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Entegris Inc (NASDAQ:ENTG)
Q4 2020 Earnings Call
Feb 2, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to Entegris Fourth Quarter 2020 Earnings Release. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Bill Seymour, VP of Investor Relations. Please go ahead, sir.

Bill Seymour -- Vice President of Investor Relations

Good morning, everyone. Earlier today, we announced the financial results for our fourth quarter and full year of 2020. Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties, and actual results could differ materially from those projected in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we have filed with the SEC. Please refer to the information on the disclaimer slide in the presentation.

On this call, we will also refer to non-GAAP financial measures as defined by the SEC and Regulation G. You can find a reconciliation table in today's news release as well as on our Investor Relations page of our website at entegris.com.

On the call today are Bertrand Loy, our CEO; and Greg Graves, our CFO.

With that, I'll hand the call over to Bertrand.

Bertrand Loy -- President and Chief Executive Officer

Thank you, Bill, and good morning, everyone. Throughout the pandemic our priority has remained the same, ensuring the safety of our Entegris' colleagues and value partners. I'm proud of what we have achieved here during this challenging year, all the while delivering for our customers.

Turning first, to our fourth quarter performance, I would start by saying that I'm pleased with our results and the strong close to a record year. In the fourth quarter, sales grow 21% year-on-year and 8% sequentially, above our guidance. Year-on-year, growth was strong across all three divisions, as we benefited from several node transitions and strong overall demand for our products and solutions. While gross margins declined in Q4, we leveraged lower opex into adjusted EBITDA growth of 4% sequentially and 19% year-over-year. Finally, fourth quarter non-GAAP EPS of $0.71 was above our guidance, up 29% year-on-year, and up 6% sequentially.

Looking at the full-year 2020, we achieved record sales, up 17%, while sales were up 14% on an organic basis, which means, we outperformed the market by several hundred basis points for the year. This significant outperformance was driven, in large part, by our strong position and wins with leading-edge solutions like, liquid filtration, advanced deposition materials, fluid handling solutions and other areas of increasing importance to our customers. In 2020, we once again showcased the leverage in our model with EBITDA flow through of close to 40%, translating into strong EBITDA growth of 24%, EPS growth of 32% and free cash flow, up almost 70% excluding the net Versum termination fee from 2019.

Our focus on operational excellence paid dividends during the year. Even in the backdrop of the challenges of the pandemic, we achieved our best year on record in quality and safety. Our quality levels were 100 times better than just 10 years ago at 5.25 Sigma, and the injury rate was the lowest level ever.

During the year, consistent with the framework we laid out in our Analyst Day, we allocated a total of more than $417 million of capital, which included reinvestments in our business in the form of $132 million in capex and $136 million in R&D. And we returned almost $90 million to shareholders in dividends and buybacks.

In addition, last year we completed two acquisitions, Sinmat, which makes CMP slurries for silicon carbide and gallium nitride substrates and GMTI, a leader in the design and production of high-precision analytical instruments for CMP and formulated cleaning chemistries. These acquisitions are good examples of the types of technology and applications we want to add to the Entegris platform; high quality, value accretive, differentiated businesses in high-growth markets.

I am also very proud of last year's launch of Entegris' Corporate Social Responsibility Program. The program represents a strong commitment by the management team and the Board of Entegris, recognizing the responsibility we have to our people, partners, the environment and our communities. We did set ambitious goals for each of our four CSR pillars, which are closely connected, not only to our value system, but also to the value proposition of Entegris and our business strategy. There will be more to come in CSR and ESG later this year.

Wrapping up 2020, our excellent performance showcased the strength of our team's execution and our highly resilient differentiated, unit-driven business model. I cannot say enough how proud I am of the dedication, ingenuity and perseverance of our team demonstrated during such a challenging year.

Looking ahead, we continue to be very optimistic about the long-term fundamentals of the semiconductor market, accelerating chip demand and a higher proportion of wafers, produced at the leading edge provide a great base for very attractive secular industry growth. On top of this, at Entegris, we are benefiting from the growing importance to device architectures of the two intersecting themes of process materials and materials purity. We expect these key trends will continue to result in our rapidly expanding SAM and increased Entegris content per wafer.

For 2021, specifically the semi-market outlook appears to be very healthy, driven by an expected rebound in global GDP, strong overall chip demand and robust industry capex investments, bolstered by strength in 5G, high-performance computing, PC and a recovery in automotive and industrial demand.

