Our strategy builds on 60 years of experience

Digitalization and computing continued to dominate the headlines in 2024. Not a day passed without a mention of some technological advancement or digital development. This has had geopolitical ramifications, with the role of social media as a means of strategic communication under scrutiny and leading-edge chip technology seen as a strategic resource that needs to be restricted. Yet despite the increasing appearance of crevasses in the metaphorical glacier of globalization, humanity has never been this connected. The fact that there are at least seven billion mobile phones in the world and several billion computers and laptops in business and personal use suggests that almost everyone has access to computing. Nearly 70% of the global population has access to the internet on a regular basis, helping people collect information and make decisions every day.

The main requirement for digitalization to progress is the chip industry’s ability to manufacture ever-more powerful chips taking up the same or even less space. This relationship, known as Moore’s Law, was postulated in 1965 by Gordon Moore, the founder of Intel. There is a second relationship between computing power and manufacturing costs, also known as Moore’s second law: as the computing power available to consumers rises, the cost to chip producers increases. The costs of building a semiconductor fab have increased exponentially over time, best demonstrated by the unit cost of EUV lithography tools, which can come to hundreds of millions. Nonetheless, the costs of consumer electronics need to remain the same, as demonstrated by the inflation adjusted unit cost of a modern smartphone, which has remained roughly stable since these devices were introduced in 2006.

There’s not only a need to manufacture smaller chips. Semiconductor companies also have to have the capacity to manufacture mature technology chips, for example those utilized for data measuring and generation, such as sensors and communication devices. While these do not need to be particularly powerful, they have to be more cost-effective and resilient.

There is one more factor that has become an important driver of growth in the semiconductor industry: energy efficiency. As demand for processing and storing data grows and the use of AI proliferates, energy use increases. New data centers around the world are being built with energy generation sites, including nuclear reactors, close by. It is said that in 2026, all data centers globally will use over 1,000 TWh, the same amount of energy as the whole of Japan, a G7 economy.

In October 2024, VAT’s Board of Directors held its annual strategy review meeting to update the profitable growth path laid out in late 2022. Overall, the Board and Group Executive Committee (GEC) did not see any reason to fundamentally change direction, and reconfirmed all the core strategic priorities.

VAT’s core offering – vacuum valves – and adjacent products directly enable our customers to achieve their objectives in chip manufacturing and continue to drive miniaturization, crucial to further digitalization. As node sizes fall even further below 3nm – the industry will be adopting 2nm technology in 2025 – purity in the manufacturing process enables nodes to be manufactured at the atomic-level precision required. As the time required to make a chip increases, with 2nm chips requiring over 2,100 process steps, the risks of manufacturing faults and consequential rejects increase. Chip manufacturers also design manufacturing processes digitally, but in practice, particles and imprecise process control will impact their output. VAT products help minimize the impact of these factors and increase manufacturing yields. Finally, looking at the ownership benefits, the outstanding long life of a VAT valve and the fact that it can be serviced and upgraded over its lifetime allows customers to benefit from a lower total cost of ownership over the course of a valve’s life.

Crucial for success is VAT’s unique combination of vacuum engineering expertise and advanced sealing technology, and its mastery of critical manufacturing skills. VAT’s engineers have developed specialized techniques such as precision milling, parts cleaning, vulcanization, and specialty welding, all tailored to meet the stringent requirements of vacuum valves. This deep technical knowledge enables us to deliver solutions that are not only highperforming and value-adding but durable and reliable as well, further cementing our leadership in this rapidly growing market.

Our commitment to customer-centricity and customization is reflected in VAT’s global account teams. These teams work closely with customers to understand their specific needs and challenges, ensuring that we deliver tailored solutions and maintain them over the life cycle of the customer’s tools. Whether we’re providing on-site support or developing custom engineering solutions, we have followed our customers to wherever they need us, strengthening relationships and reinforcing our position as a trusted partner contributing to their success.

Looking back over 60 years of VAT, the company’s key differentiators have been front and center to success. The unwavering commitment to being a pure-play vacuum solutions provider is the foundation of our dominant position in the global marketplace. The journey began sixty years ago with the development of valve solutions for ultra-high vacuum (UHV) and extreme UHV applications, initially targeting research and tool/plant manufacturers (OEMs) in industries such as coatings and energy requiring critical vacuum applications. Since the 1990s, VAT’s growth has been driven by a strategic focus on leading-edge semiconductor applications and delivering a superior total cost of ownership offering to our customers. VAT has also expanded into customization for large players in the industry by offering customer-specific valve portfolios.

In recent years, the global footprint of engineering and manufacturing has become an increasingly important differentiator, as has the ability to ramp and manage the cycles. Following the supply chain disruptions during Covid, customers have also placed great emphasis on business continuity planning (BCP) and the ability of a crucial supplier such as VAT to avoid becoming a bottleneck. The result can be seen not only in revenue growth, but more importantly in specification win rates and the corresponding growth in share of wallet, where we have primarily replaced our customers’ own components and allowed them to focus on their core competencies around wafer processing.

VAT has implemented a flexible operating model guided by the 30/30 rule, aiming to maintain 30% EBITDA even during a year with a 30% year-over-year decline in revenues – a likely scenario in the cyclical businesses VAT operates in. This flexible operating model, supported by strict cost control and continuous cost-down activities, has enabled the company to consistently meet its margin guidance targets. Our best-cost country (BCC) sourcing strategy is expected to increase the BCC share from 25% in 2022 to over 55% by 2027, further positioning VAT to remain flexible and competitive in evolving market conditions.

