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Inficon Holding AG
Earnings Call Analysis
Q3-2023 Analysis
Inficon Holding AG
The company reported a solid performance in the third quarter of 2023, marked by very strong growth and continuous high sales across all regions except for the Semi & Vacuum Coating market, showing a resilient diversification strategy. Sales grew in every other market, indicating the effectiveness of the company's efforts to penetrate and expand its market presence. However, it's essential to note the Semi & Vacuum Coating market observed a decline, which underlines market specific challenges. Additionally, supply chain improvements contributed positively, albeit with some continuing impact on margins and shipments.
With a substantial 33% year-on-year increase in operating income to USD 34 million in the third quarter, the company has shown its ability to successfully manage costs and leverage operational efficiencies to boost profitability. A 1.3 percentage points improvement in gross margins also reflects this trend, and these gains have translated into a robust operating profit margin of nearly 20%. These figures illustrate a strong financial discipline and a thriving business model.
The company's balance sheet remains healthy with significant increases in cash flow and a stable equity ratio supporting future investments and potential market fluctuations. A net cash position of approximately USD 17 million and a consistent equity ratio of 60% offer a cushion for strategic initiatives and underline the company's financial stability. The organization is positioned to leverage opportunities that arise due to its solid financial standing.
Looking ahead, the company has a positive outlook and is expecting a solid fourth quarter, supporting the upward revision of its full-year sales guidance to between USD 650 million and USD 670 million. With an anticipated operating margin of around 19% and potential for further positive outcomes, investors can feel confident about the company's future performance. The forward guidance suggests management’s confidence in the company's continuing success and its strategic direction.
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Good morning, and welcome, everyone. My name is Bernhard Schweizer, Investor Relations contact at INFICON. I have the pleasure to host this Microsoft Teams webcast and our Q3 results. With us today are Oliver Wyrsch, CEO of INFICON; and Matthias Troendle, CFO of INFICON.The management team will first present the results and then take questions. [Operator Instructions]. You should have received by now our press release on the Q3 2023 results, together with the link to the accompanying visuals for this web conference. All documents are available for download in the Investor section of the INFICON website. I would also like to inform you that we record this web conference to archive the file later on the website.The oral statements made by INFICON during this MS Teams session may contain forward-looking statements that do not solely relate to historical or current facts. These forward-looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations as well as future results of operations and financial condition. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.Having all said that, I would like to hand over now to Oliver Wyrsch. Oliver, please.
Welcome, everybody, to the earnings release of Q3 of INFICON. I'm very pleased to have so many in the call. Let me jump into our presentation for today. For the 2 sections, as an overview, first, I will talk about a couple of key messages, the figures of Q3, the target markets and our expectations for 2023. After me, our CFO, Matthias Troendle, will give you some more details on the financials, and we'll then also start the Q&A. With that, I'll jump into my presentation.Q3 results, 2023. Very strong growth, continuous high sales. We are pleased with how we were able to grow and develop our markets. We have year-on-year growth in all regions and all end markets, except Semi & Vacuum Coating. The supply chain is improving, but still impacts the margins and even some of the shipments.So, if you look at the sales, 18% year-on-year growth to USD 170 million. The Semi & Vacuum Coating market slowed down a little bit with minus 6% year-on-year. At the same time, we have good momentum in other markets with Gen Vac and RAC Auto with record quarters in Q3.Again, INFICON's position with this diverse end markets shows a good resilience in more volatile times and even some growth in this market. The organic growth was 17% year-on-year. There were some slightly positive FX effects.The order intake is as expected, a bit lower with a book-to-bill below 1, however, not significantly below 1 year-to-date. For the operating result, we have an improved operating income in the third quarter by 33% year-on-year to USD 34 million. The gross margin also improved by 1.3 basis points year-on-year. The lowering of broker costs helped. It's not fully gone, but it's going to be around for a couple more months and impacting us. And we still have supply chain quality and availability issues in some of our product lines, but it has improved.The profitability, even with headwinds in this year improved to 19.9% in Q3. Also the cash generation has made big steps forward with a record operating cash flow of plus USD 38 million. Regarding organization, we continue our investment plans in R&D, and also in production capacity, we would expect our CapEx around USD 30 million for the full year.Having said that, I will jump into a review of the specific regions around the world. You see each of the 3 regions show growth. Asia, plus 15%; Europe, plus 34%, very dynamic; and North America, plus 9%. Interesting here also is that it's going in waves back and forth. North America had actually a very good order momentum also in Q3. So we stay optimistic for all 3 regions. All made good progress with overall plus 18%.And if I jump into the end markets. First, the Semi & Vacuum Coating market. There is, in general, a softening in the market, of course. There was a lot talked about this this year. For us, it's a mixed picture for '23 and into 2024. Mid and long term, very strong growth drivers for Semi, also for INFICON.We have a very strong pipeline of products and new applications and solutions in the works. We are very optimistic for that. For this year, the main weakening is in the submarket of memory chips, which is one of the submarkets that INFICON plays in, but it doesn't have as a dramatic effect as it maybe has with some of our peers.We assume also a recovery in 2024 of the usual Semi cycle. What we've seen this year is some delay of some logic projects. There were also some delays in Q3. Not a dramatic falling off the cliff of the orders, in general, because also, some of the markets have shown resilience. One is the second tier market or also the business with EUV.One important statement around EUVs. For us, this partnership is long term. The immediate development of the market is not noticeable necessarily for INFICON because these are long-term shipment plans. It's also important to notice that ASML is only one of our top customers and our customer base pretty spread out. We are probably the top 10, 15, only makes up maybe a 30% of our customers.For ongoing investments in leading edge nodes, we see a lot of interest in the new products. And we work with quite some customers on new R&D together with -- on R&D projects. We see a general trend for increased sensors and process monitoring. Even in a down circle and in a down cycle, it's more R&D than maybe projects, but the positive dynamic. And of course, the same initiatives are still globally ongoing, while maybe they are on the time line a bit moved out.With that, I'll move on to the next market. Automotive, Refrigeration, Air Conditioning. Very positive dynamic. We have also here a #1 position in the market. Yes, the most dynamic market here is probably the