Looking at our own business, we expect our sales growth in 2021 to range from 11% to 13%. Let me unpack that for you. To start, for the full-year 2021, we expect the market based on our unit capex mix will be up approximately 7% to 8%. And given our strong position and wins in the new technology nodes, we expect to outperform the market by approximately 300 basis points to 400 basis points, consistent with what we laid out during our recent Analyst Day. On top of this, we expect approximately 100 basis points of growth from sales of our Aramus high-purity bags used for the distribution and storage of the COVID-19 vaccine. Summing all these items up, gives us our 11% to 13% sales growth expectations for 2021. And we expect the EBITDA flow through of our model to continue to be in line with our target model. And we expect to achieve a full-year 2021 non-GAAP EPS in excess of $2.85.

In conclusion, I am very pleased with the performance and the resilience of our business in 2020, and I am excited about our prospects in 2021. Lastly, I want to thank our customers for the trust and confidence they place Entegris. And again, thank you to the Entegris teams around the world for their incredible efforts and attitude.

Now, let me turn the call to Greg. Greg?

Gregory B. Graves -- Executive Vice President and Chief Financial Officer

Thank you, Bertrand. The fourth quarter was another record for Entegris. Q4 sales were $518 million, above the high end of our guidance, and up 21% year-over-year, and 8% sequentially. Q4 GAAP diluted EPS was $0.63 per share. Non-GAAP EPS of $0.71 was above the top end of our guidance range, and up 29% year-over-year, and 6% sequentially.

Moving on to gross margin, GAAP and non-GAAP gross margin were both approximately 45% in Q4, versus our guidance of approximately 47%. The lower-than-expected gross margin was driven primarily by three factors. First was a discrete inventory valuation adjustment in SCEM. Second was the impact of lower factory utilization as we made a deliberate effort to reduce inventory levels across the Company, and we experienced weak demand in our non-semi businesses. And third was manufacturing inefficiencies related to capacity additions for significant new product ramps. We expect gross margin to improve sequentially, and be approximately 45.5%, both on a GAAP and non-GAAP basis in Q1. We also expect gross margin will improve throughout the rest of the year, and be approximately 46.5% for all of 2021.

GAAP operating expenses were approximately $118 million in Q4 and included approximately $14 million of non-GAAP items from amortization of intangible assets, integration and other costs. Non-GAAP operating expenses in Q4 were $104 million, which was in line with our guidance. We expect GAAP operating expenses to be approximately $118 million to $120 million in Q1. We expect non-GAAP operating expenses to be approximately $104 million to $106 million in Q1.

Q4 GAAP operating income was $113 million. Non-GAAP operating income was $127 million or 24.5% of revenue. Adjusted EBITDA was approximately $148 million or 28.7% of revenue. EBITDA margin for the year was 29.2%, up 170 basis points compared to 2019.

During the fourth quarter, other income, which is usually pretty minimal, was positive $5.3 million. This was driven by our foreign entities balance sheets benefiting from a weak US dollar.

Our GAAP tax rate was 18.6% and our non-GAAP tax rate was 19.1% for the quarter, lower than our guidance of approximately 21%. For the full-year 2021, we expect both our GAAP and non-GAAP tax rate to be approximately 19%. It's worth noting for modeling purposes, that the first quarter typically has the lowest tax rate of the year.

Turning to our performance by division. Q4 sales of $169 million for SCEM were up 15% year-over-year, and up 12% sequentially. The year-over-year growth was primarily driven by advanced deposition materials, cleaning chemistries, specialty gases, advanced coatings and a modest impact from the Sinmat acquisition. On a sequential basis, growth was primarily driven by specialty gases, advanced deposition materials and advanced coatings. Adjusted operating margin for SCEM was 18% for the quarter, down over 400 basis points sequentially. The decrease in operating margin was primarily related to the weakness in non-semi business, and a discrete inventory valuation adjustment, previously mentioned.

Q4 sales of $206 million for MC were up 21% from last year, and up 6% sequentially. Liquid filtration and bulk gas purification drove the sales growth both year-on-year and sequentially. Adjusted operating margin for MC was 35%, up modestly both year-over-year and sequentially. The year-over-year and sequential margin increase was driven primarily by higher volumes and solid cost management.

Q4 sales of $152 million for AMH were up 29% versus last year, and up 5% sequentially. The sales increase was driven by growth across all major product platforms, the impact of the GMTI acquisition, and sales of our Aramus high-purity bags used for the COVID-19 vaccine, that Bertrand referenced. Another item that impacted AMH sales in Q4 was catch-up royalty income earned from Gudeng Precision, related to the recently announced licensing agreements associated with the use of our reticle pod technology for both conventional and EUV lithography. Adjusted operating margin for AMH was 23%, up 500 basis points year-over-year, and down slightly sequentially.

