Ichor Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 4, 2025

Key Takeaways

  • Positive Sentiment: Second quarter revenue of $240.3 million came in at the upper end of guidance, representing roughly 18% year-over-year growth.
  • Negative Sentiment: Q2 gross margin of 12.5% fell to the low end of expectations due to hiring and retention challenges that limited internal component output.
  • Positive Sentiment: Achieved a first end-user qualification for the flow control product and began shipping valve products into production, securing three customer qualifications with a fourth in progress.
  • Neutral Sentiment: Maintained Q3 guidance of $225 million–$245 million in revenue and 12.5%–13.5% gross margin, citing a steady demand environment and a conservative hiring ramp.
  • Neutral Sentiment: Announced a CEO succession plan whereby Jeff Andresen will remain CEO until a successor is named and then serve as a strategic adviser.
AI Generated. May Contain Errors.
Earnings Conference Call
Ichor Q2 2025
00:00 / 00:00

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Operator

Good day, ladies and gentlemen, and welcome to Ichor's Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Claire McAdams, Investor Relations for Ichor. Please go ahead.

Claire McAdams
Claire McAdams
IR & Strategic Initiatives at Ichor

Thank you, operator. Good afternoon, and thank you for joining today's second quarter twenty twenty five conference call. As you read our earnings press release and as you listen to this conference call, please recognize that both contain forward looking statements within the meaning of the federal securities laws. These forward looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in our earnings press release, those described in our annual report on Form 10 ks for fiscal year twenty twenty four and those described in subsequent filings with the SEC.

Claire McAdams
Claire McAdams
IR & Strategic Initiatives at Ichor

You should consider all forward looking statements in light of those and other risks and uncertainties. Additionally, we will be providing certain non GAAP financial measures during this conference call. Our earnings press release and the financial supplement posted to our IR website each provide a reconciliation of these non GAAP financial measures to their most comparable GAAP financial measures. On the call with me today are Jeff Andreessen, our CEO and Greg Swait, our CFO. Jeff will begin with an update on our business, and then Greg will provide additional details about our results and guidance. Jeff will make a few additional remarks before opening the line for questions. I'll now turn over the call to Jeff Andresen. Jeff?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Thank you, Claire, and welcome, everyone, to our Q2 earnings call. Thanks for joining us today. This afternoon, along with our second quarter earnings release, we announced our CEO succession plans, which I will further discuss towards the end of our prepared remarks. Second quarter revenues of $240,000,000 came in at the upper end of our expectations, reflecting a modest acceleration of customer demand into the first half of the year. With the Q2 revenue upside driven primarily by our lower margin gas panel integration business, Q2 gross margin of 12.5% was at the lower end of our expectations for the quarter.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

That being said, through most of the second quarter, we were on track to achieve the midpoint of gross margin guidance. And if not for the hiring challenges we experienced starting halfway through the quarter, which limited our output of machine components, today, we would have been announcing Q2 gross margins of over 13%. We continue to face hiring and retention challenges, which has continued to impact our output volumes in the third quarter to date. And ramping internal supply is a key enabler of the strong gross margin flow through. Therefore, as we focus on securing the necessary headcount in our US machining operation, we are proactively reducing costs elsewhere in the organization.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

As we reflect on the customer demand environment, industry and peer reports continue to indicate that 2025 will be a modest growth year for wafer fab equipment, or WFE. And with our first half revenues up 20% year over year, we continue to expect our revenue growth this year will outperform overall WFE growth for 2025. So while revenue growth outperformance versus the industry is an expected highlight of our financial performance this year, the most critical operational priority for Ichor in 2025 is bringing our internal component supply fully up to speed in order to meet strong customer demand and increasing momentum qualifying our proprietary component products. This is what we absolutely must accomplish in order to see the benefits of the new product wins through the P and L via strong flow through and gross margin expansion. Our new product strategy is taking hold and gaining traction.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

