So, but it’s not that the pricing factor has completely disappeared, not at all. The first quarter has actually shown quite a nice contribution from price into the total drop-through.
Sebastian Kuenne: Thank you. And the cost space?
Mats Rahmström: But…
Sebastian Kuenne: Sorry.
Mats Rahmström: No. I was just thinking that internally, when we look at pricing and the effect of pricing, of course, we follow that. But it was more of the gross margin that the acceptance of price increases in the market and I believe that if you look at the 2019 before COVID, we have been able to compensate fully for the inflation and price increases to us and we are on a slightly higher level even. So I think we have done our part in this.
Sebastian Kuenne: And the cost inflation this year, where do you see that and what are the main points we should look out for?
Peter Kinnart: I think it’s the usual suspects. There’s commodity prices that might go up. Transport cost is, of course, on the radar, given the geopolitical situation that might contribute to that. But, overall, for the time being, we believe that, as Mats already indicated, the gross margin is on a healthy level and has actually improved somewhat compared to the pre-COVID era. And so in that sense, we feel that we have been able so far to compensate all cost increases, structural cost increases, I should say, with price increases to the market.
Mats Rahmström: And I think…
Sebastian Kuenne: Thank you very much.
Mats Rahmström: … the real value driver for us is always new products when we generate more value for customers as well, which we don’t see in a price switch.
Sebastian Kuenne: Thank you very much.
Mats Rahmström: Thank you.
Operator: The next question comes from Ben Heelan from Bank of America. Please go ahead.
Ben Heelan: Thank you. I was hoping if you could expand a little bit on the comments in Vacuum around semiconductors and whether you’ve seen any green shoots going into the second quarter and I remember in the last couple of quarters, you talked about cancellations in Vacuum. If you could give us some color about where you are on cancellations in that business? Thank you.
Mats Rahmström: If I start with cancellations, we haven’t seen any specific cancellations in Vacuum Technique or in any other business areas either. It’s very normalized. What we do see, if we look at our own numbers, we can see that the chamber solutions, which is turbopumps and cryopumps that goes into the machine builders, we can see an upswing in business there. They are normally quite early. So that is a positive sign. We can also see that utilization from our customers is up. That is also confirmed that we get more pump repairs back to our service shop for rebuild, and of course, we can see the memory inventories that customers is coming down. So those are the early KPIs that we can see at this point. I wouldn’t read too much into that.
But at least it is positive. It’s been kind of flat for a year and a half. So I think it’s bottom out. And when the big upswing, we believe that there will be a big upswing and there’s this big demand for AI for a lot of applications. But when that’s going to happen, I don’t want to commit to that at this point. But at least a few positive signs in that one.
Ben Heelan: Okay. Great. Very clear. Thank you.
Operator: The next question comes from Andrew Wilson from JPMorgan. Please go ahead.
Andrew Wilson: Hi. Good afternoon. Thanks for taking my question. I just wanted to try, and I guess, understand the comments on China a little bit. We’ve kind of heard this reporting season a few times that almost positive signs on China and potential for sequential improvement in terms of the Q2 versus Q1 and this is a kind of a question on the broader industrial landscape, rather than something specific like semis. And just putting that in the context, obviously, you’ve called out some quite specific exposures in the Q1 being weaker. I’m just trying to get a sense of when you think about if we take sort of Industrial Compressors as a good proxy, how you see that China demand and environment developing as we kind of go into the Q2, and then, I guess, as far as you want to look into the year, just trying to get some sense of that?
Mats Rahmström: Yeah. I mean, I could turn it around, of course, and be extremely positive about China, just looking at the sequential growth. But that is more seasonality that we have seen year after year. So we didn’t read too much into that and we don’t have that in our outlook either. But we have experienced in China, less quotations for the bigger machines and they normally go into big process like battery manufacturing. It could be solar as well. We see that there is less activity in China on those areas. There is a hesitation to place orders and close on programs. For us, we can also see some hesitation in semis, that they are building more on the bigger nodes today, instead of the more advanced nodes. On the other side, they are very committed to the strategy of building an independence on semiconductors.
We can see that they are in the lean, but have overcapacity in the EV manufacturing. So, overall, long-term, we are very positive. They are a key driver in many of the segments. We are also very fortunate strategically that we have invested in China in the full value chain, both for vacuum pumps, for compressors. Of course, the Chinese customers are demanding more and more that it should be local, and as long as we have innovation, and we build and design our products locally, then we have an opportunity to quote as well. So our position is very strong. Long-term, it is a very important market for us in many of the key segments. Short-term though, in this quarter, we have seen a slowdown in the segment that I mentioned. And we don’t know — we don’t see the quotation picking up at the end of the quarter or anything like that.
So that’s why we are optimistic.
Andrew Wilson: Thank you, Mats. That’s very helpful and best of luck with everything going forward.
Mats Rahmström: Thank you so much.
Operator: The next question comes from John Kim from Deutsche Bank. Please go ahead.