Fourth quarter cash flow from operations was very strong at $204 million, driven by significant working capital improvement. For the full year, cash flow from operations was $447 million, and free cash flow was $315 million, and as Bertrand said, up almost 70% versus 2019, excluding the net Versum termination fee we received in 2019.

Capex for the quarter was $52 million and for the full year was $132 million. In 2021, we expect to spend approximately $200 million in capex. Three quarters of that spend will be for growth investments. This level is higher than the 7% to 8% of sales we target for annual capex spend. However, there are couple of unique investments I'd like to highlight. The first is related to capacity additions to accommodate the rapid expected growth of the high-purity bags for the COVID-19 vaccine. The second and more significant item is $40 million in capex for the first stage of a three-year to five-year $200 million investment in our new facility in Taiwan that we announced last year. This new facility will ultimately support all three of our divisions.

Consistent with our capital allocation strategy, during Q4, we used approximately $11 million for our quarterly dividend, and we repurchased $15 million of our shares. For all of 2020, we repurchased approximately 780,000 shares at an average price of $57 per share.

Now for our Q1 outlook. We expect sales to range from $510 million to $525 million. We expect GAAP EPS to be $0.61 to $0.66 per share, and non-GAAP EPS to be $0.69 to $0.74 per share.

In summary, I would like to express my gratitude to the entire Entegris team for an amazing year in 2020, especially considering the challenges we faced with the pandemic, and a strong revenue ramp throughout the year.

Operator, we'll now open up for questions.

Questions and Answers:

Operator

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions] And we'll take our first question from Mike Harrison with Seaport Global Securities.

Mike Harrison -- Seaport Global Securities -- Analyst

Hi, good morning. Congratulations on the nice finish to the year and the strong guidance here. I was wondering if you can talk a little bit about some of the key applications that are driving the better sales outlook than, I think, some of us for modeling. Maybe talk a little bit about how much of the outperformance would be related to the share gains, and to revenue synergies from some of your recent acquisitions? And also talk about how much additional tailwind you should be getting from node transitions as we get into 2021?

Bertrand Loy -- President and Chief Executive Officer

Lot of questions here, Mike. So I would say that -- so first of all, thank you for the nice comment, and we are indeed very excited about the prospects going into 2021. The industry backdrop is strong. But as you pointed out, we expect to meaningfully outperform the industry once again by about 300 basis points to 400 basis point in our core semiconductor applications, and then by about 100 basis points coming from a new initiative in life science. As it relates to the core semi outperformance, it will be just a continuation of the themes we develop during the recent Analyst Day. So it's really about capitalizing on the new opportunities that we see for our liquid filtration, deposition materials, etching chemistries, in the new advanced memory and advanced logic architectures. As you understand, there are opportunities for us to improve the Entegris content per wafer, those advanced nodes, and we intend to fully capitalize on that in 2021 as more wafers are produced at those advanced nodes. And then as I was mentioning, there is something new for us in 2021 and that is the great success that we've been able to generate a lot of interest for this bag, with the unique attributes that is proving to be extremely important for the storage and transportation of the COVID-19 vaccine. And we saw some interesting uptick in sales in Q4, and we expect 2021 to be a breakthrough year for this application.

Mike Harrison -- Seaport Global Securities -- Analyst

All right. And then on the non-semiconductor business weakness, can you just talk a little bit about whether that was related to underlying market weakness or more timing? And maybe comment also on what you're seeing in automotives? We're hearing that there is some shortages going on in chips there. Thanks.

Bertrand Loy -- President and Chief Executive Officer

Yeah. So I think you're probably referring to the comment that Greg made around the significant earn absorption that we saw in some of our non-semi initiatives. And I think, mostly it relates to the graphite product line. This particular material is used across a broad array of industrial applications. And as we mentioned few times during 2020, this particular business was under severe pressure. I think that this business is down essentially 30% in 2020, as compared to the 2019. And remember that we had actually added significant capacity about a year ago, hoping to capitalize on new opportunities -- new industrial opportunities, which obviously did in 3D [Phonetic] pan out in 2020. We've seen some recovery in this business in Q4, but certainly not enough really to offset the very, very slow start to the year.

Mike Harrison -- Seaport Global Securities -- Analyst

All right. Thanks very much.

Bertrand Loy -- President and Chief Executive Officer

Sure.

Operator

Next we'll go to Toshiya Hari with Goldman Sachs.

