Q4 2020 Lam Research Corp Earnings Call

July 29, 2020

[music] Good day and welcome to Lam Research is June quarter.

Earnings Conference call at this time I would like to turn the conference over to Tina Korea. Please go ahead.

Thank you operator, thank you and good afternoon, everyone welcome to the Lam Research quarterly earnings Conference call.

With me today, our Tim Archer, President and Chief Executive Officer.

And does that and Gerry executive Vice President and Chief Financial Officer.

During today's call, we will share our overview on the business environment and review our financial results.

For the June 2020 corridor, and our outlook for the September 2020 corridor.

The press release detailing our financial results.

What's distribute it a little after one o'clock PM Pacific time this afternoon.

The release can also be found on the Investor Relations section.

The company's website.

Along with the presentation slides.

That accompany today's call.

Today's presentation and queuing today includes forward looking statements that are subject to risks and uncertainties.

Reflected in the risk factors.

Disclosed in our SCC public filings.

Please see accompanying slides in the presentation for additional information.

Today's discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified.

A detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings press release.

This call is scheduled to last until three o'clock PM Pacific time.

A replay of this call will be available later this afternoon on our web site.

With that I will hand, the call over to Tim.

Thank you Tina and welcome everyone.

The global pandemic volatility in the macro economy.

I'm going you as trying to tensions we're operating this year amid tremendous uncertainty an unprecedented challenges impacting people all over the world.

We see technology, playing a critical role.

Keeping people conducted enabling businesses to remain productive and accelerating solutions to the myriad of problems. The world is confronting.

I'm very pleased with how lambs employees have demonstrated care for each other and our communities and have responded with great effort to support our customer success.

As a result of their outstanding execution today, we are reporting strong performance for the June period, and guiding to another quarter of solid growth.

Specific to the Cobot 19 pandemic, our teams have demonstrated agility and resolve this doubling safe and effective protocols to perform essential work in our facilities.

Also enabling the majority of our employees to remain productive while they continue working remotely.

We have ramped in stabilized our supply and production capability. After an initial period of disruption to support revenues greater than $3 billion per quarter.

As you have seen from our guidance, we will be nearing record output levels for the company in the September quarter, highlighting the effectiveness of our business continuity plans, our global manufacturing network and our trusted supply chain partners.

We will continue to capture learnings to further improve business resilience and better serve our customers in the future, but overall I am proud of what our employees and partners have accomplished during this challenging period.

Before discussing our results for the quarter I wanted to comment briefly on our review of the new rules regarding sales of semiconductor equipment into China.

China remains an important part of the global semiconductor ecosystem and Lam has a solid track record of business in this market.

We're closely monitoring and complying with all regulatory directives and based on our assessment. We currently see no material financial or business impact from the new rules.

Turning now to the June quarter.

Revenue and EPS came in above our expectations.

Operating margins improved sequentially, and we generated over $800 million in cash from operations.

As the September quarter guidance indicates we see continued positive momentum as we move into the second half of the year.

The results also represents sustained progress towards our long term objectives.

As mentioned earlier.

Our guidance indicates we are nearing prior record level revenue, but we believe that our opportunity for growth remains robust.

Key points supporting our view include one memory investments must continue to grow to meet secular demand drivers.

Lams memory mix year to date as slightly below 60% of system revenues is well below historic highs.

We expect our strong memory position to drive outperformance in share of WFP spend as NAND and DRAM investment levels increase.

To access.

To improve our foundry logic salmon share are yielding results with our revenue growth in this segment outpacing foundry logic WSE growth cycle the cycle.

And three our customer support business group at 34% of total revenues year to date is an increasingly greater contributor to our topline than in the past.

Looking at the broader WSE environment.

Our outlook remains strong.

While covert 19 is created volatility for the semiconductor industry in a larger sense. It is underscored the rapidly growing reliance of individuals and businesses on semiconductors, and the products and technologies they enable.

For example, we are seeing accelerated growth in Internet video traffic as video becomes embedded in a broad range of business and consumer activities.

This is manifesting currently in work from home E learning Tele health online gaming and of course video streaming.

Nearly two thirds of global consumers site video as their preferred medium for obtaining information.

The demand this places on data transport analysis and storage will continue to rise.

Mobile networks are migrating to Fiveg video quality is doubling from Fourq to 8-K, and cloud and enterprise Datacenters are expanding support the enhanced data traffic.

A two X resolution improvement in mobile video drives roughly a 70% increase in NAND storage content and newer server architectures are expected to have over 30% more memory channels versus prior generations.

Despite the recent downtick in smartphone units our own assessment of NAND content in smartphones in calendar year, two 2020 has trended higher versus our prior baseline due to a greater mix shift towards fiveg devices.

We're also seeing increased NAND demand related to new product cycles in the game consoles segment.

With some of the new platforms, adding up to a terabyte of SSD based storage.

Launches of the new game consoles are expected to add low to mid single digit percent growth to overall NAND bit demand in 2020.

These demand drivers in combination with increasing semiconductor manufacturing complexity create a compelling setup for sustained strength in Wi Fi spending.

In 2020, we estimate WSE to be in the mid to high 50 billions driven by growth in both memory and foundry logic investment.

Although we have seen underlying demand drivers fluctuate due to the challenges presented by the cobot 19 pandemic.

Our current WSE forecast in total is very close to what we expected at the beginning of the year.

From a mix perspective, we see memory share of WSE growing in 2020 off a low 2019 level.

This trend should continue into 2021, particularly in DRAM, we believe inventory levels will be lower as we get to the end of 2020.

In both NAND and DRAM, we see bid supply growth lower than long term demand this year and NAND recovery progressing ahead of DRAM.

By geography, domestic China customers continue to be a strong source of Wi Fi demand with expected calendar year 2020, Wi Fi spend in the $10 billion range.