battery market. We have shown a good sales increase also in this quarter of 38% year-on-year. Strong across regions and product lines. It's a record quarter for us.Next to the battery, EV market that shows very good future opportunities and good growth right now. Also, the RAC market has a very positive dynamic. In HVAC, we are #1 player as well and market have a good dynamic also in this year and in this quarter. Also here, we see a good strong R&D pipeline for INFICON with new products, applications and solutions.With that, I'll move on to General Vacuum.Also, the General Vacuum market is in this year developing nicely. Of course, also here is a factor in it where we ship more from the backlog when the supply chain improves more and more. But at the same time, orders are also not bad. And we have actually been able to show in Q3, again, a good sales increase of plus 44% year-on-year. Strong growth in Asia and Europe, a record quarter also here.Next to a couple of larger markets. You need to imagine that General Vacuum really has maybe 10 to 20 submarkets that have very different dynamic. In there is solar and pharma and food and R&D centers and a lot of OEM business and a lot of private label business. So it's a very mixed market that shows good resilience in 2023 as well.And with that, I go from -- to my last market, Security & Energy. As you probably know, Security & Energy has a bit of a different dynamic. A lot is driven through specific government initiatives. The most noticeable one is probably the HAPSITE DoD program, where we won quite a large amount of orders. And we also have a positive outlook.This product line, and maybe in general, these product lines within this market, they struggle a bit more with the supply chain, and relatively complex products. So here, we are not able to ship as fast as we would like to. And we would also aspire to more stabilize this on a higher level, even beyond where we are right now. But also here, a very nice growth of plus 85% year-on-year, quarterly growth. And we would expect that we here will continue to have a good momentum also in the future.With that, I would like to come to my last slide, the expectation for 2023. Given what I have said just now in the different markets, we see a solid order situation with a lot of different dynamics, but in aggregate, it's mostly optimistic. For 2023, we are able to increase the guidance and we will move the guidance from the prior level USD 610 million to USD 640 million to EUR 650 million to USD 670 million, with an operating income approximately of 19%, where there we see also some upside potential. But we remain cautious in general macroeconomical environment with a lot of risks and volatility.So thank you very much for your attention on my part. Now I would like to hand over to the CFO, Matthias Troendle, for some more details on the financials.
Yes. Thank you, Oliver. Good morning to everyone, and welcome to our third quarter call. I will cover, no surprise, the Q3 financials and also we'll quickly comment on our guidance. So now let me first start with the highlights for Q3. As expected, orders ended lower than the second quarter, and we had a book-to-bill below 1. Our sales grew by 18%, and our gross margin improved by 1.3 percentage points. And we achieved a 33.6% growth in operating income and had basically the -- with 19.9% of sales, second best [ results ] so far in absolute values, I must say.From a balance sheet point of view, CapEx has been lower than last year but ended higher than in Q2 and also higher than in Q1. So this is increasing the cash flow and net cash and made a big jump in Q3 with a cash flow generation of close to $38 million and a net cash position of positive $17 million. And our equity ratio showed a solid -- and unchanged 60%.Now let me go a little bit into the details. So first of all, taking -- first of all, we achieved revenues of $170 million in Q3. This compares to $143.8 million in the previous year third quarter and an increase of 18.2%. Without foreign currency impacts, we had an increase of 17%.Oliver had already commented on the development of the end markets. I think we can point out that sales in all markets, except Semi & Vacuum Coating did grow. The biggest changes have been in Security & Energy, which increased by plus 85%. The General Vacuum expanded by 45% and Refrigeration, Air conditioning, Automotive grew by 38%.The Semi & Vacuum Coating, as mentioned, did decline by 6% compared to Q3 last year, but also -- and also had a decrease against the previous record quarter of about 13%. With that, the third quarter ended very close to previous Q2 level of $171 million.The regional distribution of sales shows growth in all regions, and we had the highest growth in Europe with 34%, followed by Asia with 15% and North America as 9%. Gross profit margin increased by 22% in absolute numbers and reached 46.3% in Q3, up by 136 basis points compared to last year Q3 and also higher than previous quarter by 128 basis points.The positive impact of higher volume, we had somewhat lower freight and duty expense. And finally, lower broker costs was only partially -- fortunately, partially compensated for by higher material prices, which are still existing in certain areas and some inventory-related costs.And then on the cost side, on R&D, we spent $12.3 million, a plus of 7.9%, additional headcounts to support our development efforts on our projects and initiatives and some slightly unfavorable foreign currency impacts to drive this increase.In SG&A, the cost level did increase by 17% to $32.7 million. Here, personnel expenses are due to increased headcounts, higher performance-related compensation expense, but also several costs for initiatives in service, digitalization and other areas are some of the drivers for this increase.The operating profit as a consequence for the third quarter reached a level of $33.7 million or 19.9% of sales after $25.3 million in Q3 last year. This corresponds to an increase of 33.2%.The tax expense for the third quarter was at $7 million, which represents a tax rate of 20.9%. It's significantly lower due to one-off tax adjustments in Q3 of the prior year. The net profit, therefore, did grow by 47.8% to a level of $26.3 million or 15.5% of net sales. This compares to $17.8 million or 12.4% of sales.Now let's move to the balance sheet. Our net cash reached $16.6 million, which is about $40 million higher than end of last year, and it's $32 million higher than at the end of the second quarter. So this was a big step forward. [ Returns ] for inventory decreased slightly to [ 2.4 ] and the DSO ratio had with 52.6 days a similar level like Q4, but also like in the previous quarter.Our working capital reached $222 million or 32.6% of sales. The majority of that increase has contributed to around $16 million increase in inventory. Compared to previous quarter, the inventory level could be reduced, and this is now fortunately for the second time this year. So we could reduce in Q3 and also -- Q2 and also in Q3.Our operating cash flow, which you can see on the bottom right, developed very well. We improved clearly and reached $37.6 million and the best level we had so far. Balance sheet shows a solid structure with a 60% equity ratio and -- which you can see on the left side in the balance sheet structure. Of course, we have [ my ] comment on the Q3 results.Let me now come quickly to the outlook. Oliver did already comment the assessment for the end markets and our view of the situation. Based on our situation, order book, order intake and the overall business assessment in the end markets. We are mostly optimistic and we expect a solid Q4. And with that, we have increased our guidance for sales from up to $650 million to $670 million, and the operating income margin of around 19%. And in [ brackets ], of course, we hope with some upside potential for the fiscal year of '23.With that, I would like to close the presentation, and we are now ready to take your questions.
