice President and Chief Financial Officer. Yesterday, after market close, we released our financial results for the first quarter of 2026, which are posted to our investor website at investor.mks.com. As a reminder, various remarks about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially as a result of various important factors, including those discussed in yesterday's press release and in our most recent annual reports 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 non-GAAP financial measures. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than revenue and gross margin. Please refer to our press release and the presentation materials posted to the Investor Relations section of our website for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Our investor website also provides a detailed breakout of revenues by end market and division. Now I'll turn the call over to John.

Thanks, Paretosh, and good morning, everyone. 2026 is off to an outstanding start for MKS. First quarter revenue, gross margin and EPS all came in at the high end or above our guidance ranges, and our Q2 guidance shows that we expect this momentum to continue, driven by strong bookings across our end markets. In the semiconductor market, MKS has a long-standing track record of outperforming WFE in up cycles. We are in an excellent position to capitalize on chip makers' ambitious AI-driven CapEx plans, which are accelerating technology inflections that enable more complex vertical structures in semiconductor devices. In Electronics and Packaging, our leading position in chemistries and chemistry equipment sets us up for long-term growth with strong margins. Similar to semi, AI is driving increased complexity and layer counts in advanced circuit board manufacturing. Together, this translates into rising deposition and etch intensity in semi and more equipment in chemistry for PCB plating. And our specialty industrial portfolio is expected to continue delivering steady performance over the long term with incremental cash flow generation as we leverage our leading technologies across this end market. We are well equipped from a capacity perspective to support the demand growth we are seeing today, and we are positioned to support higher levels of growth into the future as we prepare to open our new supercenter facility in Malaysia this June. MKS' strong position is a function of a broad portfolio of foundational technologies, strengthened by design wins through the down cycle that are now powering results as demand increases. We continue to prioritize investing in collaborative development programs with our customers that are driving new design wins. These investments are yielding a broad array of advanced products like our enhanced precursor monitoring capabilities, ultrafast lasers for back-end semi applications and dissolved gas solutions for leading-edge nodes, among others. Our commitment to investing in R&D on a through-cycle basis is a key reason our customers continue to partner with us, and we are excited about the opportunities that these partnerships are creating for MKS. Starting with the semiconductor market. Revenue for Q1 came in just above the high end of our expectations, growing 13% year-over-year and 7% sequentially. The growth was broad-based across products targeted to DRAM, NAND and foundry logic applications. The sequential revenue growth was the best we've seen in some time, driven by our vacuum and power products serving deposition and etch applications, our plasma and reactive gas offerings for advanced logic nodes and our photonics solutions targeted to applications in lithography, metrology and inspection. Notably, our Power Solutions growth reflects increasing NAND equipment upgrades. AI is driving demand for more enterprise storage needed to support growth in inferencing applications, and that is leading to the faster migration to higher layer counts. Looking into Q2, we continue to see strong order activity, especially in remote plasma and microwave for advanced DRAM applications, dissolved gas for logic applications and lasers for back-end applications. As a result, we expect semiconductor revenue to accelerate, growing high teens sequentially and over 25% year-over-year. Turning to Electronics and Packaging. Revenue surpassed the high end of our expectations, up 6% sequentially despite normal seasonality related to the Lunar New Year and up 27% year-over-year. This strength was led by flex PCB drilling systems following consumer electronics seasonality as well as continued strong performance in chemistry and chemistry equipment. Excluding the impact of FX and palladium pass-through, chemistry sales increased 22% year-over-year, driven by AI-related advanced PCB manufacturing and high-end smartphones. We continue to see a very robust order environment for our laser drilling equipment, chemistry and chemistry equipment. To that end, we expect Q2 electronics and packaging revenue to grow in the high single digits sequentially and over 30% year-over-year with strength in both chemistry and chemistry equipment. Laser drilling orders remain very healthy as PC manufacturing complexity increases across end market applications. The strength we are seeing is primarily in flex for smartphones and wearables, but also for rigid PCB laser applications related to the low earth orbit satellite market. Overall, our performance in Q1 and guidance for Q2 indicates that we are not currently seeing any material impact from higher memory pricing on the consumer electronics end markets. In Specialty Industrial, performance was steady as anticipated with a modest sequential decline primarily due to seasonality, but an 8% growth year-over-year, driven by strength in certain applications such as Datacom and defense. In Q2, we anticipate a slight uptick sequentially. We remain confident in Specialty Industrial as a steady contributor to our business with attractive margins and incremental cash flows. As we look to Q2 and beyond, we believe we are in an excellent position. Our visibility is improving in a rising demand environment and the fundamental trends of rising complexity and increasing layer counts favor MKS across our key end markets. Order volumes are healthy and serve as a leading indicator of our deeply embedded position in leading-edge processes and systems critical to addressing advanced electronics in the AI era. Foundational nature of our products can be seen in our gross margin performance, which underscores the value we are delivering to customers. We are focused on capitalizing on the robust set of opportunities in front of us, and we're well prepared to do so with the capacity in our global production footprint. With that, I want to thank our MKS teams for their dedication and outstanding execution, our customers and suppliers for their partnership in a dynamic demand environment and our shareholders for their interest and support. Now I'll turn it over to Ram.

