VAT Group AG

SIX:VACN

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, welcome to the VAT Q3 2019 Trading Update Conference Call. I am Sandra, the Chorus Call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Mike Allison, CEO of VAT Group. Please go ahead, sir.

[Michael Allison]

Thank you. So ladies and gentlemen, good morning, and welcome to VAT's conference call on the Q3 trading update, which we published this morning. With me this morning is Stephan Bergamin, our CFO; and our Head of Investor Relations, Michel Gerber. After my short introduction, we'll start the Q&A session and the call moderator will take your questions in the order that you enter them. With that, let's start looking at the business development during the third quarter of 2019. VAT has posted continued sequential top line growth in Q3 versus Q2, which, in our view, confirms the fact that the bottom of the current market cycle has been reached. Sequential orders were up 10% and net sales 1% higher versus Q2 '19. The improved order pattern in the third quarter is an indication that inventory levels that our customers have normalized, driven by the demand in the semiconductor space and especially around advanced logic. But it's not only sequentially that we have seen an improved order pattern. When comparing the third quarter of 2019 with the one a year ago. Orders grew 11% year-on-year, and we expect the same for revenues in the fourth quarter. In the third quarter, net sales were still 6% (sic) [ 16%] lower versus the level achieved in the third quarter of 2018. Internally, we have continued with our measures to improve operational efficiency further. And we also continue to invest heavily in new technologies to cope with the demand from our customers for new and enhanced products. When looking at 9 months' results, orders and net sales were down 20% and 27%, respectively, as expected, compared to the record levels of 2018. However, our market-leading R&D efforts are progressing well, with many projects being closed out successfully, yielding in spec wins for future semicon platforms. Also, the ramp-up of our enlarged production facility in Penang, Malaysia, is progressing according to plan. Today, in Malaysia accounts for some 22% of our semi revenues compared to 18% at the beginning of the year. This is becoming a very strong asset for VAT, as we now have manufacturing of our semi and display products much closer to the Asian market. And we also have a strong business continuity solution for our key customers with 2 major global manufacturing sites. Before turning to our guidance for the rest of the year, let me go a little deeper into the development of our business segments. As mentioned in my initial remarks, VAT's Q3 order intake and net sales improved on a sequential basis compared with the second quarter of the year. Orders grew 10% versus the second quarter to CHF 147 million. Q3 net sales were 1% higher than the second quarter at CHF 137 million and above the midpoint of our Q3 guidance. The higher demand was mainly driven by normalizing customer inventory levels, especially in the semiconductor foundry and the logic market. There is a record number of new production platforms being developed in anticipation of further technology advances, and VAT continues to gain share of the leading-edge technologies as shown in our recent first half 2019 market share data. There's also some growing optimism of a medium-term recovery in equipment spending, driven by the 5G rollout in 2020 and the NAND market, the NAND memory market should see a pricing recovery starting in Q4 2019. But as yet, we see semiconductor and display manufacturers remaining somewhat cautious in the capital investment outlook for 2020. We expect to get better visibility on this during the fourth quarter. The third quarter book-to-bill ratio was 1.1 and as a result, VAT's order backlog at the end of the third quarter was CHF 121 million, up 8% compared with the end of June 2019. Now looking at Valves. Valves is VAT's largest segment, and we reported a sequential growth in orders and net sales in the third quarter of 2019 versus the second quarter of 15% and 2%, respectively, to CHF 116 million and CHF 103 million. The growth was driven mainly by higher demand in the semiconductor business, as I mentioned earlier. In addition, VAT recorded new specification wins and shipped several new product prototypes to be qualified by customers for use in the next generation of semiconductor fabrication equipment. In the Displays business unit, vacuum valve demand has been driven, in part, by the newest generation OLED displays for mobile devices. This will make up about 60% of our display shipments in Q3 and Q4. The production of this newest display generation is more complex than previously and requires additional vacuum steps. In the General Vacuum segments, additional market penetration efforts have started to show initial results with Q3 being up double-digit, 11%, year-on-year. We're also seeing good success in China where VAT has added 6 additional distributors to take advantage of the expected growth in that region. Compared with the same period of 2018, our third quarter orders in the Valve segment increased 17%, while sales declined 20%. The Valves segment's book-to-bill ratio in the third quarter of 2019 amounted to 1.1. For the first 9 months of 2019, the Valves segment orders declined 23%, and sales were 34% lower compared with the same period a year ago. The Global Service segment reported third quarter 2019 net sales of CHF 28 million, a sequential decrease of 4% compared to the second quarter of 2019, but 3% higher in the same quarter of 2018. Third quarter orders were down 6% versus the second quarter of the year, mainly due to the timing of new service projects in the subfab market and the delay of some upgrade businesses in the memory segment, driven by the current financial challenges. Compared with the same quarter of 2018, third quarter service orders grew 1%. For the first 9 months of 2019, the Global Service segment increased orders by 2% to CHF 81 million, while net sales grew 8% to CHF 85 million. The oversupply challenges with our memory customers reduced our expected service growth in Q3, and will likely do the same in Q4, but we still remain very optimistic about the growth prospects of our new upgrades and retrofit products within our service business. In the Industry segment, third quarter orders declined 9% compared with the second quarter of 2019, primarily the result of lower demand from the automotive sector, the main market for VAT dampers used in high-efficiency automotive fuel injection systems. Net sales increased 18% versus the second quarter, reflecting the shipment of orders received in previous quarters. Compared to the third quarter of 2018, orders declined 41% and sales were 6% lower. For the first 9 months of 2019, orders in the industry segment decreased 51% to CHF 11 million while sales declined 22% to CHF 14 million. Overall, the businesses of VAT developed in line with our expectations during the third quarter. After the severe downturn in business activities starting a year ago, we now see several green shoots, especially in the semiconductor-related segments. While visibility about the exact timing and strength of the next market ramp remains relatively low, we're convinced that the bottom has been reached and that we will see a gradual improvement of the market in the quarters to come. VAT's medium-term growth drivers, such as the Internet of Things, 5G, cloud computing, artificial intelligence and many other global digitalization trends remain firmly in place and are expected to fuel further demand for semiconductors and advanced displays. This, in turn, is forecast to drive demand for VAT's high-performance vacuum components and related services. In addition, VAT sees further expansion of vacuum-based production processes in a variety of industries. This view is echoed by research companies such as VLSI Research and the recent news flow from several of our peers is supporting the assessment as well. For the fourth quarter of 2019, we now expect to return to year-on-year growth and expect net sales of CHF 150 million to CHF 160 million, bringing our full year 2019 sales to a level of between CHF 550 million and CHF 560 million. Based on our ongoing internal measures to improve our operational efficiencies, we continue to see the full year EBITDA margin to be above half year 2019 levels of 25.1%. VAT maintains its midterm EBITDA margin target of 33% by further improving the company's cost structure. As a result of the expected lower net sales and EBITDA margin in 2019, VAT expects full year net income to be below the level of 2018. The full year CapEx is now expected to be in the range of CHF 20 million to CHF 25 million, as our installed production base does not require substantial investments even in the case of a sharper upswing in our markets. Free cash flow in 2019 is expected to increase compared with the previous year, mainly the result of improved net working capital management and lower capital expenditures. So this concludes my prepared introductory remarks, and we now turn the call back to the operator for the Q&A session. Thank you very much.

