MKS Instruments Inc

ITEM 1A.RISK FACTORS.

Information regarding risk factors affecting our business is discussed in the section entitled Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the U.S. Securities and Exchange Commission on February 25, 2025 (the Annual Report). The risk factor disclosure in the Annual Report is qualified by a new risk factor disclosure set forth below related to tariffs and other trade restriand the sections.

If significant tariffs or other trade restrictions on our products or components that are imported from or exported to certain countries, for example, China, continue or are expanded, our business, financial condition and operating results may be materially harmed.

In recent years, trade tensions between the United States and China, and since early 2025 between the United States and its other trading partners, have increased substantially, resulting in broad trade restrictions. These trade restrictions include tariff increases, additional sanctions against specified entities, and the broadening of restrictions and license requirements for specified end-uses of those of our products that are subject to these restrictions, including restrictions surrounding specific product groups, applications and/or end uses.

Recently, in April 2025, following several rounds of progressive increases, the U.S. government imposed a 145% tariff on Chinese imports and China responded with a 125% tariff on U.S. goods. At the same time, the U.S. government imposed a baseline tariff of 10% on products from all other countries (with certain exceptions), along with an additional reciprocal tariff targeting countries with which the United States has the largest trade deficits. While the reciprocal tariffs are currently paused, the 10% baseline tariff remains in place. Separately, in April 2025, the U.S. Department of Commerce initiated an investigation under Section 232 of the Trade Expansion Act of 1962 into the national security implications of imports of semiconductors, semiconductor manufacturing equipment (SME), and their derivative products. Upon conclusion of the investigation, the President will decide whether to act in response to any identified threats, including by imposing additional tariffs, modifying or rescinding exemptions, or taking other such actions as deemed appropriate.

The U.S. government has also imposed global tariffs on certain critical raw materials, including steel and aluminum, and certain products, such as passenger vehicles and light trucks. Further, the Chinese government has imposed trade restrictions on certain rare earth elements critical to many advanced manufacturing, computing and defense application. The continuation or expansion of the scope or amount of such global raw ma entitled Risk Factors in our Quarterial or product-based tariffs could significantly increase our costs or have an adverse effect on the end markets we supply Report. Attempts to mitigate the impact of tariffs could cause us to sub-optimize operations, increasing our cost to operate. They will also increase the cost of our materials and lead us to apply surcharges or raise prices, which could reduce demand for our products. Customers and end-users may delay, reduce, or cancel spending on projects involving our products, negatively impacting demand and our financial results. Our mitigation efforts and price increases may not fully offset the impact of tariffs and may result in lowering our margin on products sold. If the U.S. government expands or adopts additional tariffs, or if other countries retaliate, the resulting trade barriers could have a significant adverse impact on our suppliers, our customers and on our business. The volatility and unpredictability of international trade policies and conditions add further complexity to our operations, making it challenging to forecast and plan effectively. We cannot predict the future trade policy of the United States or of any foreign countries in which we operate or purchase goods, or the terms of any trade agreements or their impact on our business. The continued adoption and expansion of tariffs, quotas and embargoes, the occurrence or threat of a trade war or other governmental action related to tariffs or trade agreements or policies, has the potential to adversely impact demand for our products, our costs, our customers, our suppliers and the world and U.S. economies, which in turn could have a material adverse effect on our business, operating results and financial condition.

In addition, Entity List designations and military end-user controls have been significantly expanded, as have some rules relating to items produced outside the United States that incorporate more than de minimis levels of U.S. controlled content or that are derived from (i.e., the direct product of) U.S. origin technologies, equipment or software. In October 2022, the U.S. Department of Commerces Bureau of Industry and Security (BIS) implemented new and novel restrictions related to end-uses in semiconductor, semiconductor manufacturing, supercomputer, and advanced computing, along with certain equipment used to develop and produce them, as well as controls around the activities of U.S. persons in certain markets, including China. These regulations, which BIS has amen on Form 10-Q for the period ended several times since initial publication (as amended, the BIS Rules), have resulted in, and may in the future result in, loss of business, both directly to China end-customers, and indirectly through our OEM customers, as well as additional export license requirements on shipments of our products, parts and supplies, and associated increased administrative burdens. For example, as a result of the initial BIS Rules promulgated in late March 31, 2022, we experienced an annual loss in net revenues of approximately $200 to $250 million, most of which was realiz5 filed in 2023. The extraordinary complexity of these rules, combined with their continued modification and the likelihood of further amendments from BIS, significantly increases our risk of non-compliance, which could result in fines and other penalties, and could change how these rules impact us. The  U.S. government and other government agencies may promulgate 