Toshiya Hari -- Goldman Sachs -- Analyst

Hi guys, good morning, and thank you very much for taking the question. Bertrand, I had two questions for you guys, if I may. First one on the full-year outlook. You spoke to a potential growth rate of 11% to 13% for Entegris in 2021, which is obviously very, very strong. That said, I guess, if we take the midpoint of your Q1 guidance -- revenue guidance and if we sort of flat line that throughout the remainder of the year, we sort of get to the midpoint of that 11% to 13% range. Typically knowing your business things, sort of, strengthened throughout the year, am I missing anything or are there any concerns into the second half? And how should we think about your full year guidance? And then I've got a quick follow-up.

Bertrand Loy -- President and Chief Executive Officer

Sure. Well, I think the way you want to think about Q1, which I think is really at the heart of the question is, how to think about the Q1 outperformance or how to think about the 2021 outperformance in the context of the Q1 guidance. And the way I would probably answer the question is to remind you that a lot of the node transitions happened later in 2020. In that, Q1 2019 -- Q1 2020 was also where we experienced a strongest headwinds from COVID-19. So in other way, Q1 2020 was obviously somewhat of an easier comparison for us.

Toshiya Hari -- Goldman Sachs -- Analyst

Understood. And then as my follow-up, just on gross margin, maybe this one is for Greg. You mentioned a couple of items that drove gross margins a little lower relative to guidance for Q4. Curious if any of these were kind of more structural in nature or were they all sort of transient one-time issues? And how should we think about gross margins, not just for 2021 but throughout the next couple of years? Thank you.

Gregory B. Graves -- Executive Vice President and Chief Financial Officer

Yeah. So, hi Toshiya. First of all, I'd say that the issues around the gross margin were really non-systemic. And we had probably the best year that we've had in the last five in terms of ASP erosions and nothing there, no meaningful changes in the material input dynamics. So, primarily discrete in nature. So the fees related to the inventory adjustment, that simply won't recur. And then, we'll look for -- Bertrand already commented on that specialty materials business, and we'll look for some increases in volumes to help us out there. But, I mean, if you look at the margin by division and the gross margin issue is essentially all related to SCEM. So as we think about -- we guided to 45.5% for Q1 which is up slightly from Q4 and pretty much in line with where we were for the full year in 2020. We think 46.5% for all of 2021, and then I would expect it to -- the gross margin to have slight upward bias over the next couple of years as volumes continue to improve.

Toshiya Hari -- Goldman Sachs -- Analyst

Thank you very much.

Operator

[Operator Instructions] Next we'll go to Sidney Ho with Deutsche Bank.

Sidney Ho -- Deutsche Bank -- Analyst

Thanks for taking my questions and congrats on the strong quarter and guide. Just going back to the 2021 outlook, up 11% to 13%, can you maybe talk about the growth expectations by segment? And if I look back in history, your revenue for the calendar years typically second-half weighted, maybe 48% [Phonetic] in first half. Do you think this year will be much different from that trend?

Bertrand Loy -- President and Chief Executive Officer

So Sidney, the way I would first answer the question is saying that we expect the micro contamination and SCEM divisions to really lead the growth in 2021, expect those two divisions to grow in the mid-teens. And then I would expect AMH to be probably in the high-single-digit on a full-year basis for 2021. In terms of the shape of the year, I don't think we want to go too deep in details here, but I think directionally, I think you're right. I would expect more new fab construction projects later in the year and that will benefit our capex business later in the year. And as you know, there are many customers that are also planning on a number of significant node transitions later in the year, which should also positively impact our business as we proceed deeper into 2021.

Sidney Ho -- Deutsche Bank -- Analyst

Okay. That's helpful. And then my final question is, last quarter, the trend you talked about, there was some pull-in from Chinese customers ahead of export controls. Have you seen those activities become more normalized or are they still building wafers and inventory and whatnot? And also related to that, are you -- do you guys have any issues shipping products to SMIC right now?

Bertrand Loy -- President and Chief Executive Officer

Okay. So first on -- in terms of the inventory build, we saw more of that in Q4, and I would say that on a full year basis, we estimate that a little less than 1% of our top line probably was a function of some of our customers, mostly Chinese customers, building up some inventory. Right now, as a result of that, we expect hopefully more clarity, more transparency from the new US administration, and we would expect that trend to subside in 2021. As a matter of fact, we expect most of our Chinese customers to consume the investor -- the inventory that they had been building up in 2020, and as a result, right now, forecast -- we estimate our China business to be essentially flat versus 2020.