[Operator]

The first question comes from the line of Jörn Iffert from UBS.

[Jörn Iffert, Director and Analyst]

And the first one is, please, on the order intake you are expecting or seeing for Q4. I know we are still early in the quarter, but you were speaking about an ongoing sequential recovery? So can you quickly confirm as that you would say that the order intake in Q4 should be above Q3. So this would also help us to better understand your comments on the normalized inventory levels? And second question would be, please, logic versus memory. What are your expectations for memory here for the next 2 to 3 quarters? What kind of projects you are seeing on the end users? Is there some smaller visibility that there are larger projects coming into the pipeline into 2020? Or is it really still totally uncertain from your point of view?

[Michael Allison]

Okay. Thank you. I think order intake, as you saw up in Q3, I think we expect order intake to develop reasonably well during Q4. We don't have full visibility to that yet. I would expect it to be up quarter-on-quarter, but how much is too difficult to say at this point. There's still uncertainty in the memory market, which comes into your second question. There's a lot of empty production shelves around the world with some of the large memory players and there's still a little bit of uncertainty how fast these are going to be filled, both in the NAND and the DRAM market. I think we're seeing and hearing that the first activity expected in Q1, Q2 in a few of the larger NAND projects, but I think that will play through Q4. And as I mentioned in my remarks, I think we'll get better visibility to the overall growth of the semiconductor business as we go through Q4. So a little bit foggy, but certainly less foggy than it was a year ago.

[Jörn Iffert, Director and Analyst]

All right. And on the OLED end market, any signs for some recovery into the first half 2020 in terms of project pipelines you're seeing on the customer base?