With continued new customer qualifications, as we successfully ramp our internal supply, we are confident that our strategies will materialize in stronger gross margins as we progress forward. In order to track our progress, here are some key benchmarks to look for from us over the next few quarters. The first is building momentum in our top line. Year to date, further expansion of our revenue scale beyond the current $240,000,000 run rate has been stalled by a slowing EUV build, reduced investments by a major US semiconductor manufacturer, and the continued lack of demand for additional capacity in some of our nontraditional markets, such as silicon carbide. In order to see our structural improvements to gross margin materialize, we need the additional tailwind of revenue momentum above the $250,000,000 run rate, which is what we had planned for in the 2025 as we entered the year.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

The next sign of progress will be continued qualifications of our new products by the end device manufacturers. And finally, progress will continue as we provide updates that we have scaled our internal supply to sufficient levels and that our output is aligned with our customer needs and cost targets. Turning to our momentum qualifying additional proprietary components with our key customers. In q two, we made meaningful progress across multiple fronts, qualification, commercialization, and market expansion. Most notably, we achieved a major milestone with the successful qualification of our flow control product at a key end user.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

This marks our first end user qualification for this product line, which serves as a strong validation of its performance in high demand production environments. We believe this success lays the foundation for broader adoption and additional end customer qualifications. We also reached an important inflection point with our valve product line. During the quarter, we secured a third customer qualification, and we're actively working toward a fourth. That said, we are intentionally pacing the fourth qualification to align with our internal capacity ramp.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

This ensures that we can support volume demands without compromising quality or delivery commitments. Importantly, we began shipping valves and production volumes this quarter, a key milestone in scaling commercial success and realizing the margin benefits of internal sourcing. In parallel, we are making steady technical and operational progress on two new proprietary component products, which are designed to expand our addressable markets for both flow control and valves. These next generation offerings will allow us to serve a broader range of applications and customer needs, further increasing our value across the semiconductor supply chain. As we move into the second half of the year, we remain focused on expanding manufacturing capacity and aligning production to meet our targeted product margins.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

For Q3 specifically, with our current visibility, our revenue guidance remains in the same range as we provided for Q2 a quarter ago. The customer demand environment has remained relatively steady since May, and our full year outlook is largely unchanged. The key differences between how we are looking at 2025 now compared to a quarter ago are, first, the q two revenue pull in now indicates 2025 is likely to be a slightly front half weighted year. While the second half customer demand environment hasn't changed materially, I would also add that the accelerations of demand leading to a stronger second quarter have now slowed a bit in advance of an expected slower quarter in December for etch and deposition. Additionally, we are marginally less confident about a few areas of potential upside materializing within this calendar year.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Next and more meaningful to our outlook, we are taking a more conservative view to our expected hiring ramp and guiding gross margin. And for the third quarter, we are providing a similar range of expectations as we did for q two. While we remain wholly confident that our strategy will materialize in steady progress towards our long longer term gross margin targets, we need to have improved visibility toward a more meaningful and sustainable top line sequential growth in addition to achieving our product cost targets before we will significantly raise the bar on our expectations for gross margin expansion. While we currently expect to deliver sequential improvements to our gross margin for the fourth quarter, even on similar revenue levels, at this time, we will refrain from guiding significantly stronger gross margins until we deliver the expected gross margin performance for Q3. With that, I'll turn it over to Greg to recap our Q2 results and provide further details around our financial outlook. Greg?

Greg Swyt
Greg Swyt
CFO at Ichor

Thanks, Jeff. To begin, I would like to emphasize that the P and L metrics discussed today are non GAAP measures. These measures exclude the impact of share based compensation, amortization of acquired intangible assets, nonrecurring charges, and discrete tax items and adjustments. There's a useful financial supplement available on the Investors section of our website that summarizes our GAAP and non GAAP financial results, as well as a summary of the balance sheet and cash flow information for the last several quarters. Second quarter revenues were 240,300,000 at the upper end of guidance, up 18% year over year and 2% lower than Q1.