Thank you, John, and good morning, everyone. We delivered an excellent first quarter. We are seeing increased demand across our key end markets, and we remain focused on disciplined execution and driving profitable growth. Let me begin by reviewing Q1 results in detail. MKS reported a revenue of $1.08 billion, up 4% sequentially and 15% year-over-year. First quarter semiconductor revenue was $466 million, up 7% sequentially and 13% year-over-year. The result was driven by strengthening demand, especially in DRAM and logic and foundry applications. The sequential increase was led by our vacuum products and plasma and reactive gases offerings. We also saw an uptick in revenue related to NAND upgrade activity, which benefits our RF power business. Year-over-year comparisons reflect broad-based strength across many product categories, consistent with an improving semi demand environment. First quarter Electronics & Packaging revenue was $321 million, an increase of 6% quarter-over-quarter and 27% year-over-year. This sequential improvement reflected higher flexible PCB drilling and chemistry sales even with the seasonal impact of the Lunar New Year. The compelling year-over-year comparison was driven by healthy underlying growth across chemistry, flexible PCB drilling equipment and chemistry equipment. Chemistry sales in the quarter were up 22% year-over-year, excluding the impact of FX and palladium pass-through, underscoring the accelerating demand from AI-related applications. In our Specialty Industrial market, first quarter revenue was $291 million, a decrease of 2% sequentially, reflecting Lunar New Year seasonality. Revenue was up 8% on a year-over-year basis, supported by modest improvements across several of our key market categories. Turning to gross margin. We reported first quarter gross margin of 47%, which is the high end of our guidance. As a reminder, Q1 2025 did not include incremental tariff impacts. We're seeing benefits from higher volume and favorable mix, including higher chemistry revenue, which more than offset the impact of higher palladium prices, which are passed through at 0 margin. First quarter operating income was approximately $235 million, yielding an operating margin of 21.8%, which is well above our guidance midpoint. Operating expenses of $271 million included higher R&D investments and a seasonal increase in stock-based compensation. First quarter adjusted EBITDA was $277 million, yielding a 25.7% margin and also at the high end of our guidance. Net interest expenses was $37 million compared with $45 million in the first quarter of 2025, reflecting the benefits of the financing transactions we closed in the first quarter as well as continued proactive principal prepayments. Our first quarter effective tax rate was 20.9% and in line with our guidance. We started the year strong with first quarter net earnings of $157 million or $2.30 per diluted share, which is above the high end of our guidance. Let me now turn to cash flow and balance sheet. We closed the quarter with $1.5 billion of liquidity comprised of cash and cash equivalents of $569 million and our undrawn revolving credit facility of $1 billion. Free cash flow was $29 million. As a reminder, Q1 is typically the low point of the year due to timing of variable compensation payments. In addition to this, we are also seeing an increase in working capital related to the ramp in demand. As we have said before, our first capital allocation priority is to make the investments needed to support business growth. Additionally, we continue to focus on proactive deleveraging, including another payment of $100 million on our term loan earlier this week. Net debt at quarter end was $3.6 billion. That combined with trailing 12-month adjusted EBITDA of over $1 billion resulted in a net leverage ratio of 3.5x. Finally, during the first quarter, we increased our dividend by 14% to $0.25 per share or $17 million. Let me now turn to second quarter outlook. We expect revenue of $1.2 billion, plus or minus $40 million. By end market, our second quarter outlook is as follows: revenue from our semiconductor market is expected to be $550 million, plus or minus $15 million. Revenue from our electronics and packaging market is expected to be $350 million, plus or minus $15 million, and revenue from our specialty industrial market is expected to be $300 million, plus or minus $10 million. Based on anticipated revenue levels and product mix, we estimate second quarter gross margin of 47%, plus or minus 100 basis points. We expect second quarter operating expenses of $275 million, plus or minus $5 million. We estimate second quarter adjusted EBITDA of $328 million, plus or minus $26 million. CapEx for the year is expected to be in the range of 4% to 5% of revenue. We expect a tax rate of approximately 20% in the second quarter and our full year tax rate to remain in the 18% to 20% range. Based on these assumptions, we expect second quarter net earnings per diluted share of $2.90, plus or minus $0.30. Wrapping up, we are very excited to see the growth opportunities ahead for MKS. We continue to execute at a high level, and we are in a strong position with our manufacturing capacity and capabilities. We have continued to strengthen our balance sheet with a clear and disciplined capital allocation strategy, and we remain focused on driving profitability, cash flow and improving EPS to create value for our shareholders. Thank you for joining today. And with that, I'd like to turn the call back over to John. John?