[Michael Allison]

Sorry, in the OLED market?

[Jörn Iffert, Director and Analyst]

Yes.

[Michael Allison]

Yes. Well, you probably saw the announcement on the Samsung projects. Samsung expects to spend somewhere roundabout 12 billion over the next 4 to 5 years for advanced OLEDs. The first phase of that shall really start in 2020, so we'll definitely see some activity driven by that Samsung investment. We're still seeing reasonably strong OLED shipments into China. I think I mentioned about 60% of our second half revenues is going to the OLED market. The LCD market is certainly slowing, which we expected, and that should be replaced by improvements within the OLED sector.

[Operator]

The next question comes from the line of Sebastian Kuenne from RBC.

[Sebastian Kuenne, Analyst]

I have a question regarding Malaysia. So it looks like the current run rate is about CHF 110 million this spring of output for the year. How much of that building is currently filled with machinery and people? I mean, how much spare capacity do you have there? And the second question is also on Malaysia. I remember the previous management saying, we want more local sourcing there to save cost and to have less air shipments to Malaysia and to the clients there. And what do you currently see as the potential cost savings opportunity there, both in terms of materials and also in terms of personnel costs? And then my last question would be on OLED. I didn't quite get the numbers that you mentioned. So 60% of your flat panel display valves go into OLED. Is that what you said? Or was that another...

[Michael Allison]

Yes, correct. The shipments that we're doing in the second half of 2019, 60% of those shipments are going into OLED production systems.

[Sebastian Kuenne, Analyst]

And this is 10.5G OLED? Or is that...

[Michael Allison]

No, mostly 6. It's still -- the OLED market is mostly generation 6, 6.5. There's some early investment happening in Gen 8 or Gen 8.5, but that's going to be more moving into OLED televisions rather than OLED mobile devices, which are -- really the current manufacturing output is mostly around the mobile market. Okay. So going back to Malaysia. Just to be clear, I said that the Malaysia output right now is up to 22% of our semiconductor revenue, not of VAT's total revenue. So it's below the CHF 110 million run rate. I think that's progressing well. And really, the ramp of that is dependent on a lot of the new platforms that VAT has been developing with our key customers for things like advanced logic. So the faster those businesses ramp, the faster we will fill up Malaysia. Now the strength of the logic market with the recent TSMC results obviously shows that that is looking promising for 2020. So we expect Malaysia to grow on a fairly steady rate during 2020. Yes, we have a lot of efforts in place to improve the local content of valves in Malaysia. We pay a lot of attention to that and measure the percent of local content. But I'm not prepared to give you a percent cost savings at this point, other than to say our midterm EBITDA level of 33% requires these cost savings to come through as well as a little bit improved revenue levels, but it puts us on target to achieve the guidance that we had in EBITDA.

[Operator]

The next question comes from the line from Peter Testa from One Investment.

[Peter Testa, Analyst]

As you noted, there has been some substantial comments out of TSMC in terms of CapEx around 5G, and there's been some other comments from other players around significant business in China. I was wondering if you had seen any participation in those large orders in Q3 or expect in your Q4 comments?

[Michael Allison]

Yes. I mean, we don't normally have a breakdown of the exact segments that our valves go into. But clearly, the Q3, Q4 business that we're seeing has a strong correlation with that advanced logic coming out of TSMC. Yes, the China memory businesses, especially, we're seeing demand coming in from the OEMs around the world. So that's driving that business. There's also some, let's say, smaller CapEx coming out of the large memory players. But I think going back to the first question, I had about some of the larger projects, we'll probably see them starting to kick in, in the first half of 2020. But I think our results mirror the kind of generic market comments that you're seeing from our peers and key customers.

[Peter Testa, Analyst]

Okay. And then if you look at the NAND segment, as you mentioned, there's empty shelves and a number of them are running on, say, below full capacity of existing filled shelves. Can you give some sense as to your discussions with your customers and maybe the memory end customers as to how they're thinking about reengaging with CapEx? What sort of levels do they need to get that utilization back up to a NAND fabs before they need to start thinking about putting in more capacity in filling the empty shelves?