Thank you, gentlemen, for your explanations. We have a couple of questions, and I would like to start with Martin Comtesse.
First of all, congratulations on a very resilient Q3. I have 3 questions. First one would be on the gross margin. You've shown a pretty good uptick now in the third quarter. Can you just help us understand what the main driver is? Is it really purely the peak improvement in procurement? Or is it also an improving product mix? That will be the first one.And the second one is on the EBIT margin. Can you help us understand why you've actually lost 80 basis points sequentially from gross margin to EBIT margin? You improved by 130 basis points on gross margin, but just on 50 bps on EBIT margin.And then last but not least, would also be really helpful if you could give us an update on the new U.S. export controls. Just help us understand how INFICON is positioned in that new context?
All right. I will start and then -- maybe start with question 1 and 3 and question number 2 would be probably something more for our CFO. So yes, the gross margin is largely affected by the reduction of the cost in the supply chain. And the biggest part there is this broker cost for the chips. We have started out the year with some improvement in Q1. I think we said maybe 1/3 reduction and then we said just above half in Q2, and now this has further reduced. Important to note is that we still have inventory with the higher cost that we're eating through to the end of the year.There is some smaller fluctuations in there always, product mix as well. But I would really say this is the biggest chunk in there. Maybe if you want to add something on the first question, Matthias?
Yes, I also refer a little bit to my comment in my prepared remarks. So it was really one of the drivers which is the broker cost which did come in or which now finally come in step by step lower, at a lower level. Not comparable, again, like the high levels, which we experienced last year -- especially last year. So it's getting lower. Also freight and duty, there is a little improvement in there. Nevertheless, yes, there is -- in some areas, we still have protocols to realize into our P&L, which are sitting on the balance sheet. So there's still some impact in there.But overall, the trend is -- I think it's good and positive and basically then the result at the end of the day with some favorable improvements in broker freight and duty and so on, but also we have some unfavorable entries and impacts with some inventory costs where we had to adjust a little bit. And so with that, we could increase by this 136 basis points from quarter-to-quarter. So it's improving, yes.And maybe I just continue because one of your questions was, why do you lose, right -- Why are you losing in your margin and the 1.3 percentage points is not flowing through. Well, the explanation is basically in between, and that's the operational costs, they are increasing, as you can see, over proportional to the sales and gross margin development. We had basically 26.5% in OpEx as a percent of revenue coming from 25.5%. So there is an increase in there in terms of percent of sales.And if you would ask, okay, where is the increase coming from, and I'll try to explain a little bit. The majority is really people and performance-related bonuses and some of our initiatives, which we started quite some time ago. Especially IT security, digitalization costs some money. We must make sure that we are safe and also progressing and improving in some of these areas, and these are the impacts of that.
Yes. Maybe a general note on this. We're trying in these volatile times to stick to our overall long-term strategy for the next 5 to 7 years. So there's a number of strategic initiatives, be it in developing markets or building up product development or developing new products, new applications or also on the internal of these initiatives that Matthias mentioned, and we try to go independently a little bit from a specific quarter and develop further on these. So it's not directly connected with a specific quarter, if that's helpful.So maybe -- not to forget your third question, Martin. Yes?
Would you mind me just following up -- sorry, just a quick follow-up on this one, because it sounds very constructive, and don't get me wrong. I think you're close to the 20%. This is what we're all looking for. So that's all good. I'm just trying to -- on that note, to understand why Q4 should drop? Because if I look at your new guidance, the top end is basically a sequential flat development on top line and on volumes, but yet you imply a significant decline. Is it just a cautiousness, a conservative measure? Or should we expect some further decline in margins really in the fourth quarter?
