Summary
- Entegris demonstrates operational resilience but lacks evidence of recovery, with flat revenue, compressed margins, and incremental deleveraging in Q3 2025.
- Its growth has been driven more by acquisitions than organic expansion, resulting in elevated leverage and muted returns relative to peers.
- Long-term prospects hinge on successful post-acquisition integration, improved efficiency, and sustainable organic growth amid a structurally growing semiconductor market.
- At $92 per share, Entegris offers no margin of safety; current valuation assumes margin and return improvements not yet supported by operational performance
Entegris Inc.’s (NASDAQ:ENTG) Q3 2025 performance confirms operational resilience but not yet recovery. Revenue is flat, margins remain compressed, and deleveraging is only incremental. The short-term results reflect a still-subdued semiconductor spending cycle.
But the more important question for long-term investors is whether the company’s underlying business model and capital discipline can translate scale into sustained, high-return growth.
This review looks at a decade of Entegris’ performance to uncover the structural drivers of its competitiveness and the underlying constraints that may limit value creation. By looking beyond quarterly swings, I hope to identify whether Entegris’ strategic evolution has built a business capable of organic, compounding growth and durable economic advantage.
Business model
Entegris is a global supplier of advanced materials, specialty chemicals, and microcontamination-control solutions for the semiconductor and high-technology manufacturing industries.
Most of Entegris’ products are consumables used repeatedly in wafer-fab operations, creating recurring demand tied to wafer-start volumes. Its revenue is therefore heavily volume-driven, closely correlated with semiconductor production activity and customer capital-expenditure cycles.
Entegris’ long-term value proposition lies in enabling yield, purity, and process reliability for semiconductor manufacturers. The demand for advanced semiconductor materials is a double-digit growth one, as exemplified by the following:
“The global advanced materials for semiconductor market size was valued at USD 50.4 Billion in 2023… Growing at a CAGR of 12.10% from 2023 to 2033.” Spherical Insights
“The global Advanced Materials for Semiconductor market size will be USD 53,624.1 million in 2025…with a…CAGR of 13.10% from 2025 to 2033.” Cognitive Market Research
Over the past decade, Entegris has transformed from a contamination-control and materials-handling specialist into a materials-led, purity-anchored solutions provider. Its portfolio is now tightly focused on semiconductor consumables, with greater content per wafer and a clearer two-segment structure that mirrors how advanced fabs buy and operate their critical process modules.
While this strategic shift helped lift Entegris’ top line by roughly 13% CAGR over the past decade, the growth was not driven solely by market tailwinds. A portion stemmed from acquisition-driven expansion, most notably the 2022 purchase of CMC Materials, which broadened Entegris’ reach into advanced planarization and process materials.
The company’s disclosures show that it broke down its annual revenue growth into organic (volume and pricing), acquisitions/divestitures, and foreign currency effects. My review of the 2015–2024 filings indicates that organic growth accounted for the majority of the reported increases, as summarized in Table 1.
Table 1. Revenue growth components 2015 to 2024
However, this “organic” growth figure inherently reflects the compounding effects of prior acquisitions, which become part of the organic base in subsequent years. Viewed through this lens, capital deployment provides a more balanced perspective.
Over the past decade, Entegris spent approximately $ 2.0 billion on capital expenditure versus $ 4.3 billion on acquisitions. This simple ratio suggests that inorganic expansion, not organic growth, was the main driver of scale.
Absent its acquisition program, Entegris’ growth trajectory would likely have trailed overall market expansion. This implied a gradual erosion of market share on an organic-only basis.
From a strategic standpoint, while Entegris has evolved impressively in scope and capability, its growth quality has been more acquisition-led than organically compounding.
Moats
I believe that a big part of its business model was to establish a strong competitive advantage based on the following:
- Intangibles. Entegris has specialized IP/know-how across membranes, purification, chemical synthesis, gas delivery, and high-purity packaging.
- Switching costs and customer embeddedness. Once specified and qualified, replacing Entegris’ material/filter/container can threaten yields and time-to-market. Its broader solution scope increases attachment points per wafer and makes Entegris part of customers’ workflow and specifications, raising replacement hurdles.
- Cost advantage. Its process-intensive, ultrapure manufacturing with global redundancy is hard to replicate. The scale and quality systems reduce unit costs, improve yields/lead times, and raise rivals’ catch-up costs.