[Michael Allison]

Yes. I mean, our engagement with the end users is mostly around our service business and the upgrades and retrofits. And also we don't get as deep an understanding of what's driving the exact timing of the utilization improvements and the new technology insertions. So it is quite hard to tell. I really don't have that level of visibility. I think it's interesting. I heard that some of the 100-plus NAND level devices are now getting tested and come into market. So those technologies require certainly a lot of the more advanced production equipment, which is good for us, and we'll see shipments there. But still a lot of questions over when the latest DRAM technologies will come to market. There was some comments from -- in the ASML conference call about large increase in the EUV orders, some of which may go to memory. Certainly, advanced logic is the main driver of the EUV shipments. But if that's going to ship to memory, then you're going to be having a whole new series of technology upgrades and probably volume equipment within the DRAM market. But I don't see that happening until at least the second half of 2020. I think the first round of investments will come in the NAND market.

[Peter Testa, Analyst]

Right. Okay. And then just one financial question, please. On your view on EBITDA guidance, given that the sales are going to be up H2 over H2, do you think the EBITDA margin will be up H2 over H2?

[Michael Allison]

No, no, that's -- we're not giving guidance now, but not compared to last year. Last year was still quite a strong second half. So no.

[Operator]

The next question comes from the line of Michael Foeth from Vontobel.

[Michael Foeth, Head of Industrials Team]

Three questions from my side. The first one is regarding the CapEx reduction that you announced. It's quite -- I think quite substantial compared to what you said at -- in August. And my question is really, what triggered the difference or the reduction in CapEx? And will that require any sort of catch up in 2020? Second question would be regarding your current view on total 2020 wafer fab equipment CapEx spend. What's the sort of numbers you're hearing out there? I know visibility is still low, but what sort of range are you looking at? And the third question would be, again, clarification. I'm sorry, I got a bit confused in the Displays business. Did you say that 60% of your displays shipments were going into advanced OLED? Or was it 60% of total valves shipments going into Displays?

[Michael Allison]

60% of our total display valve shipments are going into OLED in the second half of this year.The first question on CapEx reduction. We had fairly substantial CapEx spend in '17 and '18, and we increased the overall footprint quite dramatically to take into account the expected growth at that point within the semiconductor business. So we're pretty well invested in terms of the total machining capability, our clean rooms or buildings, et cetera. Where we have a better CapEx still to spend is more around the assembly lines, and that's really dependent on how fast the semiconductor market comes in and also when the latest platforms are being adopted. So the good thing about that is the CapEx for the assembly lines is very short term. Machine tools, you have to place orders, say, 9 months in advance, whereas the assembly lines are maybe 3 months. So we can meter that CapEx much closer to demand. And at this point, leading into your second question, we see next year as being positive. It's still a bit early to say. The market indicators are saying mid-single digits, maybe averaging around 5%. I've seen estimates from 1% to 10% at this point. VAT may move a little bit ahead of that curve because, obviously, our valves ship to OEMs, and then they ship to the end users. So we're still trying to triangulate our expectations for next year. And then once we see that, we can plan the CapEx around the assembly and maybe a few new machine tools for next year. That's why we're able to very carefully manage the CapEx this year versus what we had to do in '17 and '18.

[Operator]

The next question comes from the line of Marta Bruska from Berenberg.

[Marta Kinga Bruska, Analyst]

Taking the questions, most of them were actually already answered, but maybe just going into the Global Services, you mentioned some delays in order there. I would like to ask how big are typically those orders? And if we should anticipate stronger revenue growth in the fourth quarter?And perhaps as well on the -- on your guidance for the fourth quarter, is it -- what would have to happen in order for you to even exceed that guidance?

[Michael Allison]

Okay. Starting with the Global Services. In the first half of the year, business grew about 9%. I expected that we would have a similar performance in the second half. I'd say that slowed a little bit in the second half, mainly because the volume aspects of service are driven by big upgrade projects, and some of them have been pushed into 2020, just in an effort to conserve cash. And also, especially in the memory segment, the utilization rates of the fabs have dropped compared to the highest level. So our customers have already enough capacity. So some of the productivity enhancements that we offer with our upgrade packages are not required right now. However, as they move to next generations and also require that higher output in the future, I think we're very confident those upgrade packages will be done in 2020. And I think that will drive service above market norms. And I do expect to see around or above the 9% growth rates that we saw in the first half of the year. Your second question was about Q4 development. I think at this point, we're pretty confident in that range we provided. I -- it's getting quite late to pull in too much business for Q4. Maybe there's a few percent higher opportunities will exist, but also the production cycles are such that we wouldn't be able to pull in too much of that. We've also started ramping back up our facility here in Haag. We added about 60 people in late Q2 into Q3. So at some point, labor becomes a challenge to push that revenue up too much. But I think we've got it about right. I think we planned in advance, and that business came through as we expected so we're quite comfortable with the range that we provided.