Thanks, Ram. We are pleased with the results this quarter and look forward to keeping you posted on our progress. On that note, I wanted to share that we are planning to host our next Investor Day on December 14 of this year in New York City. We're excited to share more about what we have built at MKS and our plans for the future. Stay tuned for more details. Now operator, let's open the call for questions.

[Operator Instructions] Our first question comes from the line of Jim Ricchiuti of Needham & Company.

Just as we think about the semi business, wondering, are you still -- I think last quarter, John, you were talking about the fact that you were shipping to demand in semi. Are you still doing that? Or are you seeing the production ramp now that is more consistent with customers' plans to build inventory ahead of the stronger cycle that we're seeing.

Jim, thanks for the question. I would say this, the best people to answer that is probably our customers, but they have been very clear about what they need for their quarters in terms of shipping for their revenue and also their desire to build inventory. And I believe we are in a great position to meet that right now. So I assume some of it is to build inventory at this point, Jim. You can see from our guidance that our supply chain has revved up and we're starting to accelerate our factory builds because our supply chain is delivering to us. So I think in general, I think that is probably the case.

On the E&P side, I think you alluded to strength in the laser drilling business as a contributor to the growth. I'm trying to reconcile the strength in that business because normally I associate it with smartphones. And I think right now, we're seeing concerns about overall unit demand in light of memory prices. So I'm wondering what might be driving that? And then just more broadly on the E&P side of the business, can you give us any sense as to how the equipment pipeline looks in Q2 and beyond, just given the demand we're seeing and capacity adds from your customers?

That's a great question, Jim. So there are 2 drivers. One is the advanced smartphone build, and that's really what's driving our flexible PCB drilling. So you're correct there. But the driver is the high-end smartphones, and that's why we're seeing the good strong demand in our flex drilling. The other is AI, of course, and that's driving the larger E&P market for us and our business for us, including chemistry equipment. So we're seeing continued strength in chemistry equipment as well as continued strength in flexible PCB drilling.

Our next question comes from the line of Steve Barger of KeyBanc.

Great to see both sides of the business really pulling in a strong way. First question for me. We've talked a lot about the potential for NAND tool upgrades over the past 2 or 3 quarters. But as everyone in the industry tries to ramp capacity across device types, can you talk about non-NAND opportunities for upgrades in front of new tool shipments?

Steve, so you're right, we did start seeing some of these NAND upgrades as we called out on our prepared remarks. Regarding DRAM and logic foundry, I think most of that, our understanding is it's just greenfield. So it's really for new tools for advanced DRAM and advanced logic and foundry applications. Certainly, there are some upgrades, I'm sure. Certainly, our customers have said their upgrade business continues, but certainly not at the rate it used to in the past couple of years. So we believe that most of what we're shipping now are for more advanced tools for the more advanced nodes for DRAM and logic foundry.

Got it. And then on E&P, the front-end names and the chip makers are saying visibility in the cycle is the best it's ever been. Are you hearing that same message from PCB and substrate makers? Are they giving you longer forecast than normal? And are you seeing formerly Tier 2 and Tier 3 players trying to move upstream to get into more complex substrates?