When it comes to SMIC, I would say that at a practical level, we spend a lot of time -- there are two components to that. The products that we manufacture outside of the US, and after careful analysis of our bill of materials, we have reached the conclusion that US content for those products is de minimis, and therefore we are currently shipping to SMIC from all of our non-US locations. For the US-made products, we have put all of the shipments on hold right now and we are applying for licenses, and we're waiting for approval. And we have no reason to believe -- based on our current understanding of the rule, we have no reason to believe that those licenses would be denied. But again, we won't know for sure until we get the approval.

Sidney Ho -- Deutsche Bank -- Analyst

Thanks for the detailed explanation. I'll get back again.

Bertrand Loy -- President and Chief Executive Officer

Thank you.

Operator

Okay. Next, we'll go to Patrick Ho with Stifel.

Patrick Ho -- Stifel, Nicolaus & Company -- Analyst

Thank you very much and congrats on a great quarter and a nice 2020. Bertrand, first off, in terms of your outlook for 2021, the last few years, you've talked about new products like the advanced deposition and the liquid filtration being key drivers for your outperformance. As we look ahead to 2021, do you have anything, I guess on the new products front that gives you excitement over the next few years where you'll start seeing some of the ramp-up in 2021?

Bertrand Loy -- President and Chief Executive Officer

So, Patrick, I will probably be very boring and broadly tell you just much of the same. We believe that our advanced filtration and purification solutions will continue to be increasingly important for the industry, and that trend is not going to stop anytime soon as some customers continue to transition to more challenging architectures. And I think if you recall what we presented during the analyst day, Jim O'Neil, our CTO, described to you in great detail how our deposition materials and our selective edge chemistries will be essential for the higher layer count architectures in memory [Indecipherable] around technology in advanced logic. So again, those will be the products -- well, those were the products that drove the growth in 2020, and I would expect the same products to drive the growth in 2021 and beyond.

Patrick Ho -- Stifel, Nicolaus & Company -- Analyst

Great. That's helpful. And maybe my follow-up for Greg. You had a great working capital quarter in December, which drove the strong cash flow generation. One key detail with hyper-linearity you saw just given how you were able to collect DSOs very well? And two, do you expect to get some -- I guess, normalized levels in the March quarter?

Gregory B. Graves -- Executive Vice President and Chief Financial Officer

Yeah. So, Patrick, yeah, first of all, thanks for noticing that. Our team would be --we talked a lot about working capital management. Our team will be happy to notice that people are paying attention. So, that's great. So first of all, on DSOs, so best quarter that I can -- that I remember. I mean, our DSO is coming over 47 days. But we also benefited from the fact that -- and I think we've talked about it before -- the calendar year ends right on the end of a sort of a calendar quarter, whereas the other quarters this year ended a few days before the calendar quarter. And when you end a few days before, you don't end up collecting until the calendar quarter. A lot of Asian customers pay right on the day. So that was -- while DSOs were down, but a fair amount of the benefit related to ending right on the calendar day. So -- and then to think about inventory, that's been something we've talked about all year long, that our turns were 3.5 times, which is the best levels we've had in probably about eight quarters. So we felt good about what the team did there as well, especially given sort of the business volumes we're facing.

Patrick Ho -- Stifel, Nicolaus & Company -- Analyst

Great. Thank you very much.

Operator

Next, we'll go to Weston Twigg with KeyBanc Capital Markets.

Weston David Twigg -- KeyBanc Capital Markets -- Analyst

Hey. Thanks for taking my question. I just wanted to dig into a couple of revenue streams here. First, on the Aramus bags. It sounds really interesting you gave us a growth estimate for this year. But can you help us just kind of figure out roughly how large that business was in Q4?

Bertrand Loy -- President and Chief Executive Officer

Hi, Wes, no, this is -- this is certainly a business that has experienced explosive growth. If you look back at 2019, revenue for this product line was about $1 million. On a full year 2020, that number is just above $10 million, and we would expect that product line to reach and hopefully exceed $30 million in 2021.

Weston David Twigg -- KeyBanc Capital Markets -- Analyst

Okay. That's very helpful. And then similarly for the graphite -- sorry, go ahead.

Bertrand Loy -- President and Chief Executive Officer

Just maybe -- yeah, just maybe -- a little bit of context here. You -- I think all know that we don't really have many product lines that would exceed $50 million in annual top line. So we are really considering this Aramus product line as growing. A very strategic product line, obviously.

Weston David Twigg -- KeyBanc Capital Markets -- Analyst

I guess actually just following up on that. Do you -- do you see that as this new vaccine technology by Moderna and Pfizer, as it comes out -- as rolled out and maybe other vaccines are maybe using the same technology as this, is this going to become a standard packaging and transportation product across more vaccine lines, do you think?