Unit economics
Over the past decade, operational profit grew at the same pace (13 % CAGR) as revenue. This was despite the changes in the business profile. Chart 1 provides some clues for this performance.
There was hardly any margin expansion. The current gross profit margin (and the corresponding contribution margin) is about the same as those a decade ago.
Similarly, while there was better cost control over fixed costs from 2015 to 2021, as reflected in the declining fixed cost margin, the current fixed cost margin seemed to be around the 2015 level.
In terms of operating leverage, the % of fixed cost compared to the total cost (fixed + variable) also seemed to hover around 44%. With this cost structure, any increase in revenue would translate into higher profits.
The picture that emerged is that profit growth was driven more by topline growth rather than margin expansion, better control over fixed costs, or improved leverage.
Furthermore, there seemed to be some underlying stability in the various components driving the profits. Moving forward, better profits will continue to depend on topline growth.
Chart 1: Margins and Operating Profit Profile
Note to Op Profit Model. I broke down the operating profits into fixed costs and variable costs.
- Fixed cost = SG&A, R&D, Depreciation & Amortization
- Variable cost = Cost of Sales - Depreciation and Amortization.
- Contribution = Revenue – Variable Cost.
- Contribution margin = Contribution/Revenue.
I must admit that the numbers contradict the management messaging. Entegris’ filings reveal a strong and enduring focus on improving operating efficiency and productivity.
“…significant investments in our new KSP facility in Taiwan and our facility… will enhance our operational excellence.” 2024 Form 10k
The flat gross margins and no improvement in the fixed cost margin seem to be at odds with management intention.
Reading between the lines, it would appear that these efforts have enabled the company to maintain its margins and costs. Without these, there could be a deterioration in the business unit economics.
Relative analysis
I compared Entegris’ performance with the following publicly listed peers cited by the company.
Air Liquide (EPA: AI). This is an industrial gases and advanced materials supplier with a dedicated Electronics division serving chip fabs. It overlaps in electronic specialty gases and materials delivery/purity solutions critical to wafer processing.
DuPont de Nemours, Inc. (NYSE: DD). This is a diversified specialty materials company. Its Electronics & Industrial segment provides chemistries and materials for semiconductor manufacturing. It competes with Entegris in formulated cleans, etch, and other materials that drive yield and device performance.
Linde plc (NYSE: LIN). This is a leading industrial gases company (Praxair is now part of Linde) with offerings for semiconductor process gases and delivery. It competes in safe delivery and ultra-high purity gases used in implant and deposition steps.
Merck KGaA (XETRA: MRK). This is a global science & technology company whose Electronics (ex-EMD Performance Materials) unit supplies specialty electronic materials to the semiconductor industry. It directly overlaps with advanced electronic materials used in deposition/CMP and other front-end steps.
Shin-Etsu Polymer Co., Ltd. (TSE: 7970) is a manufacturer of polymer-based semiconductor materials and wafer carriers/FOUPs. It is a direct competition in wafer handling/micro-environment products that protect purity and yield.
As shown in Table 2, Entegris is among the smaller players in terms of the 2024 revenue, but had the better revenue growth rate from 2015 to 2024. Note that several of the peers have wider product ranges and, as such, take the peer comparison as directional.
Table 2: Peer revenue
Note to Table 2
a) Except for Shin-Etsu (March), all the others had Dec as the financial year-end.
b) The years in the peer analysis were based on the financial years.
I compared Entegris’ peer performance based on several metrics shown in Charts 2 to 4. Overall, I would rate its peer performance as average to slightly above average based on the following.
Strengths
- It achieved a top-2 ranking in return on capital (ROC) in half of the decade, which indicates strong operational capability in favourable conditions.
- It had the best growth in free cash flow margin, showing improving cash generation efficiency over time.
- EPS growth placed it solidly mid-to-upper relative to its peers (No. 3), which reflects consistent earnings expansion.
Weaknesses
- It had the highest average debt‐to‐capital ratio. This indicated increased financial risk relative to peers — a drag on the risk side of the equation.
- The volatility in key metrics (return on capital, free cash flow margin) signals more exposure to cyclical swings than some peers.
- It experienced a decline in return on capital over the full ten-year period showing some structural pressure.
Chart 2: Peer Revenue and LT Debt to Capital Ratio
Chart 3: Peer Return on Capital and EBIT Margin
Chart 4: Peer Free Cash Flow Margin and EPS
Notes to Charts 2 to 4:
- Compared to its peers, Entegris had the highest (worst) average debt-capital ratio over the review period.