Year on year growth in China investment is predominantly driven by NAND and foundry segments.

Looking more broadly at longer term global Wi Fi spend we are increasingly confident that the accelerating digitization of the economy, along with the rising complexity of semiconductor manufacturing at each technology migration is establishing a higher base of WFP spending at the $60 billion level.

With this outlook, we are focused on delivering on our objectives to drive greater than 50% growth in revenue and more than a doubling of EPS by 2023 2024 compared to our 2019 results.

Key to achieving these goals is to execute on the Sam expansion market share growth in installed base revenue opportunities, we laid out at our Investor day in March.

On the system side, we continue to see positive momentum across our businesses.

The June quarter marked a record for net penetration in defense wins in our edge business as measured by three year forward revenue, which is a metric we began tracking internally a few years ago.

We achieved key wins in high aspect ratio Masco opened in contact etch applications in both DRAM and NAND.

And leveraging unique hardware capabilities for RF control and edge yield enhancement that we introduced last year. We have further extended our technical leadership in high aspect ratio processes across both conductor and dielectric etch.

We also combined these technologies with our hydro patterning system, which has enabled by lambs equipment intelligence and uses fab data inputs to improve customer yield with this system, we were able to secure new positions in Claude and UBI patterning for deep DRAM.

In the June quarter. We also made good progress in our effort to disrupt older equipment segments with more innovative extendable Lamb solutions.

With our enhanced LD family of products, we achieved two new wins for Threed NAND gap fill applications and a multi layer application when in foundry logic.

Superior film quality integration and architecturally enabled productivity were instrumental to our success.

In DRAM and foundry, we're also seeing accelerated adoption of our able these solutions for critical spacer applications, which have traditionally been done using furnaces.

Overall, we believe our enhanced Dale these solutions are helping to enable the performance and cost roadmaps are customers need.

At the same time, we continue to help customers extract more value from their installed base of Lamb equipment.

In the June quarter, our customer support revenues grew approximately 8% from the March period, and our revenue growth has exceeded installed base unit growth year to date.

Our reliance systems business posted its eighth straight quarter of record revenues, driven primarily by shipments to analog mixed signal CIA us in microcontrollers segments.

The challenges of the Cobot 19 pandemic have also accelerated the deployment of important new technologies for remote equipment support.

By enabling real time in fab access to Lamb service experts located worldwide, we have reduced installation and troubleshooting time without the need for extensive travel.

In addition, increasing adoption of our machine learning based analytics, leveraging big data customer sites is enabling faster detection and resolution of issues.

These advances of the results of investments that as we shared at our Investor day, our targeted at delivering.

Services innovation to create value for our customers and also increases our revenue opportunity per chamber.

So to wrap up Lamb delivered a very strong June quarter, and we see continued strength ahead.

We are seeing positive momentum in our efforts to grow our installed base revenue expand our served markets and increase our market share and as a result, we believe we are increasingly well positioned to benefit from the long term secular growth drivers in the semiconductor industry.

Thank you all for joining and for your support and I'll now turn it over to Doug Awesome. Thank you Tim.

Good afternoon, everyone and thank you for joining us today.

I hope all of you and your families have been safe and healthy.

Our operation steadily improved throughout the June quarter, as we executed well in this cobot 19 environment.

We have become increasingly more efficient and effective in our operations.

Which I think our well reflected in the results from the June quarter.

Our revenues came in at $2.8 billion, driven by broad based demand.

Our customers are investing in leading a tuck leading edge technologies to service the growth are seeing in fiveg.

Datacenters and product cycle, driven demand in the gaming console market.

Well I am solid execution is reflected in our revenue result.

Our gross margin performance as well as our earnings per share that came in at $4 in 78 cents.

I'd also just point out that our deferred revenue balance is back to a more normal range as compared to the end of the March quarter.

From a system segment perspective, the total memory segment in the June quarter increased to 61% of system revenues from the March quarter level, which was up 56%.

We saw increases in NAND spending, which contributed 45% of our system revenue.

It was up from 40% in the March quarter.

Net investments are broad base focused on 64, 96, and initial 128 layer devices.

DRAM spending was consistent across the June in March quarters at 16% and continues to be focused on node transition.

Primarily conversions to one why and Wednesday.

The combined memory market remains at a healthy place due to proactive inventory management.

As well as a prudent investment cadence.

In foundry demand across diverse end market applications continues to drive the investment profile.

Well foundry as a percentage of our system revenue slightly declined from the March quarter percentage of 31% to the June quarter at 29%.

Revenue actually increased in dollar terms coming in at the second highest system revenue level for foundry in lambs 40 year history.

We continue to be pleased with our trajectory here.

And finally, the logic another segment contributed the remaining 10% of systems revenue in the June quarter as compared to 13% in March.

China investments continued to be strong in the June quarter, with 34% of our total revenue coming from that region.

We're seeing investments from customers in all market segments within China.

The majority of the revenue again came from domestic Chinese customers.

We continue to expect solid investment levels in this region throughout the calendar year.

China is obviously, an important market for Lam and we remain confident in the strength of our business there.

The June quarter revenue for our customer support business group was a record at $927 million.

Representing an increase of 8% from the March quarter level.

And an increase of over 17% from the same quarter a year ago.

We are delivering sustainable growth across the components of our customer support group and spare parts service upgrades in our refurbished reliant tool business.

Within the June quarter, we executed two significant longer term spares contracts.

Further improving the recurring nature of the revenue streams in this business and.

And demonstrating further evidence of the trust our customers, having us to continuously deliver value.

Gross margin for the June quarter was 46.1%.

At the start of the June quarter, driven by uncertainties related to the cobot 19 situation, we saw a potential capacity limitations, both from our supply chain partners as well as our own internal production capability.