Bertrand Loy -- President and Chief Executive Officer

So I think that -- I would actually even expand that -- the description of the market opportunity. What we're really targeting are the novel biologic therapy, so think about vaccine antibodies and cell therapies, not just around the fight against COVID-19 but really in oncology and other type of therapeutical areas. So, again, what our customers really like in these bags are the fact that they are uniquely resistant to very, very cold temperatures, they're not brittle, and they can withstand gamma sterilization. So, this is a -- two very, very unique attributes in the marketplace for these bags, and this is why they are getting so much attention right now.

Weston David Twigg -- KeyBanc Capital Markets -- Analyst

Okay. That's very helpful. And then I just wanted to ask about the graphite business. I think you mentioned that it's starting to recover. Can you remind us -- your main product lines -- I think -- I know that there is exposure to films, for example, but -- and then what would drive a recovery in that graphite business this year to get some of that -- get the utilization rates up a little bit in the new factory capacity space?

Gregory B. Graves -- Executive Vice President and Chief Financial Officer

Yeah, so, well, the said business is a pretty diverse business. I mean, we're selling graphite that's used for cutting application -- metal cutting applications under the electronic discharge machining business. We're selling into the glass forming market, including glass forming for handset applications. We have an aerospace part of the business, there is a medical part of the business. So very diverse. The part of the business that was weakest last year was primarily that core industrial business, the machining related business as well as the business that we sell into the handset market. And we have -- we saw improving trends in that business in Q4, and we expect to see better trends when we look at the full year 2021.

Weston David Twigg -- KeyBanc Capital Markets -- Analyst

Okay. That's helpful. Thank you.

Operator

Okay. Next, we'll go to Paretosh Misra with Berenberg.

Paretosh Misra -- Berenberg -- Analyst

Thank you. Good morning. What do you expect to be the bigger driver of this 3% to 4% performance in this year? Would that we logic or memory? And any contrast you could provide between last year and this year with regard to the key technological transitions that are going to take place this year?

Bertrand Loy -- President and Chief Executive Officer

So Paretosh, I -- let's start maybe with 2020. I mean, we saw very significant increase in our memory market. We grew close to 30% in memory. The growth in logic was also very attractive. It was in the 20% in advanced logic. And I would expect the opportunities going into '21 to be very much of the same nature, again more wafers being produced at 96 layers and higher, and that's going to drive more consumption of the new materials and the cleaning chemistries I was describing, and, of course, we expect a very strong environment for advanced logic with more advanced logic wafers being produced in 2021. So I would say that memory will probably still be the primary driver, but advanced logic will be a very close second.

Paretosh Misra -- Berenberg -- Analyst

Thanks for the color, Bertrand. And my second question was just about the competitive landscape. So, given the strong industry demand that Europe [Phonetic] also forecasting, 7% to 8% for next year, are you seeing increased competition from suppliers, and if there are any specific products where you're seeing more competition, either from any Western producers or local Asian producers?

Bertrand Loy -- President and Chief Executive Officer

Well, never take success for granted, and we continue to focus intensely on making sure that our differentiation is very real and very unique. And I would say that as of right now, we feel very good about our competitive position and this is one of the reasons why we have that degree of confidence in our ability to outpace the market in 2021 and beyond.

Paretosh Misra -- Berenberg -- Analyst

Great. Thanks, guys, and good luck in 2021.

Bertrand Loy -- President and Chief Executive Officer

Thank you.

Operator

Next, we'll go to Chris Kapsch with Loop Capital Markets.

Christopher John Kapsch -- Loop Capital Markets -- Analyst

Yeah. Good morning. Just following up on the outperformance relative to the industry that you mentioned. I think you said that the skew toward SCEM and MC segments, and then in the last question, you mentioned that it's really probably going to be led by memory and then advanced logic. But I'm curious like, to the extent that the outperformance is led by memory, it sounds like it's deposition materials and therefore SCEM. I'm wondering, within -- given the strong outlook for revenue growth within MC, does that also skew memory or is it balanced across memory and logic foundry? Any color on that? And then a -- one follow-up.

Bertrand Loy -- President and Chief Executive Officer

Yeah, I think, I mean, look, the need for higher purity levels exists both in advanced logic and advanced memory. To your point, that -- those requirements are more stringent in advanced logic. But advanced memory is catching up really quickly. And I think we had a slide during the recent Analyst Day talking about that and then trying to frame that on a per wafer basis. So you are correct in your statement that advanced logic will be still the primary driver for microcontamination, but again, memory may be a close second on this one. And then the opposite would be true for SCEM with memory being the primary driver and advanced logic being the close second. I think one of the uniqueness of the Entegris platform is that we have exposure to all segments: memory, logic, chemical manufacturers, OEMs, and we have tremendous opportunities across all of those segments. And I think that's what is behind the resilience of our business model. And frankly, I think that's what gives us the strength and the conviction that we have in -- in our growth prospects.