Maybe let me comment, Martin. When we take a look to the year-to-date level, right, we are at 19.4%, right, of sales in operating income. Q3 was very good. [ It ] grows. We touched really the 20% mark. And -- so we are -- year-to-date, we are at 9.4%. And even if we continue with that one, we have a chance to -- and we mentioned this, that there is upside potential in the margin if we can achieve it and realize it, and there are some dependencies and -- to make this happen, the sales top line that we are able really to achieve, maybe the high end, right, of the guidance. If this is happening, there is a chance for some upside a little bit as we mentioned.But year-to-date, we are at 19.4%. And yes, we try to work it and make it 20%, but we cannot be sure. There are so many influences in [ west ] and revenue recognition issue is typically at year-end where you don't know exactly, can you ship all what you intend to ship even if it's ready. So there are still some unknowns, but, for sure, we try our best, [indiscernible] sure.
Yes. We keep pushing in a difficult year, I'd say, right? So, yes -- And maybe to your last question, Martin, not to forget it, the U.S. export controls, something certainly that we watch closely for many years. I think the most notable one is the one a year ago from the Biden administration, which really changed course in China away from Tier 1 for now. And we've seen this uptick in second-tier investments, certainly also something that drove our revenue this year in Semi.If you look at other steps that happened since then, the one in the first half year in the first quarter with Japan, the Netherlands didn't affect us much. There was materially not so much that came out of it that would affect us. Maybe something important to note is also that our business focus is largely in EUV versus DUV. And EUV, as you know, this change has been already 2019 with this export controls to China.And when we look at the most recent news we had, we are analyzing it. At this point, we do not see a material negative impact for us. One thing is also important to note, maybe for INFICON, through our constellation and being a European-focused company, where we ship a lot also out of Europe, even though there is also a U.S. business, of course, we have, in summary, rather more plus points than negative points as it turns out with the current export regulations versus maybe others in the market.While at the same time, of course, we are not at all in [ favorite ] of more export control. It's quite the opposite. But for now, INFICON has shown to be well placed to play in this more difficult times. And I would expect this to be roughly also like that in the future, while there's so much uncertainty, right? We have to closely monitor this and react whenever there is new developments that are relevant to us. I hope it's helpful, Martin.
The next question then comes from Michael Foeth.
I have 2 questions. The first one is regarding the semiconductor industry and your relatively resilient sales into that market. And I was wondering if you can be a bit more granular, which products are doing particularly well and which are not doing so well? Which sort of submarkets you're seeing more resilience in semiconductor, whether it's more end users or OEMs and which market segments? That would be the first question.And the second one is regarding your strong sales level in the third quarter. And you mentioned that backlog -- you can now finally work some backlog down because supply chains have eased. And I was wondering what the impact of that backlog effect is if you strip that out, what is sort of the sales run rate that you have from orders that come in during the quarter and a shift during the quarter. To help us understand what the run rate is, is it going into Q4 and going into next year, maybe?
Sure. So maybe first on Semi. To be honest, the statement will -- is not much different from what we have been saying prior -- in prior quarters. For us, the semiconductor market breaks down into 5 to 10 submarkets with different dynamics. We have roughly half-half business with OEMs and chip makers. With both, we have a high customer intimacy. That's also why often during these times when it's a bit slower, we do a lot of joint development, which we very much appreciate that we can work together with our customers on long-term projects.If you now look at the different submarkets, I've -- maybe look at the 2 extremes. One is memory in specific, a few of -- not even -- actually all of these memory customers, be it OEM or end user, have, of course, shown quite some drop. However, what we feel and what we hear, and I think also is a bit market consensus is, we should be at rock bottom somewhere now. And the question is now more how is the uptick, in what shape. And then there's a few customers that have different investment strategies.If you just look at the Tier 1 logic, which is certainly an important segment for us. TSMC is a bit different than Samsung that powers through with investments and then Intel, who focuses and pushes in one area and in other areas it slows down. So there is even there mixed pictures in leading-edge logic.Maybe to add some more color, second tier, NXP, Infineon Automotive, the [ ICAP ] space has actually been relatively resilient. In particular, China has shown good momentum recently that, of course, has a lot of political, geopolitical and trade factors in it, but this has been a positive momentum there so far with a lot of volatility and risk, in particular, in China, of course.And then if you look at [ Litho ], for instance, no change really. The pace of the shipments is still high. The ramp is there. We continue to ship. Even if maybe the Dutch customers are not taking in as many orders, they still have an order book more than 1 year. So for us, there's no noticeable change really. So for us, if that helps with this color, it is a pretty mixed picture between the regions and subsegments.And then maybe if I go to the second question, the book-to-bill or the order outlook, yes, we've been diving deep into this topic many times this year. And it is a confusing situation, right? It's pretty mixed when we analyze. What I can tell you is that the book-to-bill in Q3 was as expected, below 1, not significantly and for the year, definitely not significantly.So we actually think that the order level as we've seen it in 2023 is pretty flat. We look at this a little bit like the floor for next year, even though the dynamic of next year has a few question marks, specifically on the up cycle for Semi. But other markets have done a bit of a different dynamic also. So we would say also there, it's optimistic look with a lot of question marks and a lot of things we have to monitor. Does that help, Michael, to add some color?
Yes. But maybe just to put it differently, the midpoint of your guidance suggests sort of $160 million revenues in Q4. Would that be a good approximation for the run rate? Or are you still expecting a lot of backlog effects to help in Q4 as well?
I mean, right, we were at one point there where we had 11 quarters of book-to-bill above 1. And of course, this has changed the last 2 quarters, but it hasn't dramatically changed. So while we have improved delivery times, specifically in some product lines, it's a bit schizophrenic. At the other hand, there are still product lines where we really need to manage and push to really try to reduce the backlog. So also there is still a bit of a mixed picture. And the supply chain is still a factor for us that lets us not exactly determine how much can you ship in a quarter for a certain product line.So there is -- for us, we are mostly optimistic for Q4, too. We see upsides, but we also see risks with downside potential. Unfortunately, this is a bit of a difficult year, right, for making clear predictions.