However, as of June quarter progressed, we were able to increase our production efficiency.

The resulting expansion and production volumes yielded better effect better factory performance that enhance gross margin from our original expectations.

In addition, gross margins fluctuate as you know based on customer and product mix and in the June quarter. We ended up with the slightly more favorable mix than we anticipated at the start of the quarter.

We are seeing higher costs due to cobot in several areas, most notably freight and logistics.

We're doing our best to mitigate that headwind by managing other expenses in the factories in in the field.

Third quarter operating expense came in at $493 million slightly higher than the March quarter.

We focused our spending in the research and development area as we address our customers most critical needs.

Roughly two thirds of our spending remains focused towards R&D.

Our incentive compensation expense increase from the prior quarter, which is tied to our improved profitability levels.

At the same time, we've managed expenses elsewhere, most notably travel.

And they came down throughout the June quarter.

Operating income in the June quarter was $795 million and operating margin was 28.5% towards an increase of 160 basis points from prior quarter.

Our tax rate this quarter was 7.6%.

Our rate was low in the June quarter, primarily due to a more favorable mix of geographic income.

And maybe more importantly, a onetime onetime year end adjustments, we recorded as we closed our fiscal year.

We will have fluctuations in the rate from quarter to quarter.

You should continue to expect the ongoing tax rate to be in the low teens level for your models.

Other income and expense increased slightly in the June quarter coming in at approximately $33 million of expense.

Within the June quarter, we're opportunistic with our capital structure.

At the end of April we completed an offering of $2 billion of investment grade bonds with maturities of 10.

30, and 40 years.

I was pleased with the demand for our paper as well as the pricing, which came in with coupons of 1.9%.

2.875% and 3.1% to 5% respectively.

We used $1.25 billion of the debt proceeds to pay down the revolving credit facility that was then outstanding.

That facility is now complete we paid down.

As we've discussed in last quarter's call.

The cost of our employee deferred compensation plan and the offsetting hedging balances remain mismatched in the GAAP piano.

You can see these results in the GAAP reconciliation table of our earnings release.

On the volatility in the market in the June quarter, there were large fluctuations between our GAAP expenses and the online new lines.

That the hedge essentially offsets at the net income level.

And you should note the other income and expense balance includes the interest expense of our outstanding debt amounts.

Obviously offset by the interest income from our cash and investment balances.

You should expect that other income and expense will vary quarter to quarter based on several market related items should think about things like foreign exchange.

On the capital return side, we noted in our March quarter earnings call that we'd be pausing, our buyback activity during the June quarter until we had a better line of sight in the business environment.

As a result, we had only a small amount of share repurchases in the latter part of the June quarter.

And that together with dividends ended up having us deploy approximately $200 million towards capital return.

Long term capital return of 75% to 100% of free cash flow remains our plan.

Diluted earnings per share as I said was $4.78.

Ill mention that the onetime benefit from the tax items I referenced was roughly 14 cents.

Our diluted share balance for the June quarter rounded down to 147 million shares let me a very slight decrease due to the minimal share repurchase activity.

The share count includes a dilutive impact of approximately 1 million shares from the 2041 convertible notes.

The dilution schedule for the remaining 2041 convertible note is available on our Investor Relations website for your reference.

Let me now move onto the balance sheet, our cash and short term investments, including restricted cash increase in the June quarter to $7 billion from $5.6 billion in the March quarter.

Cash flows from operations in the quarter were strong at $813 million due to healthy profitability and solid collections during the quarter.

The remainder of the increased quarter quarter was related to the debt issuance offset by the pay down of the revolving credit facility.

Dsos decreased in the June quarter to 68 days from 80 days in the March quarter, demonstrating strong collection performance and the resulting timing of customer payments.

Inventory turns were flat with the prior quarter at 3.2 times.

We have consciously increased our inventory balance to support the higher revenue level that we see in the September quarter.

Noncash expenses included approximately $50 million for equity compensation.

Before million dollars for depreciation and $17 million for amortization.

Good quarter capital expenditures were consistent with the prior quarter amount coming in at $51 million.

Ending headcount as of the June quarter was approximately 11300 regular full time employees.

This head count reflects added resources in our factory and field operations supporting increased volume.

As well as additions in research and development to support ongoing critical deliverables like the new sensor platform and the dry Resis program that we announce at our Investor day in March.

So not looking ahead I'd like to provide our non-GAAP guidance for the September 2020 quarter.

We are expecting revenue of $3.100 billion, plus or minus $200 million.

Gross margin, increasing to 46.5% plus or minus one percentage point.

Operating margins of 29.5% plus or minus one percentage point.

And finally earnings per share of $5.15, plus or minus 40 cents based on a share count of approximately 147 million shares.

These ranges remain wider than normal due to the continuing uncertainty from cobot 19.

We are well positioned for the second half of calendar 2020, as we expect continued healthy WFP investments.

We see continued strength from memory and foundry for that matter driven by demand and more strategic technology oriented investments.

The customer support business group is also expected to provide continued momentum for the company.

Operator that concludes my prepared remarks, Tim and I would now like to open up the call for questions.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function has turned off to allow your signal to reach our equipment.

The press Star one to ask a question pause for just a moment to let everyone an opportunity to signal request.

The first question will come from Timothy Arcuri with.

Please go ahead your question.

Thanks, a lot.

Doug I guess the first question.

You're talking about now WBB mid to high Fiftys this year.

Look at Q3, and I and I look at your guidance and you're sort of probably going to gain some WP share. This year. It would sort of assume that we're running maybe in the low sixtys in Q3, So I guess.

If I assume your full year forecast and I assume maybe you gain a 100 basis points of that we appreciate ishares something like that it would sort of imply that December revenue as we will sort of flattish and I'm not asking you to guide December but I'm just kind of wondering whether you think of that math holds together will you should games like a little bit of WFP share this year. Thanks.