Greg Swyt
Greg Swyt
CFO at Ichor

The gross margin for the quarter was 12.5%, an increase of 10 basis points from Q1, but at the low end of expectations largely due to hiring challenges limiting our ability to achieve the expected ramp of our machines components. With operating expenses roughly flat to Q1 at $23,800,000 operating income for Q2 was $6,100,000 Our net interest expense was aligned with our expectations at $1,600,000 However, our non GAAP net income tax expense of $3,200,000 came in well above forecast due primarily to the acceleration of the pillar two tax into Q2. For the full year, our estimated income tax is currently $5,600,000 compared to the $6,000,000 estimates as of May. Therefore, while the full year tax estimate is largely unchanged, the acceleration into Q2 impacted EPS by $07 The resulting EPS for the quarter was $03 per share. In our GAAP results, you may note that there that year to date in 2025, we have been executing towards various strategies to consolidate and align our global operations capacity with our customers' largest global production and supply chain centers.

Greg Swyt
Greg Swyt
CFO at Ichor

Between Q1 and Q2, we recorded charges of $5,700,000 for exit costs related to personnel, fixed assets, and facility related costs. We anticipate there may be additional charges in Q3 and Q4 as we complete the analysis. Turning to the balance sheet. Our cash and equivalents totaled $92,000,000 at the end of the quarter, down 17,000,000 from Q1, reflecting working capital investments as well as $7,000,000 in capital expenditures. Our planned CapEx investments for 2025 are still expected to total about 4% of revenue.

Greg Swyt
Greg Swyt
CFO at Ichor

Our total debt at quarter end was $126,000,000 and our net debt coverage ratio was 1.5 times, well below any potential threshold for covenants. Now I will discuss our guidance for the 2025. With anticipated revenues in the range of $225,000,000 to $245,000,000 we expect our Q3 gross margins to be between 12.513.5%. We expect Q3 operating expenses to be approximately $23,700,000 and we expect Q4 OpEx to be at a similar level. Net interest expense for Q3 and Q4 are expected to be approximately $1,600,000 per quarter.

Greg Swyt
Greg Swyt
CFO at Ichor

We expect to record a tax expense in both Q3 and Q4 of approximately $900,000 reflecting our current forecast for a non GAAP tax expense of $5,600,000 for the full year. Finally, our EPS guidance range for Q3 of $06 to $0.18 reflects a share count of 34,400,000.0 shares. I will now turn the call back over to Jeff.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Thanks, Greg. Before turning the call over to Q and A, I'd like to say a few words about the CEO succession plan we announced today. I joined the company in late twenty seventeen as CFO. And after first becoming the company's president, I took over as CEO just as the COVID shutdowns were beginning to roll out in early twenty twenty. There's no question that the operational challenges of the past five years have been greater than at any period in recent memory, and I am immensely proud of our successes winning multiple new product qualifications after embarking on Ichor's first ever branded product development strategy.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

During the same period, we have integrated five acquisitions and successfully completed the recapitalization of our balance sheet. I love this company, and I strongly believe that we have many opportunities to transform the company's profit generation as we continue to bring our branded products to market. I also believe that the time has come to begin the search for a new leader who can drive Ichor to new levels of success. Ichor is a strong leader in the industry, enjoying tremendous customer partnerships and an amazing team of employees around the globe. This strong foundation will be attractive to the next leader of Ichor.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

And in order to ensure a seamless transition, the board and I have entered into a transition agreement where I will remain CEO until my successor is identified and then continue as a strategic adviser to the company and our new CEO to assist in the leadership succession process. We have an excellent board of directors, and I have full confidence that they will find an outstanding new leader for the company. Operator, we are now ready for questions. Please open the line.

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. We ask analysts to limit themselves to one question and a follow-up so that others have an opportunity to do so as well.