The next questions come from Jorn Iffert.
I will take them one by one, if it's okay. The first one, pleased to come back on the book-to-bill. When you say it's slightly below 1, I assume maybe 0.9 or so, around [ $150 million ], which is still a pretty good run rate. But can you maybe help us to little better understand in the different segments where book-to-bill is significantly below 1, where it's slightly above 1, for example, that we can better understand this? This would be the first question, please.
Yes, look, it's actually interesting. If you break it down into the 3 regions and into the 4 end markets, it's almost like waves going back and forth the way we see it. There is nothing that really falls off the cliff, where we'd have to say, oh no, this is going far away. You give your estimate, you're not far off. I think we'll probably be a bit more optimistic. But in the end, we would say that Semi has slowed down, yes. But as expected, in a sense, you could almost say, it came a bit later and it was a little bit more resilient. But then maybe we thought 12 months ago or 6 months ago even, there is also in that -- some submarkets that, as I just explained to Michael, that do not show much impact and some they show a lot.However, if you look at the most dramatic one, memory, we also believe it's somewhere around rock bottom. We don't know how much longer this is going to go. But if you look in terms of trend, you would see an upward trend there, right. Somewhere might be slow. So we are not so negative around Semi, if that's the question.Of course, for us, Gen Vac has been very interesting. RAC Auto has been very interesting, and we -- there -- pretty optimistic that this will continue. You need to imagine -- for instance, the battery business, this is a priority in China. It is pushed. It becomes more and more priority in the U.S., in North America and in Europe as well. So this dynamic is, of course, positive and long term and relatively independent from the Semi cycle. But if you look forward, there's no reason to be pessimistic for any of this for the short term, right?Well, again, there's macro. There was this question before from [indiscernible], the export controls. This is all difficult territory to navigate. And so far, it went really well, and we are also optimistic for the future, but there is so much unknown in there. Does this help a bit, Jorn? Yes.
And just that I concluded correctly, it seems that you all saw other trends going into Q4. You don't see this change a lot versus Q3 [ to ] remaining on relatively good levels, right? This would be my conclusion. Is this fair?
So far, it was flat in general, right? There is, of course, product lines and regions that have ups and downs.
And we are only at day 19, right, of Q4. So the rest is...
Nobody knows exactly, but I just wanted to get a feeling how you think about it and what are your thoughts about it. The second question, maybe, please, on Gen Vac. Very strong results in Q3. You said order backlog was reported, but at the same time, you also mentioned in the call, the order intake was pretty good. Book-to-bill also only slightly below 1, as I understood it. To what extent is this coming from market share gains from your point of view?
Yes. So certainly a question we also think a lot about. Again, this breaks down into 20 submarkets. And then each regional -- some even -- in the countries, you have a little bit different dynamic. I mean, what we see in maybe a few points, and then Matthias should also add a few thoughts from his side. I mean, North America has been positive in many of these submarkets, also in terms of order trends. Europe was a little bit catching up, but there is some kind of up and downs, right? Then China has been resilient for us in these markets. Now there's a lot of uncertainty and there's a lot of things that change. But so far, this has been good on a broader basis. It's not just battery and solar. So maybe that -- a few thoughts, Matthias?
Yes. I only can add it's really across all regions, we must say. So the GV growth is in all 3 regions, but we can point out that the strongest growth is in Europe and North America. Asia is more flat, but still green, right? So it's still growing, but a little bit lower than the other 2 regions. And there is a certain portion, of course, quite a little business which is going okay. But I also would assume that there are certain market share gains in there. Can I measure it and describe it? It's difficult in the moment to give a good answer on that one, how much it is, but I'm pretty sure there's a certain portion in that. But it's mainly Europe and North America, if I compare Q3.
And the last question, then I will go back in the queue -- on this topic in GV. Which end markets exactly in North America and Europe? Because when we talk to other industrial companies, everything is weakening. The GDP-related business as historically GV was usually should also weaken. So it seems that [ dumping ] structure is going on here. And also on orders, not only on sales. So can you tell us which sub-end markets exactly in North America and Europe was good in GV?
That's very difficult to say, Jorn. I don't think we have a clear answer for you to give you today in this platform. We look at them separately. What makes it difficult is, first of all, we do not track all these submarkets as much as we track the real big markets, specifically Semi and in submarkets. And the other thing is, there is a lot of little peaks there that the supply chain causes. You need to match in when you start to be able to ship in a certain product line to a certain region. Then suddenly the customers change their order behavior. And then you have a little bit of an effect back and forth. So there is a lot of dynamic in there to -- it's very difficult in the specifics to find a trend. What we know is in the aggregate, it's -- as just noted, it's pretty resilient and above actually just reducing backlog and improving supply chain.I believe we have -- maybe go back to the product, you need to know we have a number of leading products in these markets. And there is a load of OEM business where we are designed in. It's not something that radically changes for us.
The next questions come from Marta Bruska.
I would actually like to follow up on what Jorn was discussing with you with regard to the book-to-bill ratio because, you made a comment that the book-to-bill is below 1, but not significantly then for the full year. It's definitely not going to be below 1, even less significantly. So I was -- I understand it's very difficult to predict, but it seems like the start into Q4 from the order intake was actually quite good. Or am I overinterpreting because I'm a bit more positive than Jorn? So I just wanted to ask whether you could give some further detail on that? And then I have 2 other questions.