I would say, in general, that's true, Steve. And we can say that because of the strength of our chemistry equipment orders. So that is really a great indicator of the visibility that our customers are seeing, their plans for meeting that visibility. And last quarter, we said the equipment -- chemistry equipment continued to be strong in bookings. And we can say that this quarter, that is still the case. So given that, I think we would agree that the visibility that our customers and PCBs are seeing is giving them confidence to order this equipment from us.

Our next question comes from the line of Melissa Weathers of Deutsche Bank.

Congrats on some really nice results here. I wanted to ask on the supply side of things. I think if we track the number of fabs that are expected to come on, whether it's logic or foundry or DRAM over the next couple of years, like we're seeing some pretty massive WFE numbers. So as you think about your ability to supply, just any color that you have on how much WFE you can serve? I know you have the Malaysia factory coming online very soon, too. So can you just talk about any kind of supply side metrics that we should understand that can help us frame the next couple of years as these fabs come online?

Yes, that's a great question. So let me break it down to kind of a near term, like 2026, where WFE estimates are in that $140 billion range. We can meet that. We had already put in capacity, as we said maybe a couple of years ago for $125 billion WFE with a 25% to 30% surge. So we are fine for 2026 in terms of our capacity. And we believe our supply chain is more robust as well to support that. Having said that, we have already started plans and ordering equipment to expand that capacity for 2027 to meet the 2027 needs, which is in that $170 billion to $180 billion WFE. In order to do that, we do not need any more new buildings. We have enough buildings, especially with Malaysia coming online. And then beyond that, of course, we'll have to see whether we need to continue expanding there, but we're ready to do that as well.

Great to hear. And then for my second question, I wanted to touch on the AI side of things and some of these next-gen AI processors. I think there's a story a couple of weeks back just with some concerns on warpage and how existing packages are kind of struggling to hold all the HBM and all the GPUs on top of them. So I guess as we think about next-gen packaging architectures, can you talk about the trends that you guys are seeing, where you see the direction of travel going over the next few years and what that could mean for your E&P business? That would be helpful.

Sure. Yes. You're right. There's a lot more chips on top. The boards for AI are getting bigger and there are more layers. And so all those things would drive potential warpage of the boards. But the whole industry is working on these kinds of technical problems. A couple of ways to solve it is, of course, glass cores. That's a big topic right now. Today, though, most people are still using just regular non-glass cores and making them thicker. And they're working on making sure that the bonding between the various layers of the boards is stronger. That's an area of opportunity for MKS. We are one of the market leaders in the chemistry needed to bond layers to each other. We don't talk about that too much. We're really talking about plating and putting the copper lines in, but obviously, bonding the layers together is also something difficult and also a big contributor to yield. And we like our position there. We like some of the products we're offering there. So you're right, these are all the kinds of technical problems one would expect. But every time there's a technical problem, it's also an opportunity, and we at MKS certainly love those opportunities.

Our next question comes from the line of Matthew Prisco of Cantor Fitzgerald.

I guess starting on the semi side, how have customer conversations kind of evolved over the past 90 days? Where are you seeing the greatest change? What are you seeing in terms of visibility? And maybe how are you thinking about your ability and the magnitude at which you can outgrow WFE at this point in the cycle?

Thanks for the question, Matt. Certainly, our communications with our customers have continued to be very close. And of course, they have communicated their needs very clearly for us. So I don't think there's any change in that. I think we are always going to be knowledgeable about their needs going forward. I would say MKS has demonstrated historically the ability to outgrow WFE certainly during a ramp. And it's really obviously because we have to be shipping our stuff first before our customers can ship theirs. And then to Jim Ricchiuti's earlier question, our customers are going to want to build inventory as well. And I think I've talked about the fact that the industry thinks that this ramp is -- this cycle is going to be a lot longer than maybe previous cycles. And so that drives us to build inventory even more, it drives our customers to build inventory even more. So if it's a 2-year cycle or 2.5 years and beyond, then we have to kind of run through the tape at the end of 2026.

That's helpful. And then shifting to the gross margin side. Can you walk us through the primary drivers of the better-than-expected results? And then into 2Q, I would think you get better seasonality out of chemistry, which is a higher-margin business and all that. So kind of why is that flat quarter-over-quarter? Then just how do we think about the levers through the year? And any change in that long-term fall-through as the business evolves with AI-related dynamics?