It is also critical to invest ahead of the cycle to justify the single source status we seek. Solid business continuity planning (BCP) and rapid response to increased demands are a must if we are to earn the trust of our customers and have the ability to deliver our products in all market conditions. Our recent investments in capacity and capability in Malaysia and Switzerland and the ongoing build-out of Romania are a testament to this strategic approach.

VAT’s success story will continue as demand for vacuum environments continues to grow. Our established 77% market share in valves in semiconductors serves as a baseline. Customer-centricity is the driving force behind creating value for our customers, which in turn translates into trusted long-term partnerships and business success for VAT. Providing premium services and products will enable us to deliver a compelling total cost of ownership (TCO) benefit to our customers and allow them to focus on their key competencies – the chip manufacturing process. A key component of customer-centricity is listening. Understanding our customers’ applications, systems, and challenges is crucial. To maintain trust, we need to respond quickly, keep our commitments, and consistently deliver excellent quality and results.

In the core semiconductor business which represents approximately 85% of 2024 revenues, VAT is continuing the key initiatives based on this market position to drive growth going forward.

 

Further develop the core

We need to continue to drive growth in the largest market we serve, semiconductors, and expand our existing position. Leveraging technology and know-how will enable leading-edge and best cost/performance solutions throughout the product life cycle. Differentiation is achieved by offering customized solutions, focusing on innovation and our core competencies. This initiative also benefits from two main trends: the increasing overall use of vacuum in chip manufacturing processes, and the increasing number of process steps, which require more chip manufacturing tools to be installed.

 

Grow with adjacencies

VAT will generate further growth by leveraging its existing capabilities in design, engineering, and purity, to harness adjacent opportunities in the vacuum space in areas such as advanced modules, motion, and bellows. As the industry develops advanced chip designs such as 3D silicon stacking and advanced packaging technologies, VAT can also provide support with tailored solutions. Besides the above-mentioned developments in manufacturing, OEMs are increasingly outsourcing non-core value-add functions to reduce complexity and focus their investments, providing opportunities for VAT to offer high-end, plug-in modules.

 

Grow with complementary products and vacuum system solutions

Industry roadmaps call for more advanced vacuum technologies in adjacent and complementary fields. Increased component dynamics, repeatability, cleanliness, and temperature requirements are just a few examples of the technological improvements required. VAT’s vacuum solution approach builds on strong expertise in pressure control, and we aim to expand our expertise and product offering further. As a testament to this, in 2024 VAT successfully launched its first ALD valve as part of this solution-based strategy.

Innovation is at the core of VAT’s semiconductor business. Our technology lead is maintained by a consistently high R&D budget – typically about 5 to 6% of sales every year – and execution by a team of around 400 scientists and research engineers. We maintain a portfolio of some 500 patents, and focus on R&D as a driver of future business growth and as a market entry barrier. Investments thus remain stable even in phases of lower market activity. VAT measures the success of its R&D efforts partly by the number of new specification wins and agreements with customers on new product designs addressing specific requirements for upcoming generations of new equipment. Winning a specification is therefore important, as it secures business in the future when it translates into revenue as the customer rolls out new tools and equipment over the subsequent three to seven years. In 2024, VAT succeeded in securing a new record number of specification wins, predominantly in leading-edge technologies. In 2024, 132 wins were achieved, giving VAT a clear view of future sales and market position. With the completion of the Innovation Center in Haag in 2025, VAT will employ 400 engineers on site with dedicated labs and cleanrooms to pave the way for the next generation of specification wins with our customers. In the GSE business unit, the main focus is to leverage the vast installed base of around 1.7 million vacuum valves in operation to generate further repair and upgrade business over the life cycle of a VAT valve (up to five times new business product sales). Growth in services in recent years has been driven by the expansion of our product and service offering (consumables, spares, repairs, and upgrades/retrofits) and our global footprint. To deliver sales growth and value-add to our customers, VAT has embarked on initiatives such as the establishment of eight local service centers globally for repairs, the build-out of engineering capacities, and the early identification of service procedures for newly launched products.

Finally, in the ADV business unit, which was the starting point for VAT’s success 60 years ago, we continue to leverage capabilities and resources developed for semiconductors for other industries and applications that require UHV environments. The vacuum products on offer incorporate effective technologies that have already been developed and produced, and which have a real-life track record. ADV focuses on five distinct end markets, including scientific instruments and medical, coating, targeted industries, power generation, and research. We continue to assess new markets with a focus on applications that benefit from our product portfolio and require additional customization, while providing the same compelling TCO proposition to our customers.

At the last Capital Market Day in December 2022, VAT issued a set of financial targets for the period 2022 to 2027. Based on the visibility it has, VAT believes that it is on course to meet the targets based on the assumptions shared at the time. These assumptions are based on a 2027 wafer fab equipment (WFE) spend of about USD 135 billion and a US dollar/Swiss franc exchange rate of 0.95 to 1.

Current WFE investment forecasts for 2027 have declined somewhat relative to the company’s assumptions in late 2022. Nonetheless, like-for-like results remain in line with the prior guidance, also including foreign exchange developments, which constitute a strong headwind. On this basis and including new estimates of revenue to be generated from service and adjacent technologies, VAT reiterates its 2027 net sales guidance of between CHF 1.8 billion and CHF 2.2 billion. The EBITDA margin is forecast to remain in the 32% to 37% range over the cycle, while return on invested capital (ROIC) is now expected to be above 45%, compared with above 40% for the prior target period.