Christopher John Kapsch -- Loop Capital Markets -- Analyst

Okay. Thanks for that. And then just a follow-up is that, you mentioned that in terms of revenue growth in 2021 the mid-teens in SCEM and MC and high single-digit in AMH. And given that MC is your highest margin business and then given that the driver probably in SCEM is these advanced products that come with higher margins, so the -- the connecting the dots, it seems like the implication for your margins might be higher than what you've directionally talked about. So I guess the question is, is there -- is there some -- is this drag -- maybe this way you can quantify the drag in the graphite business on the SCEM segment in the fourth quarter and are you expecting that to persist into and through '21 or any way to reconcile that -- that strong growth in the highest margin segments vis-a-vis the more muted margin improvement expectations? Thanks.

Bertrand Loy -- President and Chief Executive Officer

Okay. So a lot there, Chris. So let's first talk about the -- the operating margin, which I guess is tangential to the gross margin in SCEM. So the vast majority of that headwind that we experienced would be non-recurring in nature. I referred to an adjustment related to inventory. That was about 1% of gross margins across the Company, but it was all within SCEM. That's not going to persist. The volumes that we talked about as being a headwind, that was also in the SCEM business. We expect those volumes to improve throughout the year. We're not necessarily expecting a big snap back in Q1, but do expect those volumes to improve throughout the year.

So, when you think about the three divisions, I mean, we're already on the target with regard to AMH. We were already on our three-year target with regard to the MC business. So I mean, can they do better than they're doing? Sure. But I mean at 35%, they're sort of right in the middle of our long-term target. And then -- yeah, kind of in a nutshell, I mean, you're right. I mean, the advanced products are the faster growing products. So mix should play an important role in the margin as well.

Christopher John Kapsch -- Loop Capital Markets -- Analyst

Okay. So I guess just -- I'll -- first about my modeling, but it just sounds like maybe there is -- is there some other mix drag in 2021 is maybe there is some upside to the overall margin profile relative what you...

Bertrand Loy -- President and Chief Executive Officer

So I -- so we said 46.5% for the year, which is up from where we finished the full-year 2020. I'm not -- if you're looking for me to say there is upside on that -- I mean, coming off the quarter, that was 45%. So it's not -- I'm not in the mood to push the number for 2021. We said 46.5%.

Christopher John Kapsch -- Loop Capital Markets -- Analyst

All right. That's helpful. Thanks for the color, guys.

Operator

Okay. Next, we'll go to Krish Sankar with Cowen and Company.

Krish Sankar -- Cowen and Company -- Analyst

Yeah. Hi. Thanks for taking my question and congrats on the really strong results. Bertrand, I have two questions for you. The first one is on the memory. It looks like your memory sales is going to grow year-over-year this year. Are you still seeing mostly no transition from customers? And if so, if and when they go to capacity, how would that impact your memory sales? And then I got follow-up.

Bertrand Loy -- President and Chief Executive Officer

So, yes, I think we are certainly seeing and expecting a lot of node transitions in memory. I think we are early in the year. So we are seeing plans, we are having all of the right discussions in terms of getting ready for those transitions. But we've learned the hard way in this industry to not get ahead of yourself to -- I mean, some of customers sometimes choose for a number of reasons to delay their node traditions, and at this point in the year, I think we're just looking at a very attractive table I'm looking at it as I'm speaking of planned node transitions. It's like looking at a menu and celebrating in a nice restaurant. But I mean, we want -- we want to see those node transitions happening. The other big factor that I was mentioning is that we expect a lot of wafers to be -- to be run at 96 layers and higher. I think in 2020, about 50% to 60% of the wafers were at 96 or higher. I expect that number to be 70% to 75% in 2021. So that's going to help us, obviously, as well.

And you got a second question?

Krish Sankar -- Cowen and Company -- Analyst

Yeah. And then I had a follow-up on Sinmat. Clearly, looks like that business has tremendous potential. I'm just kind of curious, when do you think it's going to be meaningful to numbers. Do you have to wait for silicon carbide to be used in all electric vehicles in 2024 time frame? Or do you think it can scale up before that?

Bertrand Loy -- President and Chief Executive Officer

I think it will be a steady progress. I mean, we are working with a number of customers that have aggressive capacity addition plans. And as those gallium nitride and silicon carbide substrates are more broadly adopted in electric vehicles, I think we're going to see that business grow very nicely on a -- in a very steady basis for the next few years. So I agree with you.