Yes, Tim you're absolutely right. We're only we're only guiding one quarter at a time, but.

And I'm not going to give you specific answer on December, but I will qualitatively say I think December we'll continue to be a strong strong quarter for us.

Your math and I don't look at Wi Fi on a quarterly basis I'm sure you're doing the math right.

But you're also right about the observation on share spend and where memory is trending and all of those things.

We're we're setting up I think for pretty good second half Tim.

Thank you for the question. The next question will come from CJ Muse with Evercore. Please go ahead.

Yes, thanks for taking the question I guess a question on the memory side of things and where are we in the cycle.

I know were 30% above the reaching trough, but still 40% below the prior peak.

Investors clearly been focused on this aspect and what it would love to hear your view, particularly as it relates to.

Good positive trends you highlighted into calendar 21.

Sure I'll start to see Jane and let the Doug add something if he wants to.

Obviously, what we have we've been saying for quite some time is that you'll memory is is a story of one kind of coming off what was a very strong 2018, and a couple of years of than digesting that but at the same time there are underlying growth drivers that things you're seeing everywhere for both NAND and DRAM.

Jim that give us greater confidence in what we've stated as long term.

Bit demand growth in the high Thirtys for NAND and in the high teens for DRAM.

If those are correct and like I said I gave you a few of the examples of where they're big consumers of NAND and DRAM from an application perspective on the horizon. We think that memory investment has to continue to grow for for years to come obviously at our Investor day, we laid out a model of of a more.

Normalized memory spending level in the context of totaled $60 billion Wi Fi and that in that environment, we grow the company quite significantly.

Yes, and CGEN, maybe I'd just add I mean.

More near term tactically relative to what's going on this year I thinking on NAND is a little bit ahead of DRAM relative to face a recovery when I look at the market. Both are kind of managing inventory investment investing what I described as or tried to with a prudent cadence.

Thats got manned up this year and DRAM, maybe up a little bit, but not too much I really do think DRAM will be more a 2021 story.

So think about that near term and then on top of that as it relates to Lam I mean, we're doing extremely well in foundry as well so.

Factor that in when you think about what's going on with our company.

Very helpful and if I could follow up on the service side.

We grew that business stellar 17% year on year, what was there any catch up there on the deferred side.

And I guess thinking through that how should we think about the potential for sequential growth and to September December.

Ill.

How do tools coming off warranty and upgrades look at least based on your build plan today whenever you can share. Thanks.

Yes, CJ in this part of the business the deferred stuff we hit at the end of March really wasn't impacting things the deferred if you remember what we described at the end of March had to do it back ordered shipment that was really all about new equipment. So I don't think theres anything terribly unique going on in and see SPG, Tim and less or something.

No I think it's again, it's just the.

The efforts as we said too to continue to provide services to grow our revenue opportunity per chamber and also just our business.

As you pointed out as our company continues to grow faster the installed base grows faster and generates more opportunity.

I don't think because you have other disease in unique yep. Thanks, CJ operator can we go back to Tim Arcuri for an additional question. Please I thought of as 20, Tim only had one question.

Just one moment.

Your line is open Tim.

Thank you.

Thanks, Thanks for that Doug sorry.

Yes sure sure no way. So second second question I guess can you go through a little bit about the how the whole military and use thing is transpired. It seems like China Wi Fi is a little higher the.

Domestic stuff is maybe ability into a billion higher than you thought it would be and it seems like an now all these customers know that there's restrictions looming at some point, so they're going to keep on pulling stuff. In so can you just talk about how the export controls have transpired is commerce happy just as long as you do the due diligence with the customer on.

Military and use can you just kind of talk about all that thank you.

Sure I mean, I think Tim and my comments I talked about our assessment. It was a it was quite an extensive diligence process that we went through which consisted both of our own.

Conversations and questioning of the customers and their certification as well as.

The use of third party research and also validation by outside counsel and we arrived at.

At our conclusions as I stated no material financial and business impact.

As a result of all of that work now that is an ongoing.

Activity for us mean that continually assessing and doing that kind of research and so.

That's something that we have committed to but at this point. That's done is our conclusion if by your question about and connection to domestic China WFP I don't think Thats, a connection that we're making and basically we are saying that.

China has.

Plans to invest and I indicated that a lot of the investment is coming from NAND as well as foundry and.

At least in our view right now we have not made that connection that somehow domestic China Wi Fi is in any way really affected by.

These these rules one way or the other.

Yes, Tim maybe coming from your my sense is it's not there is nothing pull them.

You know we may be wouldn't know if it was there wasn't a little bit.

But given we've concluded the rules are not impacting our ability to ship I don't know why anybody would would think there should be pulling things and Ryan.

Awesome, Okay. Thank you much.

Thanks, Tim.

Thank you. The next question will come from Harlan sur with JP Morgan. Please go ahead with your question.

Good afternoon, good job on the business execution and strong results.

One of the large logic manufactured using you talked about the potential of moving to a more outsourcing business model, maybe just a continuation of the industry trend towards a fabulous business model at a high level. It would appear to be a zero some gain but wanted to get your views on the potential ramifications of your business in enough.

Structural move in the industry.

Well, it's a more saab light or sadness business model.

Yes, Okay. Let me let me, let me turn to take that Arlinda start.

Obviously, we don't want to comment.

About the the specific plans of anyone customer, but to your point of.

The industry moving to outsource model I mean, obviously, that's that's a more than 20 years story and I think that.

Anything that that allows us wafers ultimately to to be produced a better technology at lower costs. However, that's done in house or outsourced is what's good for the industry and thats good for Lam.

I'm quite certain that as a result of the advances that have happened on the foundry side Lams businesses benefited tremendously in the last 20 years and that's just comes back to a statement that I've made a number of times, which is the best thing for Lam is that technology nodes continue to migrate.