Yes. Maybe a quick correction just to make sure I express myself correctly there. Year-to-date, I made the statement that it is not much below 1. Also Q3 did not fall off the cliff and is not so much of a change. What comes from here on out, I don't know exactly. We are analyzing, and we are mostly optimistic. There is no reason now to believe that anything should fall off the cliff as it hasn't during this difficult year, right, of the many different dimensions. But maybe just clarify, Matthias, if you…?
I only can repeat what I said to Jorn, but at least for the first 19 days of October, and in Q4, they look okay. There is no negative surprise. Maybe it's -- maybe slightly better than maybe in the last 3 to 4 weeks, but this is just a little indication, right? At least it's not dropping. It's developing okay, the first 19 days, and then we will see what's happening in the other 60, right, something.
Yes. It's also -- there's the seasonality portion in there, right, regarding orders. July and August traditionally have been slower. That's just because of the season, and it's actually going across the regions.
And then with regards to the Security & Energy, is that the increase is still driven by the big order that you won back in Q4 2022? Or are there new orders coming as well?
No. There is, based on ongoing flow of orders, but of course, this is most -- really the biggest single order, right? So that's why we talked about it. But I mean, this is a new product line. It's just starting to ramp. This takes relatively long. So there is an order development dynamic, but that doesn't really actually much affect the current quarters, frankly, even looking forward. We need to ship now, and we need to ship more. And the shipment has been part availability and part quality from our suppliers. So it's a relatively complex product. And so we're working on that. And then you've seen that there is overall this increase, but also with some setbacks in between, right? It's not a step forward all the time. This is not order driven. This is mainly the supply chain.
And lastly, if I may, please. Is that fair to assume that the sales guidance upgrade is driven predominantly by General Vacuum outperformance? Or is it really broad-based, everything better than expected?
No. I would say this year has turned out better than expected. 6 or 9 months ago, there was so much uncertainty -- there's some uncertainty. There still is, I think, to be honest. But now we, of course, are very close to the end of the year versus where we were in the beginning of the year. So we see a bit better what happens short term, always and also specifically here, so we can be more certain. We're still mostly optimistic, I have to say. What INFICON showed now is a lot of resilience in difficult times. And at this point, we see no reason that it would reduce. And we also don't see any -- again, any kind of specific region or market falling off the cliff. It's up and down, right? Sure. But in the aggregate, no.
The next questions come from Doron Lande.
I have 2 questions. I want to go -- come back maybe to this ASML story from yesterday. Again, you mentioned that these are more long-term partnerships, but maybe you can elaborate how this difference between short term and long term looks like in those -- in these dynamics, or more precisely, like how would the weaker year of ASML still come back or trickle down to INFICON? Maybe a word of the sensitivity of that.
Yes. I mean, I can just say that there is not much effect really what orders they would take that they would be able to ship probably in 2025 somewhere. This doesn't change our shipment table. You need to understand that ASML is a very organized company. We learned to be very organized to work with them. So this is a fixed cycle time that we go through. And this doesn't go up and down because of some orders really that are maybe 12 months, 18 months out, right? So for us, this didn't change noticeably.And hey, it's possible next year, somewhere. If this continues, depending on the Semi cycle recovery shape, there will be delays of the shipment, but this is so far out for us and highly hypothetical at this point. And we need to also -- it's important to know ASML is just among our big customers. But INFICON has the last 10 years really evolved a lot in this direction to spread out the customer base. And this is what you may be also see as a factor in this year's resilience. So even if a larger account at any one of these large semi OEMs or end users has a slower CapEx year, this doesn't throw INFICON off the rails.It's actually this year, specifically really like that, that they all have a different dynamic. So one bounces the other out pretty well, right, in summary. But ASML is a driver right now. It's one of the ones pushing. So in our projection, also we're looking forward.
Then my last question is -- refers to the margins. We mentioned now the procurement costs are the main driver to relieve those inefficiencies in the margin. What could drive margin expansion beyond that? First of all,what is the impact of the remaining inefficiencies in the procurement costs and what could drive the margin expansion beyond that when we talk about margin in 2024, for example?
I would say something general. And I think Matthias can finish out a little bit. Look, this question we have, of course, almost every earnings release, and it's a fair question. There is a gross margin development, there is our [indiscernible] development. Look, profitability is important to us, but the number one is really go and gain the market share and develop new markets, open new applications. And that's what we're pushing for. You see this in our long-term investments, R&D or in CapEx. You see this in our long-term perspective in our partnerships, and we've been able to push that forward as well.So for now, we see potentials, and we work on them as a bit of a lower priority than the growth. It is still a priority to further increase there. But the priority will always first be to get the markets, make the growth and ship. That's why we accepted this additional cost in the supply chain. We accepted cost inflation, while we at the same time renegotiate and develop. We work on our customer pricing and we work also on our supplier pricing. But it is secondary to these growth opportunities that we will see and we want to capture and exploit for the future. Maybe if you have a few words?
Maybe just to add, we commented that there is some progress, some easening of the broker costs. And this was one of the drivers in Q3. So we made some progress. I would assume that for Q4, the broker cost will maybe go down a little bit further and maybe getting some relief. But I also must say that, for example, in U.S, we had some inventory-related costs we had to cover into the cost of sales, which we partially compensate some of the favorable developments. But I would say I'm a little bit optimistic that there is some little room, right, to improve in Q4. On the gross margin, at least I would not expect that it goes down based on today's knowledge.And, yes, as I said, your broker cost should lower in Q4 again, and that's basically the same assumption, yes. But then at the end, it really -- what I mentioned also a few times, it's some mix issues, right, or mix impacts, which we also always have. Is it more -- for example, more software business, more low-margin business which we ship. And then at the end, you have a mixed margin on that one. You have this inventory costing and broker costs which are impacting a little bit and which we need to be -- to have under control and avoid surprises in there. But overall, I'm, as I said, a little bit optimistic that there is a good trend.