- In terms of the return on capital, Entegris occupied the top 2 positions for 5 out of the 10 years, so it ranked No. 2 in terms of the average return on capital over the review period. But it also occupied the bottom 2 positions for 4 years. It was also among the 3 panel companies that experienced a decline in the return on capital from 2015 to 2024.
- Entegris ranked No. 3 for both the average EBIT margin over the review period as well as for the growth in EBIT margin from 2015 to 2024. From 2015 to 2024, it managed to improve its EBIT margin at 4% CAGR.
- Although Entegris ranked No. 4 in terms of the average free cash flow margin over the review period, it had the best growth rate for the free cash flow margin from 2015 to 2024. At the same time, it also ranked No. 2 for the variability of this metric.
- Entegris ranked No. 3 in terms of the EPS growth rate from 2015 to 2024.
Financial position
I have some concerns about its financial position. While it had a good cash flow from operations picture, this was slightly offset by a number of negative points.
From 2015 to 2024, it generated an annual positive cash flow from operations every year with a good overall cash flow conversion ratio. During this period, it generated $ 3.9 billion in cash flow from operations compared to its cumulative PAT of $ 2.1 billion.
However, it had the following negative points:
- As of Sep 2025, it had $ 400 million in cash and short-term investments, equivalent to 5 % of its total assets.
- It had a debt capital ratio of 50% at the end of September 2025. This is still high relative to the past decade's average ratio of 40%. I have earlier pointed out that it had the highest ratio among the peers.
- Over the past decade, it had an unsustainable average Reinvestment rate (Reinvestment/NOPAT) of 170 %. I defined Reinvestment = CAPEX & Acquisition – Depreciation & Amortization + increase in Net Working Capital.
- This high rate is due to its 2022 acquisition of CMC Materials. Excluding the acquisitions, the Reinvestment rate dropped to 26 %
- Over the long term, I would expect the Reinvestment rate to follow that given by the fundamental growth equation of growth = Return X Reinvestment rate.
- I would not rate its capital allocation plan over the past decade as good. Refer to Table 3. This is because the cash flow from operations was not enough to cover its acquisitions and CAPEX. In mitigation, the high acquisition was due to the 2022 acquisition of CMC Materials.
Table 3: Sources and Uses of Funds 2015 to 2024
Prospects
Entegris’ long-term prospects remain tied to the secular expansion of the semiconductor materials ecosystem. But the pace and quality of that growth will depend on how well it executes post-acquisition integration and manages balance sheet leverage.
- Market context. The advanced materials segment should grow at a double-digit pace over the next decade as chipmakers move to EUV, 3D NAND, and gate-all-around nodes.
- Growth drivers. Entegris’ strategy to increase content per wafer positions it well for node transitions. The CMC Materials acquisition expanded its reach while ongoing fab localization reinforces demand for trusted high-purity suppliers.
- Execution challenges. Much of the past growth came from acquisitions rather than organic expansion. Entegris must now deliver integration synergies, improve productivity, and reduce leverage to strengthen financial flexibility.
- Efficiency outlook. Operational-excellence programs should sustain margins despite cyclical headwinds. Stable unit economics over time suggest limited scope for margin expansion.
Entegris operates in a structurally growing market with durable technological moats. Its near-term success will depend on extracting merger synergies and boosting organic growth. Long-term value creation will hinge on translating scale into higher returns rather than incremental acquisitions.
The Q3 2025 results underscore stable top-line trends but continued margin compression, reflecting weaker utilization and product-mix headwinds. Improved free cash flow and slight debt reduction suggest gradual balance-sheet repair, yet earnings leverage remains constrained until semiconductor volumes recover.
Valuation
Given the prospects, I valued Entegris based on the following assumptions.
- The base revenue would be the 2024 review. Over the valuation period, revenue would grow at a 13.3 % CAGR compared to the past decade growth rate of 13 %.
- The EBIT margin and capital turnover would be based on the past decade's average margin to reflect the cyclical values. I assumed that there would not be any changes to these values.
- The Reinvestment rate would follow those given by the fundamental growth equation.
- The tax rate would be the past decade's average tax rate (excluding the 2023 tax credit year).
On such a basis I obtained an intrinsic value of $ 72 per share compared to the market price of $ 92 per share (31 Oct 2025). There is no margin of safety.