We have greater Sam at every technology node migration across NAND, DRAM and foundry logic and so you know every company has to decide for themselves what's sort of the best answer to advancing technology at the best cost that can be in house can be outsource, what we care about as.

Whether that technology advances in more wafers get produced and so I I think we obviously watch it and we look at the impact on our business, but ultimately.

Foundry hasn't been bad for for the industry or for Lam.

And Harlan manages a one additional comment from the the way I think about it as what matters to Lam is the number of leading edge wafers in the entire industries that are put in place whether to insource outsource largely doesn't matter too much thing either way it needs equipment right independent of where it goes we're selling.

Largely the same things to the industry.

Yes, great insights there.

Good to see the recovery of the business an improvement in supply chain and logistical bottlenecks just wondering Doug if.

The team has still even with this strong September quarter Guy playing catch up on the delinquent backlog as a result of there on your bottlenecks and if so how much of that has yet to be worthwhile.

Yes, Harlan I think we got nicely caught up I don't think we're completely caught up as we sit here today, but we made very nice progress during the quarter.

Great. Thank you.

Hi, Thanks Harlan.

Thank you. The next question will come from John Pitzer with Credit Suisse. Please go ahead.

Yeah. Good afternoon, guys congratulate somersaults. Thanks wanted to ask a question Doug just maybe a follow on to Harlin's question. It sounds like cobot was still a cost headwind in the June quarter. I'm wondering if you can help us quantify that and as you look out.

Into September with the guide how much sort of covert logistical expense is still in there, but when do you think.

You might be able to take that out.

Yes, John the biggest individual item when I look at it is freight and logistics I mean freight lanes are more restricted than they were obviously pre covered things are more expensive really tough to mitigate that I mean to certain extent you take the price that you do your best in negotiated but you're somewhat of a price taker there.

That doesn't mean, we're not.

As I tried to describe working to drive efficiency effectiveness elsewhere in the operation Thats. What Lam is extremely good are doing and we're doing that.

But that is where the challenges are right now I'm not going to quantify a john but but it is impacting gross margin to a certain extent I don't know Tim if you want to add an no. The only thing I'd add is obviously done pointed out some near term headwinds on the cost side.

Finally, we would expect those two eventually.

Rolled back as things normalize post Colin.

But I mentioned this point of the acceleration of remote support technologies and I think thats, while we haven't fully quantified kind of what the benefit could be clearly some of the benefits of less travel and and.

More productivity of kind of worldwide engineers, who can now connect into to Fabs and provide expertise via some new technologies.

That actually will be likely a cost and kind of.

Personnel benefit for us.

Down in the future and so we're investing in that and I think it's it's positive headwind just further dot positive tailwind just up further down the road.

That's helpful. And then Tim you guys covered a lot of ground at the analyst day early this year, but lets you couldn't cover everything I'm kind of curious if you can kind of spend a few minutes talking about your positioning in advanced packaging, because clearly there's not a lot of volume in sort of chip lets today, but as you look at Intel moving to their second generation 10 nanometer parts.

I'm time in the second half of next year. It seems like the tile Slas chip what strategy is really poised to accelerate starting in the back half of next year and going forward and I know you guys have.

Some some good leverage there I'm just trying to get a sense of quantifying and how big do you think that market opportunities.

Sure I don't know if I'm honored for prepared quite to quantify a free on this call, but what I can tell you is it kind of follows on from my earlier comment about you know.

Customers and just the industry in general looks for the best way to achieve the performance.

Required at the lowest cost and sometimes that's by looking at total system performance and Steve.

Advanced packaging Threed chip lets these sorts of technologies actually.

Our one way to deliver.

System performance without having to necessarily utilized the most advanced.

No chips for every application and our position has been very strong. We've been we were an early investor there we have leading positions on both the etch and dep side in the TSV applications.

And we think that we're extremely well positioned when that comes in so.

Every time, we hear about acceleration, we're actually quite.

Quite encouraged.

But.

Something that are high aspect ratio etching processes, and our ability and most people recognize our leadership for 20 plus years in in copper electroplating sale. Those are critical technologies for these.

Threed packaged in a heterogeneous integration applications.

Helpful. Thank you guys. Thanks.

Thanks.

Thank you. The next question will come from Krish Sankar with Cowen and company. Please go ahead.

Hi, Thanks for taking my question, Tim I've a question on memory, you know clearly mentally w. fees.

I'm, just spending right now and yield.

He has lot of potential upside if we look at the last cyclical peak yields in March 2018, if you will get back to those kind of WSE levels for memory.

Lams revenue profile look like in memory, given that gain some shares that are we to quantify to see how much higher you could be buses classically compete and then at a follow up.

I think Doug signaling I can't quantify that [laughter] to of course of quantified and Thats why am I.

My comment was.

We believe our opportunity we knew there would be this peak question.

But my comment was.

Regardless of the fact that our revenues are approaching the last time and therefore the peak question starts to come up the setup is quite different than in fact, that's why we pointed out our memory mix today is a much lower w. fees not back there.

And so I guess.

Probably you can do the do it just as easily as we can but there is still significant upside as memory growth continues.

Not only to return to prior levels, but also to continue to grow to meet all of these new new application drivers that we've talked about.

Chris obviously, when we put a financial model I would not all that line go in March comprehended, some aspect of memory being at a higher investment levels DSPG growing our strength in foundry continuing to grow so.

You have the data points kind of its going to all in their hands. It's all in there.

Got it got it always and then another question on the on any of the traction. We just curious like when you look at the end of the they clearly that market is going to continue growing.

You guys I'd like you know.

Number two player in that I would probably say.

How much of the debt how much of the growth in the least actually driven by technology, which will provide that productivity for the lead to the still pretty low which is writing the big upside in DMD.