Matt, I'll take that. We are very happy with the gross margin performance in Q1. As you can see with the right cost structure, when the top line came back, we are seeing the 50% conversion. Volume certainly helped us in Q1 and continue to help us in Q2. Operational excellence programs will continue to work on the product cost. But for the Q2 guide, we are also taking into account mix primarily the growth in equipment and the VSD business. The VSD business, as you know, is ramping and the gross margin there is slightly below the corporate average. The Op income on VSD is great, but the gross margin is slightly below the corporate average. And then we're also taking into account inflation on certain key raw material like palladium. So all that included, we are guiding 47%, plus or minus 100 bps. Overall, a 50% conversion is a good proxy to use on incremental sales.

Our next question comes from the line of Shane Brett of Morgan Stanley.

My first question is just how should we think about the consumer electronics exposure in your E&P chemistry business? And just how are you thinking about the second half relative to the first half? I'm asking this because my worry is that there may have been some pull-ins on the consumer electronics side, but please tell me if otherwise.

Yes. Thanks for the question, Shane. I would say this, there's 2 dynamics for the second half in our E&P business. One is AI, which is a great tailwind. And the other is potentially consumer electronics kind of going through its cycle seasonality, but also as we -- the industry has talked about potentially fewer units because of the cost of memory. We are more levered to high-end smartphones, let's say, and PCs as well. But we are a market leader. And so we do have chemistry in the entire market. . So I think I've said in the past, if the consumer products go down single-digit percent in terms of units, AI will be more than enough to make up for that and then some. Of course, if it goes down even more, we'll see some of that. So I think from a modeling perspective, we know that AI will allow us to outgrow in the second half, if you will, the rest of '26. But you want to add a little bit of that consumer products mix in there to meet the model a little bit.

Got it. And for my follow-up, Newport's ULTRAlign towards ultra line seems to have caught a bit of attention as it's part of the kind of CPO test supply chain. But can you give us some color around your fiber alignment stage business? And I'm not sure if it's segmented into semi or E&P, but can that shift the needle for you in '26 or '27?

Yes, Shane, I think you meant the Datacom business. And if that's what you meant, then certainly, that's been a great grower. It is in our specialty industrials category as of today, but it is driven by AI. Our optical to electronic converting -- conversion product line helps test makers to build test stations to test datacom. And of course, that is a great market right now. It is still a relatively small part of our business, but it's been growing quite nicely to the point where it's actually helped our just entire specialty industrials market grow a little bit quarter-on-quarter. So we're really happy with that business and how it's growing.

of Citi.

I guess my first question is, just talk about within your chemistry part of the business, there could be some softness in the smartphone consumer electronics related market and the AI is going strong. So I was just wondering, last year, you talked about AI is maybe 10% of your chemistry portfolio. So I'm wondering this year, what percent -- how big of AI is expected within your chemistry.

Elizabeth. So yes, it's a good question. I think last year, we said it was about 10% on average for the year, but it was a quarter-on-quarter-on-quarter growth. So coming out of probably the end of '25, it was on the higher end of maybe closer to 15%. So we're kind of expecting that range right now. That's what we're seeing right now. Of course, it just depends on how fast AI grows and the chemistry that goes with it and potentially how much consumer products might go down, if at all. So I think in that 15% range is the right way to think about our chemistry revenue -- our AI part of our chemistry revenue.

Got it. And just a follow-up on the gross margin side. So last time you talked about your goal is to get gross margin to 47%. And now since you are already at it and you're guiding Q2 at 37% as well. So just wondering like what is kind of the updated gross margin maybe this year and going into next year?

Yes. Elizabeth, actually, our goal was 47% plus. So we're still yet to get to that plus factor. That will be our primary objective to continue to stabilize a 47% plus number. And there are ongoing programs to improve gross margin, both from manufacturing excellence, procurement and from design improvement side and volume will help. So not that there isn't any -- there aren't any headwinds. There are headwinds from inflation and other possibilities, but we will continue to work on driving it forward. And you'll get more color on the Investor Day.

Our next question comes from the line of Michael Mani of Bank of America.

First on the semi market. If you look at the company's history with the semi markets growth relative to WFE, I think it's been around 200 bps from a CAGR perspective in terms of outperformance. But in years when WFE is really ramping, your performance in semi market is actually quite remarkable and grows -- outgrows the industry significantly. With that being said, when you look at like the next couple of years, there seems like a lot of great tailwinds that work in MKS' favor, right? So a lot of that is up in intensive inflections, more verticalization, if we get NAND greenfields on top next year, that's icing on top. And then also some new inflections potentially like square DRAM, which also could be great for you. So I guess when you compare this coming up cycle and your opportunity set versus prior ones, I mean, what gets you more excited? Like would you say like the ability to outperform here relative to other cycles could be greater and greater for longer?