[Marta Kinga Bruska, Analyst]

Okay. And may I just follow-up on the pricing recovery in the non-memory part of the semi. Was that what you mentioned that you're seeing in the market in Q4?

[Michael Allison]

With our customers or with VAT?

[Marta Kinga Bruska, Analyst]

Yes, with the customers. So in your market comments, you mentioned some pricing recovery in the fourth quarter already. Was it related to the non-memory part of the semiconductors?

[Michael Allison]

Yes. I mean, our pricing doesn't change too much. I think pricing is a big driver of revenues of the chip makers themselves. So the improvement in the memory area has a massive impact on their total revenues. In the non-memory sector, I don't think that's so relevant. I think prices there are probably less elastic as they are in the memory market.

[Marta Kinga Bruska, Analyst]

And you didn't see yet an improvement in the memory pricing -- in the memory part of the market yet? Or -- I got a little bit confused. Or do you already see some improvements there as well?

[Michael Allison]

Well, memory pricing in memory is stabilizing. It's happening on a day-by-day basis at the moment. So I haven't followed the most recent trends, but I think the expectation is during Q4, the NAND pricing will firm up and start increasing again.

[Operator]

The next question comes from the line of Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

I just had a question, maybe this is a question I missed the answer to, but just a percentage of sales this year that will be Display? And I've got a couple of follow-ups.

[Michael Allison]

Yes, we don't normally break down exactly into our segments. We gave one of those numbers in the past. The Display segment is typically around about 20%. That's including solar as well. We look at Solar and Display together. But it's typically around 20% of our sales.

[Robert Duncan Cobban Sanders, Director]

Got it. So yes, it seems everyone talks a lot about this business, but it's quite small. But just in terms of the Display recovery, I think AMAT is talking a bit more conservatively on 2020. What they're saying is, and other people are saying, is that micro LED is coming, which is leading to hesitation by the OLED players in spending more CapEx in the smartphone area. I just wondered if you were seeing any of that starting to be relevant for your recovery in 2020? And I've got one follow-up.

[Michael Allison]

Yes, it's a good question. I mean, we have our Valve technologies used in micro LEDs and micro OLEDs. So it's interesting how that market is developing. They certainly have some cost challenges to get close to the manufacturing cost of OLED, but it certainly offers some benefits in certain types of products. I don't yet have a view. The CapEx in Display is much trickier to read for next year. I agree. I don't think it's going to be a bumper year. I think I'm looking at Display as being fairly flat on 2019, maybe up 5%, something around that. But some of the commentators have talked about Display being up 30% for next year. But a lot of the shipments that we are -- we have in the second half of 2019 go into equipment is going to ship in 2020. So we're already seeing some of that 2020 ramp in 2019. So I expect for VAT that you've got a kind of averaging of '19 and '20. So I don't expect it to be up too high in 2020.

[Robert Duncan Cobban Sanders, Director]

Got it. Yes, that makes sense. Just on the semi side, which specific sort of dep and etch platforms are actually driving the greater valve intensity? Is it dry edge? Is it ALD? And I was wondering, is the move to more single-wafer platforms versus batch a kind of good thing for your SAM because, obviously, it means more tools theoretically? Is that something that's helping you? Or is it multichamber or something else? What is driving that valve intensity in dep and etch?

[Michael Allison]

Etch hasn't changed that much in the last 10, 15 years. The intensity of etch steps is good for VAT. Valve content is quite strong in etch platform, so that drives our market. Any of the new technologies, you mentioned ALD, other deposition technologies, tends to be good for us. At the leading edge, you need high-precision valves, you need extremely high cleanliness. And all these things are good for VAT. So I think I mentioned earlier, we kind of mirror the general growth in vacuum-based CapEx across the market.

[Robert Duncan Cobban Sanders, Director]

Got it. But you're going to outgrow the deposition market because there's a lot of legacy PVD and CVD in there presumably rather than -- that's the key driver...

[Michael Allison]

That's correct. And I think vacuum-related process equipment is growing as a percent of CapEx. So I think we will grow -- outgrow the average CapEx growth by a few percent because of that. The big -- the only big question is the adoption of EUV and how much of the CapEx budget EUV takes up. Yes, we have valve content in EUV, but it is less as a percentage of the equipment spend compared to technologies like dep and etch.

[Operator]

The next question comes from Nigel Van Putten from Kempen.

[Nigel Van Putten, Analyst]

I was dropped from the call so I might have missed some questions on Display. Just a quick then. How is that looking half-on-half in terms of revenue?