Maybe one more word to give you some color on what we're doing longer term. Look, the margin of INFICON is largely driven through leading-edge products, which you can then sell at a premium because it truly solve problems at the customer. So this is a long-term R&D effort. So there is a significant amount of effort going into that and into partnerships and into R&D projects to push that forward and make further steps forward. And this will translate, if successful -- like it has in the past, it will translate into margin improvement.At the same time, we also launched a number of initiatives in the company for productivity, digitalization, organization, operational excellence, how we work with the customer to streamline processes. So this, of course, has this target as well. It is not something you will see quarter-to-quarter. So we strategically address it, and it's been worked on and it is taken serious, and there's commitment behind. And over time, you will see the effect when we make the respective achievements and gains. Hope this was also helpful.
The next questions come from Marie Ganneval.
I'm just following up on the previous question that has been asked. So I'm just trying to understand the dynamic for your Q4 in the Semi & Vacuum division. So given that the cycle is actually bottoming out a moment, would you actually expect your Semi & Vacuum division to increase sequentially in Q4? Or are you more expecting to see sort of like a lagging effect versus the cycle and see actually like recovery in the later part like in FY '24? And what will be the drivers for Q4 in this division?
Yes. That's a very specific question where we probably have to disappoint you, we'll not be able to give you specific guidance on the end market for Q4. But I'll give you some color for sure. Look, of course, this -- many of these projects are a bit long term. Just before we talked about EUV, right, this has absolutely nothing to do what exactly happens in the current order situation and what we will ship. And then on some end, it does.I think the biggest impacts on -- when you are in the quarter, what then we'll ship in the quarter is maybe project delays, and we have seen some of them during this year. It was specific customers that just moved out some projects. I think most notably, TSMC is the one that we all read in the news. We also saw that these products, they exist. They will be shipped when we can ship it. So that is maybe something that will impact it. But from where we came and all the different statements made of how we saw the development of orders this year and how we can -- how the supply chain improves, you can make a sequential -- a little extrapolation based on that for Q4.But having that said, right, that would give you a lot of optimism. At the same time, we have seen so many volatilities and we have been affected by them. Just because of the mix, it is a bit more hit in a way in the aggregate. So we still are cautious because we have been affected by different effects like this and it needed a lot of navigating through this with our customers and partners through this many years. I don't know, Matthias, if you have anything else to add.
Next question comes from Reto Huber.
The first one relates to your capacity that you have expanded. I was wondering, the $82 million revenues that you had in Semi last quarter, I mean in the second quarter, and how close is that to your maximum capacity of a typical quarter in 2024, if there are no external factors like supply chain issues?
So maybe to answer this question, it's actually -- that's a very refreshing question because that's truly what I'm thinking about now with the management team, how do we prepare for -- when the next jump comes in specific in Semi in order not to maybe have a similar slow ramp as we all experienced after this COVID and slowdown and then speed up. And not much has changed in our strategy, in a sense if I could quickly recap, because we actually haven't talked about it at least for 1 quarter, is, we have now 2 years where we dramatically invested and somewhere 50%, and actually some subproduct lines even have a higher factor of output versus prior -- this -- the growth spurt.So we do have enough capacity to make a growth step in most product lines. Right now, we are restrained actually, in our high runner still to the supply chain. And they're actually a bit less through [ part availability ] but more the quality. It's also about stabilization of the processes. And there has been a little bit of a movement in the supplier base as well. So some struggled more than others.So the focus right now is a bit more on supply chain to really make this more resilient, and more scalable for the next step. And now also, of course, will help us in the immediate next quarter or current quarters. But as you can see when you look at our CapEx numbers, that have been above 30% for the last 2 years. And also, this year is not much of a reduction.As you maybe recall from my first quarter, I believe, we already had to make a little bit of a correction upwards back then for this year because of the demand we had from different areas, different markets but also including Semi. And this is still an ongoing program that hasn't finished. We're just currently at the step of expansion, and that will be another step end of the year.And we look as we go, how we can increase the advantages a bit now that the lean times for the expansion is not as long anymore as before because the [ tooling ] doesn't have as long delivery times as before. So we get a little bit more flexibility there.But again, if you look at our CapEx, you see our commitment to the growth and trying to stay ahead of what might come and when [ then ] exactly it will come, right? Let's say -- I think the consensus is around Q2 next year, maybe midyear. So if you think investment programs, this is not so far away.
But if you stop today, your limit would be at around $90 million or $100 million per quarter in Semi?
That is difficult to say, right? So many different...
It's not -- I think maybe -- just let me comment a little bit. Just to give maybe a broad picture, right? So today we forecast, as you know, [ $650 million ] -- around [ $650 million ] plus in that area. If you would ask me, okay, what can you do, right, with your maximum capacity, maybe we have capacity in place assuming a normal mix and not in the bonds and so on. And of course, one question mark, maybe the capacity can support a revenue level of [ $750 million ], right, in that range, plus/minus, maybe even to [ $800 million ] depend here on shift models and so on. There is some room to maneuver around. But this is something we should be able to do, right? We've installed capacity. We've got planned capacity.Oliver mentioned, right, we still plan to have around $30 million this year in CapEx, which is a substantial number for the third year basically. So that's just to give you a feeling, right? So we are not at the end. I cannot tell you, but in Security & Energy we are at $110 million, and the other, we are at $98 million. That's not the way we manage the business. But overall, I think that's a realistic number what I gave you.