Operator

You may press 2 if you would like to remove your question from the queue. For Our first question comes from Brian Chin with Stifel. Please proceed with your question.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Hi there. Good afternoon. I guess, firstly, Jeff, definitely wish you all the best. Sounds like you'll be continuing on these calls, but as you wind your time down here, just want to thank you for that. And also thanks for letting us ask a couple of questions.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Maybe to start with gross margins. Can you unpack the dynamic that occurred, it sounded like mid quarter, in Q2 that took you off that trajectory? Maybe that could have taken you towards the midpoint or so of the gross margin guide, but maybe kind of unpack what happened there in terms of the hiring and maybe some turnover. And then tie tied into that, I guess, is how that relates to sort of the uptick in OpEx sequentially above plan.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Yeah. So, you know, at the beginning of the quarter, we were we were doing pretty good at bringing people in. And then as you bring them in, these are very unique jobs. This is mostly our US operation in Minnesota. A lot of them go into the clean room to do the post, we'll call it post machining.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

I'd say we did a pretty good job of getting the machinists. We have a lot of machine parts, but we couldn't get them all built. They're all off shift, and we had some turnover that was offsetting what we were bringing in. So by about the middle of the quarter or so, we just really hadn't netted as many people as we needed. And it kinda continued towards the end of the quarter with very few folks.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

We've changed some approaches to how we hire in the offshifts and and shift differentials, things like that. So I would say entering this quarter, it's a little bit better, but it's where we would have wanted to be a quarter ago. So it did start pretty good, but then the the retention side of it, once they put on bunny suits and get in a clean room, we we weren't able to retain everybody that we we hired during the quarter.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Got it. And it and that's sort of the kinda the the the spike up in the OpEx and sort of coming back down in q three.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Well, it spiked up in the OpEx. It's a little unique around some of our we've we've we've had some higher health care costs. We had originally planned there in the year. Everything else was pretty much aligned with it. But the it's not related necessarily to the hiring in Minnesota.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

And having said that, you know, most of our had we stayed on the hiring trajectory that we saw in the first, say, month or so without the turnover, I think we would have been announcing pretty good better than our midpoint of guidance is how we looked at it. So we've taken a little more conservative approach on our hiring ramp this quarter, and that's why the guidance is around 13% for gross margin.

Operator

Our next question comes from Krish Sankar with TD Cowen. Please proceed with your question.

Krish Sankar
Managing Director at TD Cowen

Yes. Hi. Thanks for taking my question. And Jeff, same here. Good luck.

Krish Sankar
Managing Director at TD Cowen

And we're definitely gonna miss you and your insights. I have two questions. One is on demand. Just kinda curious, into q three, where are you seeing the demand coming in from? If you have that visibility, is it coming from NAND?

Krish Sankar
Managing Director at TD Cowen

Is it China? You know, I understand you already said that EUV is lower and probably Intel WFE is lower. So I'm just kinda curious where do you see the incremental demand coming from? I'm gonna add a follow-up.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Yeah. I think when when you say incremental or the strength of demand into the second half is is what you probably or I think assuming. I think foundry logic, still strong. High bandwidth memory, we can see it. I'd say maybe the advanced packaging has plateaued, and and then I think the NAND is continuing.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

We can clearly see that the NAND investment is continuing into the back half. I mean, when you look at us pulling about 5,000,000 forward, you know, it's slightly down in the back half, and probably the biggest changes really have probably been around, again, a little bit of a reduction in our litho business, which is well understood, and build volumes are down. And then I would say a large US OEM that continues to push out some of their CapEx investments here in The US, and I'd say everything else kind of held its own.

Krish Sankar
Managing Director at TD Cowen

Got it. Got it. And then on the gross margin side, you know, I'm just kinda curious because, you know, this quarter, understand the machining employment as an issue. Last quarter, it's sort of proprietary content. I understand some of this is probably on execution versus what you can manage.