Michael, that's a great question. I think the way we think about it is, certainly, historically, we've shown that we can really outperform during that up cycle when there is a lot of etch. That's been historically our strongest part of the semi market. And it's also the one that goes up and down the most in terms of amplitude. I think in the past, we've done that, but we've done it even more sometimes when there was a NAND component to it because of our exposure in RF power. So this time, there may be some NAND may not be in terms of upgrade versus greenfield. So I kind of want to put that into perspective. I think relative to the previous cycles, we are now a much broader-based supplier in semi in terms of the fact that we're supplying lithography, metrology and inspection markets. And those don't swing as much. Certainly, in a ramp, we would have the same kind of dynamic. We'd have to ship more of our stuff before our customers could ship more of theirs. But the swings aren't as much. So I think that's one other factor taking into account. And then the third one is, of course, in the past cycles, we were able to ship to many Chinese equipment OEMs where that business is certainly much less now. And they're a bigger part of WFE. So the denominator is a little bigger because of their contribution. So I think those are the puts and takes. But in general, when dep etch accelerates, we do, do a lot better.

Very helpful. For my follow-up on E&P. Are there certain customers within the PCB maker base that we should think of MKS is more levered to or not given that I mean they're all spending or hiking their CapEx plans significantly. But is there leverage to any particular type of player or one supplier in the market? And then more specifically, you've noted very strong share overall, especially in flex PCB drilling and chemistry. But in your electroplating business, I think maybe in the past, that's where the company has been a little under-indexed, but maybe there's been more focus on share gain progress there. Is that -- how do you feel about share gains there over the next couple of years? Like what are you doing to maximize your progress there?

Yes, it's a good question, Michael. I would say this, the top 30 PCB makers are all our customers, and we have very good position in all of them. I would say that some of them are investing more heavily than others. I wouldn't say though that there was a trend that only the most advanced ones are investing versus maybe people are trying to catch up. It's kind of across the board. So I wouldn't say there was any particular customer that was going to be more indexed for us. Now over time, there could be consolidation, et cetera. But right now, I think it's broadly the industry that's driving the entire growth of our equipment for chemistry as well as our chemistry revenue. Regarding market share, as we have said many times, we address 70% of all the steps in PCB manufacturing. And overall, we have the highest market share. However, you're right, we don't have the highest market share in every one of those various steps. And there are areas where we could do better, and those are opportunities for us. I think that how do we gain share? Our strategy has always been being the broadest portfolio provider allows us to see inflections faster as well as allows us to solve the problems, therefore, faster for our customers. And really, that's the opportunity to gain share, whether it's in a particular step where we don't have much share or in a step where we do have strength, but to continue growing that share. So I think that's been our strategy. And -- but you're right, there are still opportunities for us to grow.

[Operator Instructions] Our next question comes from the line of David Liu of Mizuho.

On for Vijay here. Congratulations on the great guide. Maybe a quick modeling one. What was the tariff impact on your June quarter guide? And how much is expected for the rest of the year?

Yes. So we are seeing -- so we have neutralized the tariff cost dollar for dollar as we reported earlier. We're still seeing a little bit of a gross margin impact from the math. And we continue to see about 30 to 40 bps of impact, and that's included in the Q2 guide.

Okay. Got it. And then you guys mentioned LEO rigid PCB opportunity. Can you guys maybe size the opportunity, the MKSI content there and maybe how much growth you see going forward?

I'll take that one. So the LEO market is certainly something that's actually growing very quickly. We were designed in as a process tool of record for laser drilling, several years ago, we talked about it. And we continue to maintain that process tool record. So as that market grows, we are benefiting from it. It's a pretty healthy growth rate for us, but LEO market is a subset of the entire rigid PCB market. But as you probably read, the LEO market, more and more people are getting into it. It makes sense from a telecommunication standpoint. So we're just really excited about being the process tool record in that growing market.

[Operator Instructions] This concludes our question-and-answer session. I would now like to turn it back to Paretosh Misra for closing remarks.

Thank you all for joining us today and for your interest in MKS. Operator, you may close the call, please.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.