Well all of these new adoptions and I keep talking about these are these are lambs efforts to expand the application base for Rayaldee and which means it's it's a technology driven decision, but usually what has any in the past what has held back LD from from adoption in many of these.

Cases was.

Great technology, but the productivity wasn't.

Wasn't affordable to put in at a certain node so people pushed it out what we've done as Weve married both.

And expanding films set more applications with the as I said architectural enabled productivity and we're getting a lot of traction across a number of different applications I talked about threed NAND gapfill talked about a multi layer application in foundry logic to differ material talked about critical spacers.

And so it's just we've broadened I think would be the target market for Rayaldee and and we're seeing good traction.

Yes, thanks to thanks, Chris Yes, Thats correct.

Thank you. The next question will come from Toshiya Hari with Goldman Sachs. Please go ahead with your question.

Okay.

Hi, guys. Thanks, very much for taking the question congrats on the strong results, Doug you mentioned that.

For 2020 domestic China, you guys are expecting about 10 billion and spend I'm curious, what's the rough split between memory versus logic and foundry and all the memory side I feel like both you and the broader industry is currently in a sweet spot where your customers are spending, but they're not really contributing to.

Supply at what point would you expect them to start to really move the needle on supply and and as a result capital intensity come down and local China and then I'll then I've a follow up thank you.

Yes, I know from to show you know, we haven't quantified what doesn't which segment in China, but I forget if Tim said or if I said it in the script through kind of blurs in my mind, sometimes we set as broad based in China in all segments. So it isn't just one it's a broad set of customers that are investing.

So.

Think of it that way, it's not one or the other and you're right and I wouldn't characterize China's inefficient in the investment. It's just when when customers are investing for the first time or are relatively new to investing.

In capacity you got to buy it then you have to ramp it and it takes time for that to happen, it's not unique to any one geography or any one customer that is really what's going on and overtime.

Customers get more efficient as they ramp things, that's how I think about it Tim and I know on and as you suggested earlier question I think thinking about the the model we put out just back at Investor Day, I think by the time you get to the 2023 2024 timeframe. We've we've comprehended those additions in China or effect.

Lead to same as additions elsewhere in the world. So we don't think Theres some extra inefficient spending in that case that driving numbers higher for Lam. So I think if you just look back at that model. That's that's a relatively efficient spend across all segments in 2023 2024.

Got it. Thank you for that and then as a quick follow up dug in your prepared remarks, you you talked about.

Winning two service contracts in the quarter I believe I wasn't sure. If you are meant to highlighted as as a meaningful.

NAMIC here, but do those contracts at all drive incremental growth going forward or does it change how we should be thinking about quarter to quarter year to year volatility and your installed base business or profitability going forward. Thank you.

No not really touch you I mean, I just mentioned it because one there were a little bit longer term and two they were bigger.

Than perhaps typical and to me is very much part of how we run this business. It's the customer has faith and confidence in your ability to deliver and provide value.

It is consistent with what we expect that business to do when it has done in the past I just mentioned did because it was notable when we're looking at the results this quarter.

Thank you.

Yes, thanks to show.

Thank you. The next question will come from Blayne Curtis with Barclays. Please go ahead with your question.

Hey, guys. Thanks, taking my question in a great results just kind of curious from a high level.

Front end, you're keeping the same amount and you're catching up to just kind of curious.

As you look at the way the year shaking out I think there's a lot of doubts whether you hit that number is the same contribution and then any comments on the strength in second half by geography, it would be helpful.

Well I know you're asking about WSE was that your question just to understand I'm curious.

As you you're still seeing the same WP forecast for the year and kind of curious.

Contribution as we thought it starting the year and then a comment on geography, particularly into the back of the calendar year. Thanks.

Yeah, I think Tim.

Specifically mentioned in his script, there's puts and takes in here right. Its ended up at the same level.

I would suggest to you that more consumer oriented stuff is a little bit weaker smartphones. As an example smartphone units aren't the same as we thought it began the year that is.

Creating a little bit of a downtick, but thats offset by the things going on.

Hyperscale cloud consumption of Silicon work from home type things and that no one is up little bit ones down a little bit. We're in the same place that we began the year on.

Okay and that just I was just curious bought from a geographic perspective.

Yes, if you had any color into the growth into September.

No we never forecast the Geo piece.

I wouldn't expected to be wildly different than what you've seen over the last couple of quarters, though from a directional standpoint.

Thanks.

Yeah. Thanks Bye.

Thank you. The next question will come from the deck ARIA with Bank of America Securities. Please go ahead.

[noise], but thanks for taking my question I'm curious about WSE growth outside of China, because when I look at your first half.

Ex China seems that down in the last fiscal year.

So when do we see we know why are we seeing these trends I understand you know this is probably a very short frame timeframe for looking at these trends, but I'm. Just curious qualitatively why are we not seeing the same kind of WSE growth outside of China, because I imagine everyone is exposed to the same.

Drivers.

Then I mean, obviously the majority of Wi Fi spending is outside of China. Two thirds of it is outside of China, right and so you're seeing the contribution of Wi Fi across every geography, Ryan It it's more about what's going on in the end markets. That's how you should be thinking about it right foundry.

His strong this year and up from last year, DRAM, maybe up a little bit.

But to a large extent that's geographically independent.

No I guess my question is that when I look at last year WFP Wise I think 50 51, the CRM youre guiding it up five to 7 billion.

But a big part of that growth is coming from China right. The incremental growth is coming from China. So I'm just curious why we're not seeing Wi Fi spending outside of China.

That same base or does that just something the if you don't see next year perhaps.

Yeah, I know you are I mean, there's three to four probably incremental in China.

And the rest of it is outside of China.

[music].

Okay.