Krish Sankar
Managing Director at TD Cowen

But bigger picture, is there any other issues you see on gross margin? In other words, are your big semi cap customers trying to put more pricing pressure on you compared to in the past given that their customer base is consolidating? Or has any of this filtered down, or do you think this is all manageable and just, like, as you termed it last quarter, growing pains?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

I would say our inability to to execute and get the ramp to meet the customer demand that we have in front of us is hitting us both in the profitability we could get with the the revenue numbers that we were projecting as well as as we talked about on the last call, we're still buying some externally that we're eventually gonna make. Those two will move the needle fastest. I would say pricing pressure It hasn't really changed very much over the last year or so. It's so it's always something you try and work on with your customers reducing their costs and stuff.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

I would say from a tariff perspective, that's getting passed on. It's a lot better understood now. And so I think that that is well understood by our customers that that's something that'll be passed on.

Krish Sankar
Managing Director at TD Cowen

Thanks, Jeff.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Thanks, Chris.

Operator

Our next question comes from Craig Ellis with B. Riley Securities. Please proceed with your question.

Craig Ellis
Director - Research at B Riley Financial

Yeah. Thanks for taking the question. And, Jeff, I'll echo the sentiment of the other two analysts just expressing thanks for all the help over the years and and wishing you the best as you evolve to the new role at some future time. Yeah. You're welcome.

Craig Ellis
Director - Research at B Riley Financial

I wanted to just go back to the last line of inquiry because it sounds like there may be some issues just impacting your ability to deliver product at the time that you'd like. And so the question is, are there any market share issues that you've seen arise either as as a result of some of the things that surfaced in one q or any of the hiring or retention related issues that you're seeing in two q?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Well, I'd say from a market share, it's it's largely you would think about it the internal supply when you're still buying some externally. We're not capturing that market share until we get the operation ramped up. And so that's where we're seeing it, I would say, kind of what we would call on our external revenue. We're not seeing any shifts there.

Craig Ellis
Director - Research at B Riley Financial

Got it. And then I just wanted to go back to the the demand view and the fact that we might be down a little bit second half, half on half. I thought we had heard from another large front end company a view that WIP this year was evolving to a higher level, more positive level when potentially leading towards 10% WFE growth versus 5%, your revenues would track well versus that. But I'm just trying to reconcile the dissonance between those two and wondering if there's any help you can provide.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

I don't I don't know that we disagree with with them. I think we've always kind of thought it was gonna be a 105 or better. I think the wildcard seems to be China again as a strength, which will benefit as our customers saw end users and things like that. But our our growth year over year is still outpacing, you know, that level of WFE. So I don't know that it's materially changed.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

I'll we'll tell you there's a wide range of expectations out there. Some are higher than the the kind of the 5% to 10 that have been discussed on prior calls. So

Craig Ellis
Director - Research at B Riley Financial

Thanks, Chuck.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Okay.

Operator

Our next question comes from Charles Shy with Needham and Co. Please proceed with your question.

Charles Shi
MD - Senior Analyst at Needham & Company

Hi. Hi, Jeff. Greg. Hey, Jeff. Similar to other analysts, I really enjoyed our conversation on the calls and in other various meetings with you over the past few years. Appreciate that.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Thank you.

Charles Shi
MD - Senior Analyst at Needham & Company

Yeah. Maybe a question about the the remainder of the year, the outlook. Looks like you are basically saying versus ninety days ago, there is some conservatism that incremental conservatism out there. I one thing you said really caught me. I think you said there were some upside for the fiscal year you thought that would could have materialized, but that looks like it's not.

Charles Shi
MD - Senior Analyst at Needham & Company

Sounds like it's more about revenue. And may I ask what what what were the upsides you were expecting a little bit earlier this year that you're now seeing?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Yeah. Good good question. I I think what we've seen stopping that we we thought we would start to see build rates in our EUV business start to go up in the fourth quarter. We haven't seen that yet. And I would say we've seen and and and, you know, we don't see all the sell through, but we've seen some of The US OEM stuff shipped out of fiscal year twenty five.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

And so those are probably the two biggest Cadillac catalyst to I don't know. It's got it's about a $5,000,000 haircut in our outlook from a quarter ago. So versus, I don't know, $9.50 or $9.60 roll up, that's a pretty small range. There could be things that pop up into the fourth quarter, and we'll we'll give you an update on that on the next conference call. But those are the two big moving pieces we've seen since the last call.