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new or additional export licensing or other regulations that have the effect of further limiting our ability to provide certain products and services to customers outside the United States, including China. The U.S. government may also revise or expand existing regulations or issue guidance clarifying the scope and application of these requirements, which could change the impact of these rules on our business and manufacturing operations. While we continue to adjust our policies and practices to ensure compliance with these regulations, and seek to mitigate their impact, there can be no assurances that current or future regulations will not have a material adverse effect on our business.

Since the beginning of 2019, regulatory changes have been implemented at an unprecedented pace, which increases the resources needed to monitor and comply with regulations, while heightening the risk of non-compliance. Such regulatory changes include the addition by BIS of China-based Huawei Technologies Co., Ltd. (Huawei), Semiconductor Manufacturing International Corporation (SMIC), Yangtze Memory Technologies Corp (YMTC), NAURA Technology Group, Piotech, Inc. and many of their respective affiliates onto its Entity List. Accordingly, we have implemented additional monitoring processes and suspended orders from these companies as well as other designated Chinese-based customers, where those orders are subject to U.S. jurisdiction. We have also been negatively impacted by the cancellation of orders from customers who are suppliers to these firms. In addition, BIS has modified the Foreign Direct Product, De Minimis and military end-use rules, expanded the scope of products and technologies that would require licenses for military end-uses, primarily in China, and expanded the list of military end users, mostly in China, further limiting our sales. At the same time, BIS and the U.S. Department of Defense have also added numerous China-based companies, including companies with which we do business, to the Unverified List, and Chinese Military Companies list, respectively. Placement on such lists may be an indication of additional future restrictions by the U.S. government, as was the case with YMTC, which was added to the Unverified List in October 2022 and was then added to the Entity List in December 2022.

Increased restrictions on China have led to and may continue to lead to regulatory retaliation by the Chinese government and further escalate geopolitical tensions between China and Taiwan. For example, in 2019, Chinas Ministry of Commerce announced an unreliable entity list under which non-Chinese entities that cut off supply to Chinese companies may be subject to government action. Because many of the mechanisms for being named to the list, removed from the list, and enforcement remain ill-defined and unavailable to the public, the potential impacts of the regulation remain unknown. In addition, in 2023, China adopted export curbs on crucial raw materials, including gallium, germanium, and graphite, that had both direct and indirect adverse impacts on our business and supply chain. In December 2024, the Chinese Ministry of Commerce imposed stricter export control restrictions on the export to the United States of gallium, germanium and other materials with potential dual-use applications, thereby increasing the adverse impact on our business, costs and supply chain. More recently, in April 202ecurities and Exchange Commission on May 8, 2025, China implemented a new ban on the export of certain rare earth minerals, including yttrium, which is a critical component used in the manufacturing of our lasers. As a result, we expect to encounter challenges in sourcing this critical material, along with higher costs and potential supply chain disruptions, which may materially harm our business, financial condition and operating results. 

The ongoing geopolitical tensions and economic uncertainty between the United States and its trading partners caused by recent tariffs, Entity List and military end user designations, foreign-made product rules and the BIS Rules, and the unknown impact of current and future trade regulations, may continue to increase costs, as well as restrict our ability to sell, or decrease demand from customers to purchase, our products, directly and indirectly, which could materially harm our business, financial condition and operating results. This trade uncertainty has caused, and may continue to cause, customers to delay or cancel orders, as they mitigate the risk to their own supply chain and cost exposure by sourcing from locally based suppliers or suppliers based in other countries. Such delays and cancellations could have a material impact on our business, financial condition and operating results. It is possible that additional trade restrictions will be imposed, and that existing tariffs will be increased on imports of our products or the components used in our products and/or that our business will be impacted by additional retaliatory tariffs, policies that favor domestic industries, or restrictions imposed and/or increased by China or other countries in response to existing or future tariffs. These developments could cause us to lose additional sales and customers, incur increased costs and lower margins, seek alternative suppliers, raise prices or make changes to our operations, any of which could materially harm our business, financial condition and operating results.which section is incorporated herein by reference.