Krish Sankar -- Cowen and Company -- Analyst

Thank you.

Bertrand Loy -- President and Chief Executive Officer

I think it's a very promising business for us.

Krish Sankar -- Cowen and Company -- Analyst

Thanks, Bertrand. Appreciate it.

Operator

Okay. Next, we'll go to David Silver with CL King.

David Cyrus Silver -- CL King & Associates -- Analyst

Yeah. Hi. Thanks. So I have kind of a more quarter-related question and then maybe a more strategic one. But in the fourth quarter, I was hoping you might be able to add a little color to the inventory adjustment or what came behind that. So in other words, was that a collection of items that are maybe part of a normal year-end true-up. Or, what I'm kind of wondering is, Bertrand, you've talked about new deposition materials being a focus of the SCEM unit, and I'm wondering if the -- the timing of the inventory valuation adjustment you took signals a transition to a new technology or a new material within your portfolio. So are you phasing out kind of current generation products and transitioning to maybe a new ADM or other type of product? Thanks.

Bertrand Loy -- President and Chief Executive Officer

Yeah. So, David, first of all, let me say in our relative deposition materials, the vast majority of it related to one immaterial issue that sort of built up -- built up over a series of quarters. We noticed that something didn't quite look right on one of our inventory lines at one of our manufacturing plants, and as we analyzed it, we sort of used to correct it. It was as simple as that. I mean, it was all -- I mean -- I said it was about 1% of gross margin. The vast majority of that -- 75 basis points of that related to one item and then we had another small inventory adjustment as we moved one of our new businesses onto SAP.

David Cyrus Silver -- CL King & Associates -- Analyst

Okay. Thank you for that. And then just kind of a big picture question and following up, I think, on an earlier question about trends in the automotive side of things where a number of companies have expressed an inability to receive the required number of chips. I'd also say, I guess there was an announcement in the last day or two that I kind of thought was unusual, but the Taiwan economic minister made a statement where he was kind of directing the domestic chip industry to maximize production for up chips for the global automotive industry. And I'm just wondering if you could maybe provide a little bit of background there. I mean, I'm not aware of kind of this type of shortage situation permeating such a large industry and to the point where I guess government officials, or at least publicly kind of directing the industry to maybe prioritize some chip production types over others. I'm just wondering how you kind of interpret those items and whether that will have an effect on the types or the rates at which your businesses are in demand over let's say the next few months.

Bertrand Loy -- President and Chief Executive Officer

So, I cannot comment on what is behind the announcement by the Taiwanese government, but what is behind those trends is that many, many of the automakers are migrating their chipsets away from 65 or 45 nanometer processes to 28 and below. And that's positive for us because it means that more wafers will be produced at more advanced nodes, where we have higher Entegris content. So again, it's just part of the general trend that we've been flagging. I think it's true for high-performance computing, but it's becoming increasingly true for automotive and other industrial applications as well. And that's very positive for the industry and that's very positive for Entegris.

David Cyrus Silver -- CL King & Associates -- Analyst

Okay. Great. And then just one last one, maybe for Greg. But the op -- the other income, I guess, the unusually somewhat higher than normal profit on that line, is that the royalty income issue you cited or is that due to something else?

Bertrand Loy -- President and Chief Executive Officer

No, no, it's an issue that -- it really relates to technical. I mean, the way we value dollar-denominated assets in legal entities where the functional currency is other than the dollar. It's strictly a balance sheet thing, it's not a cash flow thing but it relates to the consolidation of our legal entities. When the dollar used -- I mean, the dollar has been relatively stable, so we haven't seen much of that in the recent past. It's really a function of the dollar weakening against other currencies, but it's a non-operating item. That's why it's below the line.

David Cyrus Silver -- CL King & Associates -- Analyst

Got you. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Bill Seymour -- Vice President of Investor Relations

Bertrand Loy -- President and Chief Executive Officer

Gregory B. Graves -- Executive Vice President and Chief Financial Officer

Mike Harrison -- Seaport Global Securities -- Analyst

Toshiya Hari -- Goldman Sachs -- Analyst

Sidney Ho -- Deutsche Bank -- Analyst

Patrick Ho -- Stifel, Nicolaus & Company -- Analyst

Weston David Twigg -- KeyBanc Capital Markets -- Analyst

Paretosh Misra -- Berenberg -- Analyst

Christopher John Kapsch -- Loop Capital Markets -- Analyst

Krish Sankar -- Cowen and Company -- Analyst

David Cyrus Silver -- CL King & Associates -- Analyst

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