Charles Shi
MD - Senior Analyst at Needham & Company

Got it. Got it. So a little bit litho, a little bit depth and edge sounds like that that that were the upside that that no longer really seeing at the moment. So so, Jeff, the other question, you you you said you you now expect the second half going to be slightly lighter than first half. I I would think before Lam reported, I I would agree with you about that.

Charles Shi
MD - Senior Analyst at Needham & Company

But now Lam had a huge q three guidance upside, and that they no longer see second half being really lighter than first half. And if I look at AMAT and other customers of yours, I I'm kinda scratching my head a little bit because almost no comp no customers of yours are actually seeing second half being light lighter right now. So how do I how do I spread the differences off here? And what any insights there? Thanks.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Yeah. Well, one is I think it's a relatively small moving number versus our our last time, and I think some of this is really about the timing of when we ship. Okay? So we ship about a month before they can recognize revenue, and I would say we had a pretty healthy tail end of the quarter, which is why you saw the 5,000,000 pulled in. Had that not pulled forward, then this is mostly about timing.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

We'd be pretty equally weighted. And our customers don't remember, our customers don't have exactly the same profile of earnings earnings revenue. Excuse me. Each one's a little bit different. So I'd say we're pretty aligned to what we see at each one of those and what they've talked about. So

Charles Shi
MD - Senior Analyst at Needham & Company

Thank you. Maybe the last question. Thank you. You didn't really bring it up this time. It's about tariffs, especially the steel steel and aluminum related tariffs.

Charles Shi
MD - Senior Analyst at Needham & Company

Are you seeing any impact or or any change in your view on the on the on the on the degree or magnitude of the impact? Thank you.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Yeah. It's in section two thirty two is what you're talking about. It's 50%. The original two thirty two has got duty drawbacks. So we work with our customers, and we pass it on.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

And then they are able to draw it back for whatever leaves The US. The second wave that started in, I think, April, you can't do duty drawback, and that's where we're seeing it and passing around to the customers. I would say the regulations are much more clear now. It's not a 100% of the value that comes in. It's it's driven by weight and the percentage that's non non US sourced metals.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

And so we've done a lot of work on that area, and so we're we're working to reduce the impact across our supply chain and customers. So it hasn't changed, but I think we have clear views of how to manage it.

Charles Shi
MD - Senior Analyst at Needham & Company

Thank you. That's all from me. Yeah. Thanks.

Operator

Our next question comes from Tom Diffely with D. A. Davidson. Please proceed with your question.

Tom Diffely
Director - Institutional Research at D.A. Davidson Companies

Yeah. Good afternoon. Thank you for a couple questions here. Jeff, curious, you know, the issue that you're seeing with both the hiring and the retention, is this a new issue, or is this something you battle constantly?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

I would say we have ramped our machining operation in Minnesota in the past. I mean, go back seven, eight years. We've had different cycles, and and this has been a little bit more challenging because we were chasing machinists. Now we have what we would call post machining operations. So a lot more assembly work and things like that where you're in the clean room, and they're off shift.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

So we run 24 by seven there. So they've been a little more challenging than the last two ramps, I would say.

Tom Diffely
Director - Institutional Research at D.A. Davidson Companies

Is it just a matter of, you know, I guess, finding the people who are are willing to do the job specifically, or is it, you know, higher wages? Or what are the options here?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Well, wages, we can measure and and adjust for, and we do that annually. And then we'll we look at it during the year if we see any kind of compression in skilled workforce. A little bit, but not a whole heck of a lot there. I would say it's the offshift, and it's the clean room and a bunny suit and all that stuff. And so we've done a better job at ensuring they understand what that's really like before they take the jobs and and move into it. So Oh, okay. Got it. Makes sense.

Tom Diffely
Director - Institutional Research at D.A. Davidson Companies

Then as a follow-up, Greg, you know, one of your peers talked about a pretty big tax impact from the one big beautiful bill this year. And you we've kinda touched on it very briefly, but I'm curious as you go through that new bill, are you seeing any meaningful tax implications going forward?