There's room certainly.
There's room, yes.
And then the second one, you sounded quite upbeat on the RAC market, Refrigeration, Air Conditioning. What is driving that? Is it the heat pumps? Or what's going on there?
Yes. I mean this is a bit of a variety of products in there. In general, the RAC and Auto market is really also, again, 5, 6 markets, if you look at bigger chunks and then it breaks down. There's also aftersales service in there that goes pretty well handled. But -- then there's battery in there that goes really well, obviously. But then HVAC has been pretty resilient. There is certainly also a China effect in there, certainly for the first half this year. And there is a supply chain easing and more shipments effecting there. But we don't see a slowdown of orders necessarily.Your question is, has that something to do with energy transition potentially? Possibly, yes. We haven't identified respective trends yet. We're actually looking to this currently. It's not entirely clear for us. We would like to -- we would happily say yes, but we want to really fully understand, right?There's actually kind of interesting dynamics there. That's a fun question maybe for another time to talk about, new markets, new opportunities from hydrogen green fuels with up to carbon capture, whatever. There's a lot of fun stuff, right, we could talk about energy wise. I can't give you that today as a clear trend.
We have 2 more questions in writing. [ Tobias Rolter ] wanted to know by how much did the brokerage costs impact Q3?
I can give a big picture. Well, you can crunch the numbers in your head. Look, last year we were 15% to 18%. And the trajectory this year was 1/3 fell away roughly in Q1, bit under a half fell away in Q2 and in Q3, it was a further improvement. So we're definitely below half of this. Now -- but I gave you the full year number, but you are, of course, very good at numbers. So you could break it down a little bit. I think it will go away until end of the year.We have been though a little bit surprised through this during this year, right? We have actually expected this to much more reduce already earlier in the year and it hasn't. And we needed to ship, we needed to ship more. And we needed to also go on a difficult supply chain to acquire more of these chips.One point is important also there. It is not one chip and one product line. INFECON has, while maybe a few key product families, it does have variations of it and they use different chips, and it has jumped around a bit where the bottlenecks were. So some have really truly improved. And I think they are probably in the green for future and some haven't.So a lot effected by automotive chips because many of these same product family we use in our sensors because they have the right type of specs for us. And so while this has been monitoring why this market, it has a little bit given us the trouble in the supply chain. So again, I think until the end of the year, they will probably be mostly disappearing with our current understanding.
That's what we hope. And to give you a feeling, it's what we account for in the third quarter, is in the range of 0.4% to 0.6% of sales.
[indiscernible] looks into world regions again, and he writes, you said that you see some signs of improvement in China. Could you perhaps elaborate on this a little bit more? In which areas do you see improvements? And how sustainable is the growth in your opinion?
I don't know, maybe then that needs to be a little bit corrected. We don't necessarily see improvement in China. The dynamic in China overall has been for us the following. There was the opening up, and there was a tremendous boost in orders and there was also a tremendous improvement in the supply chain, so we could ship from the backlog. So at that point, the orders and the shipping was almost disconnected.And then there was this change of first year, which, as you know, a lot of advanced sensors go into, and they changed to the second tier because of this new export controls. That also happened in the course of H1. And what then happened is, is doubling down on second-tier [ ICAP ] automotive chips, and we have seen great dynamic there in Semi in China.Now then there's a couple of more markets. I'm repeating myself here, but trying to give a good picture for you as an answer. Battery, solar, and a couple of other of these industries where we are supplying our products to, these are state-sponsored priorities. And China is leading the market and they're pushed forward with this. So they're nearly independent of the specific market dynamics. Also when China now seems to have quite some structural issues and other macro issues. So that's one of the dynamic.So you can say, yes, battery is -- we expect growth and we expect it in China because that's the biggest market today. Other markets will certainly also invest and might even catch up quite a bit. We will see. But for now, these markets, they have been pushed.Now the General Vacuum market goes back to what I said earlier. This is so many submarkets and we do not always see to the end of it. We have private label partners a lot in there. We have distributors in there. Our products go to OEMs, get integrated in the larger products. So there's a bit more murky there. And we have been in the high-tech industry with most of this, and this has shown good resilience this year.As for an outlook, I would struggle because there is so many adverse factors in there. At the same time, China has time and again shown its agility and its ability to push and grow. I think many people have analyzed this. I would not be able to make a better analysis than that. It's a bit uncertain for the future, but it will stay an important market for us, and the recent dynamic has been good. Maybe if you want to add...?
I think that's quite a good summary. Maybe one more comment. It's more we see -- we did see in Q3 a very good Refrigeration, Air Conditioning, Automotive market development. So this was a positive development, not negative, and stable. We did see in GV, in General Vacuum, more stable development. So no slowdown to be seen versus the previous quarter. So RAC positive, GV stable, Security Energy, very, very difficult, as we know. It's very volatile and pro-driven. I think there is no [indiscernible] to be mentioned, and Semi is a little bit weaker as we mentioned. But that's a high level summary I would say.
Hopefully, that was helpful.
I'm sure it was. Thank you, gentlemen. That was the last question that we have so far. Maybe you want to close our session with a closing remark?
Yes. Thank you very much. And thank you, everybody, for joining today for the lively discussion, the good questions. I'm looking forward to seeing you again in the new year. We'll give our best to push forward. We are really happy of what we can see in the horizon and what kind of things we can do midterm, long term, in particular. So more to come soon. But for now, I'd like to close the session and wish you a wonderful day. Thank you.
Thank you.