Valuation model
I valued Entergris based on the multi-stage valuation model as shown in Table 4.
Table 4: Sample valuation
Notes to Table 4.
- Proportionate change
- Pegged to growth rate
- Assumed no change
- Based on the past decade average restructuring, legal and non-op costs, growing at 4% pa.
- Revenue X Margin, and after accounting for Other costs
- Assumed proportionate change
- b X f
- FCFF for each year = e - g
- Refer to the WACC table
- NPV for each year = (h X j)
- Terminal for the year discounted at the terminal growth rate
- 5 years NPV + terminal value
- Inclusive of any excess TCE. Non-operating assets, MI, and Debt
- Based on the number of diluted shares
- The WACC was based on the Google Search for “Entegris WACC” as summarized in Table 5.
Table 5: Cost of capital
Risks and limitations
I would consider my valuation as an aggressive one based on the following.
- 19 % return on capital in the terminal year compared to its historical average of 11 %. The highest average return on capital achieved by the peer was achieved by Merck at 19%.
- 17 % EBIT margin in the terminal year. This is comparable to its past decade average EBIT margin of 17 %. The highest peer average EBIT margin over the past decade was achieved by Merck at 20%
You will note that I did not assume any improvement in the operations. My reverse-engineered model showed that the market price represents a scenario where the EBIT margin would improve proportionately to be 25% higher in the terminal year, all else being the same.
I have earlier mentioned that over the past decade, Entegris managed to improve its EBIT margin by 4% CAGR. By this measure, the 25% is not impossible. But I would argue that my valuation model is based on the past decade's average EBIT margin. The market is suggesting that it can deliver improvements to the cyclical average.
To deliver this improvement, there must be both margin expansion and fixed cost control. I have shown that the track record for this is poor. But even if the company can deliver this improvement, there is still no margin of safety.
The other key variable in my valuation model is the Reinvestment rate. The 13.3 % revenue growth would probably involve some acquisitions and this has to be funded. Historically the company had an unsustainable average Reinvestment rate because of its acquisitions.
In my valuation, I assumed that the Reinvestment rate would follow that given by the fundamental growth equation from Year 1. This would require significant improvements in the capital efficiency immediately. There is no track record for this.
For example, asset turnovers over the past 3 to 4 years were lower than those a decade ago. Gross profitability (gross profits/total assets) over the past 3 to 4 years were about half of that in 2015.
It is obvious that if the Reinvestment rate can only be improved slowly, the free cash flow generated in the earlier years would be low. In other words, the intrinsic value would be lower than $ 72 per share.
Conclusion
Entegris has evolved into a strategically important supplier within the semiconductor materials ecosystem. This was underpinned by durable moats in process know-how, customer embeddedness, and high-purity manufacturing capability.
Its transformation from a handling and contamination-control specialist to a materials-led solutions provider has created a more defensible and scalable business model. However, a part of its growth over the past decade has been acquisition-driven rather than organically compounding.
While this strategy expanded capability and market reach, it also elevated leverage and muted returns relative to peers. Operational execution has been steady rather than efficiency-led, with margins largely stable despite repeated management focus on “operational excellence.”
Looking ahead, Entegris’ long-term outlook remains supported by secular semiconductor growth and rising materials intensity at advanced nodes. Yet, near-term upside depends on realizing post-CMC synergies, improving efficiency, and demonstrating sustainable organic growth.
At the current market price, the shares imply a level of margin and return improvement that is not yet evident in the operating record. As such, I do not consider this an investment opportunity from a value investment perspective.
Investment Thesis
Entegris is a high-quality franchise in a structurally growing end-market with real moats. But its growth has been largely acquisition-driven rather than organically compounding. Profit gains tracked revenue, suggesting no structural margin or efficiency improvement. The next phase is an execution test - to convert scale into synergy, stronger organic growth, and better capital efficiency. Unfortunately, the market price appeared to have run ahead of these fundamentals.
Editor’s Note: The article is from H.C. Eu who blogs at Investing for Value. He is a self-taught value investor and has been investing in Bursa Malaysia and SGX companies for more than 20 years. His value investment experience has been enhanced by both his Board experiences and his contacts with controlling shareholders of many of Bursa Malaysia’s listed companies. These have given him a unique opportunity to be able to analyze and value companies differently from other research houses. If you enjoyed this piece, you can find similar pieces and other value investing tips in his blog.