[Michael Allison]

Second half of '19 versus first half?

[Nigel Van Putten, Analyst]

Yes, I mean, presumably it's down versus second half 2018, but just trying to get my bearings on sort of the progression throughout the year.

[Michael Allison]

Yes. I'd say second half of '19 versus first half of '19, Display's probably up around 15%, I would say, approximately, without having the exact numbers in front of me, but somewhere in that level.

[Nigel Van Putten, Analyst]

And would that still be consistent with sort of the market being down 1/3 in 2019?

[Michael Allison]

Yes, because I mentioned, you may have missed it, but the -- our shipment to CapEx spend with our customers' timeline is much longer in Display. So there may be a 4- to 5-month time lag between us shipping a valve and when our customers will eventually revenue that within the Display segment. It just takes longer to build and test display tools compared to semiconductor tools. So we're already seeing some of the equipment CapEx spend for 2020, where the market is expecting an increase. We're already seeing that in the second half of '19.

[Nigel Van Putten, Analyst]

Got it. I did miss that. And then maybe a question on your overall customer mix. How is that evolving? I think LAM Research was flagging some share gains overnight. I guess they all do. Do you see any shifts in your sort of core customer base in 2019 and also your expectation next year?

[Michael Allison]

No, we don't report anything to do with our customers' share. So I can't comment on that.

[Operator]

We have a follow-up question from Mr. Sebastian Kuenne from RBC.

[Sebastian Kuenne, Analyst]

A few follow-ups. One is on the EUV machinery itself, I mean, you may not have a large revenue share with EUV directly, but is it fair to assume that you have a 100% market share for these machines in the highest vacuum segment? And then on the pricing of the valves themselves. Is there any change in the pricing environment for you guys? Are there new contracts or negotiations coming up where you see price pressure? And then valves modules, that was a big segment or big story in the past where you said that you can basically squeeze out competitors by offering entire modules, for example, to the etching machinery. What's the current revenue share of those modules? And is there any margin dilution from the product mix?

[Michael Allison]

On EUV, I will never comment on market share as specific customer, so all I can say in EUV is VAT has a strong market share. On pricing, price pressure is a constant in the semiconductor market. VAT is the market leader. We have to offer good value for our key customers. And we constantly work with our key customers, improving their productivity and the performance of their equipment. So we have to do that in a responsible pricing way. So we have continuous pricing negotiations, is something that will never go away. The Modules business, I think we're -- we continue to do well in Modules. When you look at some of the latest platforms, we're, I think, still, continue to gain a better share there. It's quite hard to give a mix of that because the latest platforms are still at very low revenue levels. We won't see them grow until you start to see more volume, 7 nanometers and 5 nanometers. So I think our share gain is very positive in those areas, and we'll see that develop into in 2020 and 2021. But it doesn't really make sense to look at the percent of our semiconductor business at this point because of that.

[Sebastian Kuenne, Analyst]

But as a product itself, if you had -- if you do your cost calculations, it's probably a bit more not commoditized, but putting a frame around 5 valves, probably less margin than the valves themselves? Would that be a fair assumption?

[Michael Allison]

It really depends on the complexity of the chamber and what a customer is looking for. Sure, if we're trying to do a direct replacement of a simple build-to-print chamber, then I probably wouldn't even get involved in that because the margin levels are rather low in that type of business. But what we try to do is look at the design and provide our customer with a more integrated solution that may even include part of the transfer valve being included as part of the chamber. And that provides an overall better solution for our customers and helps us get reasonable margins out of that specific business.

[Sebastian Kuenne, Analyst]

Just final very quick question. Are you aware of any exits from the market from your competitors? Is there -- because I remember, there was some, I think, butterfly valve maker who dropped out of the market, who doesn't offer their products anymore. Did you observe any other smaller exits from the -- especially from the semiconductor side of the valves market?

[Michael Allison]

No specific exits. I think we're making it very hard for our competition by the continued very high spend in R&D that we have. We continue that at a very high level during the downturn in the market and that allows us to provide really strong solutions for our customers. So with the increasing market share we've got and also competition struggling with some of those advanced requirements, we certainly have made it very difficult for them. But no actual exits at this point.

[Operator]

There are no other question.

[Michael Allison]

Okay. So I'll just round up. So thank you for joining. I think it was another strong quarter for VAT. And as we mentioned, we believe we're at the -- coming out of this semiconductor downturn, and looking at a very positive way towards 2020. So thank you very much for joining.