Greg Swyt
Greg Swyt
CFO at Ichor

Hey, Tom. Good question. Not on the near term, mainly because of our where we are in our tax position in The US. We will not see, at least for a period of time, any material benefits on on the various factors that we could take a benefit on, like depreciation, things like that. So there is no benefit for us at least in the near term that we're anticipating.

Tom Diffely
Director - Institutional Research at D.A. Davidson Companies

Okay.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

That'll Yeah. That'll flow through the p and l because of the NOLs. We'll take advantage of it and use it later.

Tom Diffely
Director - Institutional Research at D.A. Davidson Companies

So Yep. Okay. Makes sense. Thank you.

Operator

Our next question comes from Christian Traub with Craig Hallum. Please proceed with your question.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great. Jeff, good luck on whatever is next. You know, a year ago, we talked about, you know, this tremendous movement into, you know, sourcing internally and driving, you know, 20%, maybe 20% plus type of gross margins. You know, is that something that you guys still feel is an opportunity set. Obviously, with a smoother manufacturing, but also higher revenue would save the business.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

We have a good WFE in the future. We get to 300,000,000 a quarter plus or minus. You know, is 20% gross margin still the bogey, or do you think that maybe that was too optimistic when you said it before?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Well, I I well, one is I would say it is not something that we can attain. I would say we we have to attack it in two One is the the passive components is primarily where we've been getting the qualifications in the valves and the substrates and fittings and along the way. Those will move us up, but until we actually get some level of the flow controller and and our prepared comments, we actually now have one of our first full integrated ICORE content gas boxes that got qualified in in at our customers' So so as that now kind of goes into production and the timing of their production ramp, which is not clear to us right now, that is what's gonna move us up into the 20 the flow controllers because you don't need a $100,000,000 of those to move the needle. Those will be our highest margin, highest IP content product going forward. So so, no, 20% is still I hate to use the word bogey. It's the target for the company to get to.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great. Great. And then and and if we, yeah, if we look to the second half of the year, I mean, there any, you know, puts or takes, you know, that you could imagine where gross margins get any worse than the current kind of, call it, 12.5, 13% level other than, you know, revenue foreseen by a dramatic amount?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Yeah. I would say if you go back a quarter, we had some operational issues. And by the way, hiring is operational. But when we're down to getting the people in place to meet the demand, it's it's not it's it's not production and getting the cost down and all that. We were making progress along all of the fronts that we have been attacking since the, you know, the beginning of the year, and so those are progressing well.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

I think once we get the people in place we still have some we still have, some time to go. I wouldn't say all of our products will be at our target cost, until probably end of the first quarter of next year. But, you know, substrates are doing very, very well, and they're very close. And the fittings are are are moving in the right direction. So it's valves is what we're attacking, and this is the first quarter of production shipments for those.

Christian Schwab
Senior Research Analyst at Craig-Hallum Capital Group LLC

Great. Thank you. No other questions. Thanks.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Thanks.

Operator

Our next question comes from Edward Yang with Oppenheimer. Please proceed with your question.

Edward Yang
Analyst at Oppenheimer & Co. Inc.

Hi, Jeff. Just wanted to wish you all the best. Really appreciated learning from you. You'll be missed.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Thank you.

Edward Yang
Analyst at Oppenheimer & Co. Inc.

My question, you mentioned events packaging plateaued in response to an earlier question. I just wanted to unpack that a little bit more. Is that end market driven? Or are you seeing market share shift between your customers?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

No. I think most of the biggest side of that is the advanced packaging plating tool that we do, and that that has had a tremendous amount of growth. Both sides of that and the cleaning tool that we support have had great high trajectory growth for maybe the last two years, and I would say they're just starting to slow now as the capacity is coming online in those areas. So we don't believe that there's any kind of share shift there today. I mean, our share is not as as as big as it is in gas panels. That's for sure. So

Edward Yang
Analyst at Oppenheimer & Co. Inc.