As a follow up she SPG and thanks for providing that Infosys grew I think about 7% or show last fiscal year I'm curious what how much. It grew the prior fiscal the IDE and what part of that should we think of that as as kind of cutting and this is such an important part of your business.

That that I'm always ready.

Curious about how to correlate distill your growth in Chambers idea is this quarter later today or chamber growth from two years ago. It two years ago, just how should we take the 7% number and I don't know how to forecast GRC SBC business I guess that that's really what I'm back last.

Is thinking about forecast and we gave you data points, the Investor day, which was a lower who manages business for US suggested that by 2023 24. It will have grown 40%. So there is your data point for how to forecasted.

Timber count is critically important, but Pat and Tim talked about it's not just chambers. Its dollar per chamber growing from I think we I forget what year, we index that back to 2013, maybe adding it was one point, yes. It was one point till then it had gone to 1.5, and we had objectives to continue growing at the 1.7.

Which was what was baked in the model. So that's how you should think about a timber counts important. We're also driving some of the innovative service offerings like Tim talked with remote.

Diagnostic on equipment and things to try to add more value for the customers and get paid toward.

Thank you.

Yeah, Thanks for that.

Thank you. The next question will come from Mehdi Hosseini Sergey. Please go ahead.

Okay.

Yes. Thank you for taking my question just as a follow up to the prior.

How should we model the customer support over the next few quarters.

Should they just track the memory investment you highlighted as.

In bid and foundry or would it be more in line with the overall revenue trend line that you described earlier.

Yes, I think that again, it's the beauty of the C. SPG businesses. It probably doesn't it doesn't change on the time scale that you're talking about here relative to any particular quarters change in shipments I don't think you're going to see that number we have installed base in excess of 60000 chambers.

And we're driving revenue.

In our CPG business off tools that were shipped 20 plus years ago and this upgrade cycles in their service contracts that Doug talked about this consumable parts.

And so I don't think you're going to see that but as I said, that's the beauty of this this is the it's a it's a stabilized in function for the company's revenue and that's why we're investing heavily in this and it delivers value for the customers in reuse of and extension of installed tools.

I believe this is the first quarter that you actually breaking this out.

And I would just trying to better understand whether the.

And customer support business group would grow.

Faster with memory also.

Well, we thought boundary.

With the same foot different end markets.

Yeah, I can okay, okay, well I think it's the second quarter that we've actually put up the data, but I think the couple of pieces of information to think about one is we've said that the business will grow every year and thats simply because again the installed base is growing every year and again, we're investing to try to create more services value added services.

And products for for that installed base, we haven't really made a comment about does it grow every quarter I mean, because it's again, it's you can be influenced by.

Certain service contracts certain upgrade.

Decisions the customers make in any given quarter, but year to year, you can think about it growing every year.

It's maybe a little bit less about segments I've I've talked in the past about.

You know critical applications and lambs focused on critical applications.

And the importance of that I mean, one there are sticky, but two they actually tend to drive.

More parts and service requirements, because the customers have to keep those systems.

At absolute top performance because they are performing the most difficult applications in the customers fab and so you tend to see a little bit more pull through on the the CPG business for the critical applications, where lambs extremely strong and.

So maybe that's maybe it's a little less by device type of more by the application requirements and also critical applications tend to drive a more frequent upgrade cycle and the customers need to keep the installed base kind of performing for that latest technology node.

Thanks Mary.

Thank you.

Okay.

Thank you. The next question will come from Joe Moore with Morgan Stanley. Please go ahead with your question.

Great. Thank you I know you guys said you had you are working your way through the supply challenges, but I wonder.

If you could help us kind of with what the quarterly revenue progression might have looked like if you hadn't had those hit you had said in March I cant about 300 million a revenue deferred by the supply challenges.

Should we view June is kind of having caught up to that and then as to surge in September as more shipping directly demand or just what would that have looked like if you hadn't had to supply challenges the yet.

Yeah, I didn't quantify it I'd say, we got nicely caught up I also said, we're not completely caught up at the end of the June quarter, and that's as much as I think we're going to give you are right now.

We are driving efficiencies, we're getting much better.

I think Tim and I are pretty pretty happy with how the supply chain is performing.

Hi, great. Thank you very much.

Thanks, Sean.

Thank you. The next question will come from Joker Traci with Wells Fargo. Please go ahead.

Yeah. Thanks for taking the question congrats on the results for me as well.

Thank you mentioned that your your capacity from a manufacturing perspective is as over $3 billion per quarter now with all the issues on the supply chain is there a scenario over the next few quarters, where you see potentially demand outstripping what you can deliver.

Well, we we have a.

Global manufacturing the factory network that we were highly confident in I think it's a it's unlikely that thats. The scenario I Didnt want I did not give you a maximum output for our factor network I was only wanting to indicate that clearly we were supply constrained.

In the last quarter was one of the reasons why we were unable to provide our normal guidance.

Now with.

Capability beyond 3 billion.

We're confident in our September quarter, and we're confident that.

Overtime will continue to ramp that higher and higher so it was we're not we're not going to divulge our exact manufacturing capacity, but I'm quite certain we can continue to meet higher demand.

Okay. That's helpful and then just to.

Go ahead, just a quick why not just a quick one on on capital return.

Should we think about your comments a reiterating your long term target model for for 75% to 4% of free cash flow is kind of indicative that that we should start to see maybe it's more or maybe at a reacceleration us on the share repo and the current quarter and entered into the year.

Yes, probably Joe I mean.

We said last quarter, we were pausing and we're actually came back into the market a little bit before the end of the quarter. So we're we're back looking at things and I've always said, it's opportunistic in terms of how we do what we do and we'll continue to be opportunistic.

Okay.

Thank you.

Yeah. Thanks.

Operator, we have time for one my question. Please.