Got it. And Okay.

Edward Yang
Analyst at Oppenheimer & Co. Inc.

It sounds like one of your public competitors also talking about increasing, their own internal content, local content. Sounds like a familiar strategy. Just wondering, as both you and this competitor become more vertically integrated, are there any cross exposure or, you know, possibility of displacement where one or the other of you two sell to each other?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

We sell to each other today certain certain areas because if they build boxes and they got a component that's qualified for us, and they buy it from us. We buy heaters from them. So that's that's that that's been occurring for years and years and years between the two of us. But, yeah, I I have noticed their comments have been a little more aligned with the branded strategy that we have in bringing products together. I think it's that's what the market is looking for.

Edward Yang
Analyst at Oppenheimer & Co. Inc.

K. Thank you.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

You bet.

Operator

Our next question comes from Brian Chin with Stifel. Just

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

on back, I mean, I got cut off a little earlier in the queue. Just one clarification, Jeff. The I think you sort of suggested that, if I heard correctly, that in the December quarter, maybe consistent with some of your customer patterns, December could be lower than September and that the second half would be a little bit down from a first half weighted spending. And are we are we talking kind of, like, mid single digit decline, half on half, mod moderate

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Yeah. I I don't even know if it's low single digits is what I would I would say. It's it's about 5,000,000 off of $4.80 something. So it's it's 1%. It's it's very it's very close to flat, you know, if we have a similar quarter. You could almost assume that it's timing.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Okay. Got it. I I missed some of that, but it sounds like you said, like, a 1% decline in December quarter or something.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Percent. I would say that that's probably in the timing of just when our customers are, you know, building things versus us.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Got it. And then just to I I also wanted to touch on the the flow control qualification. That that is kind of a a milestone relative to important part of the insourcing strategy. And you said sort of customer's customer. Can you give us a sense of that that sort of, like, a a logic or or DRAM application?

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Well, what I would what I say and I think we've we've we've not said who the customer is, but we have said that these are almost all targeted on advanced logic opportunities.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Okay. Got got it. Maybe just one one last quick thing because I'm back on the can you give us it sounds like from listening to the other questions that, you know, some of some of the the the slots that may have pushed into, you know, out of the year in some cases kinda tied into maybe DRAM advanced packaging, something like that.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

I'm not sure I follow. You're you're just talking about this off the the the North America IDM. I would say that's probably logic.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Okay. Got it. Yeah. No worries. I I appreciate it. Thank you.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

Okay. Thanks, Brian.

Operator

We have reached the end of our q and a session, and I would now like to turn the floor back over to Jeff for closing comments.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

I want to thank you for joining us on our call this quarter. I'd like to thank our employees, suppliers, customers and investors for their ongoing dedication and support. Our upcoming Q3 investor conferences include Oppenheimer's virtual conference next week, followed by Needham Semiconductor Conference, Jefferies in Chicago and finally B. Riley's Tech Conference in New York. After that, we look forward to our next quarterly update in early November for our Q3 earnings call.

Jeffrey Andreson
Jeffrey Andreson
Executive Director & CEO at Ichor

In the meantime, please feel free to reach out to Claire directly if you would like to follow-up with us. Operator, that concludes our call.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Executives
    • Claire McAdams
      Claire McAdams
      IR & Strategic Initiatives
    • Jeffrey Andreson
      Jeffrey Andreson
      Executive Director & CEO
    • Greg Swyt
      Greg Swyt
      CFO
Analysts
    • Brian Chin
      Director - Applied Technologies at Stifel Financial Corp
    • Krish Sankar
      Managing Director at TD Cowen
    • Craig Ellis
      Director - Research at B Riley Financial
    • Charles Shi
      MD - Senior Analyst at Needham & Company
    • Tom Diffely
      Director - Institutional Research at D.A. Davidson Companies
    • Christian Schwab
      Senior Research Analyst at Craig-Hallum Capital Group LLC
    • Edward Yang
      Analyst at Oppenheimer & Co. Inc.
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