Okay next question will come from Weston Twigg with Keybanc capital markets. Please go ahead.

Hi, Thanks for taking my question I, just wanted to dig into the operating costs, a little bit just understanding that people aren't really traveling right now the probably saving some money you mentioned some some tailwinds around remote servicing but so we expect operating cost to ramp up meaningfully in 2021, assuming there's some sort of post pandemic returned to kind of a normal level of business.

And travel and marketing.

And I kind of noticed that you added some some headcount as well so I would assume that that would that would roll in and I don't if that continues through next year, but just kind of wondering how next year looks from an operating cost and standpoint.

Yeah, well aside and I'm not going to give your forecast for next year, yet I think there will be plus or minus is you know assuming we get back to normal we get a vaccine a therapeutic regimen what have you.

I think we're going to learn from how we're operating right now and be better overtime. I mean, that's Atlanta is really very good Ed and looking at an opportunity getting better and systematically doing it that way I think we will do that.

Yes, if we get back to normal travel come back a little bit I don't they could come back comes back to where it was but again, we'll keep managing the personnel in the right way.

Yes, I think the only thing I'd add is.

At the same time Weve, obviously, I think we have a great track record of managing Opex.

And you can kind of look at the results to to support that but we are investing in in our 2023 2024 plans I mean, you've seen some of our announcements recently.

The construction of a technology center in Korea.

Obviously, there is expenses associated with that that's a strategic investment to.

Expand our R&D capabilities put large closer to some of our largest customers were building a new manufacturing facility in Malaysia, which again is going to expand our global manufacturing network.

Right additional business resilience helped take some cost out of manufacturing cost structure. So there are some near term investments that we're confident in our long term plan and so we are we are pushing those through even even right now probably seeing some of that reflected in our expenses as well. So maybe that's offsetting a little bit some of the savings that.

Doug talked about but.

I wanted to get into the product in R&D, we continue to push more more into R&D, because we think it's the long term growth engine and the company and.

Really confident in our product pipeline and new products coming out.

Okay. That's very helpful context. Thanks.

Yes, Thanks Wes.

Okay.

Okay operator.

Yes. Thank you all for joining today, we appreciate it and stay safe and healthy. Thank you.

This concludes todays call. Thank you for your participation you may now disconnect.

[music].

Good day and welcome to Lam Research is June quarter earnings Conference call. At this time I would like to turn the conference over to China Korea. Please go ahead.

Thank you operator, thank you and good afternoon, everyone welcome to the Lam Research quarterly earnings Conference call.

With me today, our Tim Archer, President and Chief Executive Officer.

And does that injury executive Vice President and Chief Financial Officer.

During today's call, we will share our overview on the business environment and review our financial results.

For the June 2020 corridor.

And our outlook for the September 2020 corridor.

The press release detailing our financial results.

What's distribute it a little after one o'clock PM Pacific time this afternoon.

The release can also be found on the Investor Relations section.

The company's website.

Along with the presentation slide.

That accompany today's call.

Today's presentation and queuing today includes forward looking statements that are subject to risks and uncertainties.

Reflected in the risk factors.

Disclosed in our SCC public filings.

Please see accompanying slides.

In the presentation for additional information.

Today's discussion of our financial results will be presented on a non-GAAP financial basis.

Unless otherwise specified.

A detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings press release.

This call is schedule to last until three o'clock PM Pacific time.

A replay of this call will be available later this afternoon on our web site.

With that I will hand, the call over to Tim.

Thank you gene and welcome everyone.

The global pandemic volatility in the macro economy ongoing U.S. trying to attention.

We are operating this year amid tremendous uncertainty an unprecedented challenges impacting people all over the world.

We see technology, playing a critical role.

Keeping people connected enabling businesses to remain productive and accelerating solutions to the myriad of problems. The world is confronting.

I'm very pleased with how lambs employees have demonstrated care for each other and our communities and have responded with great effort to support our customer success.

As a result of their outstanding execution today, we are reporting strong performance for the June period, and guiding to another quarter of solid growth.

Specific to the cobot 19 pandemic, our teams have demonstrated agility and resolve establishing safe and effective protocols to perform essential work in our facilities. While also enabling the majority of our employees to remain productive well they continue working remotely.

We have ramped in stabilized our supply and production capability. After an initial period of disruption to support revenues greater than $3 billion per quarter.

Before discussing our results for the quarter I wanted to comment briefly on our review of the new rules regarding sales of semiconductor equipment into China.

China remains an important part of the global semiconductor ecosystem and Lam has a solid track record of business in this market.

We're closely monitoring and complying with all regulatory directives and based on our assessment. We currently see no material financial or business impact from the new rules.

Turning now to the June quarter.

Revenue and EPS came in above our expectations operating margins improved sequentially and we generated over $800 million in cash from operations.

As the September quarter guidance indicates we see continued positive momentum as we move into the second half of the year.

The results also represents sustained progress towards our long term objectives.

As mentioned earlier.

Our guidance indicates we are nearing prior record level revenue, but we believe that our opportunity for growth remains robust.

Key points supporting our view include one memory investments must continue to grow to meet secular demand drivers.

Lams memory mix year to date has slightly below 60% of system revenues is well below historic highs.

We expect our strong memory position to drive outperformance in share of WFP spend as NAND and DRAM investment levels increase.

To our actions to improve our foundry logic salmon share are yielding results with our revenue growth in this segment outpacing foundry logic WSE growth cycle the cycle.

And three our customer support business group at 34% of total revenues year to date is an increasingly greater contributor to our topline than in the past.

Looking at the broader WSE environment.

Our outlook remains strong.

While cope with 19 is created volatility for the semiconductor industry in a larger sense. It is underscored the rapidly growing reliance of individuals and businesses on semiconductors, and the products and technologies they enable.

For example, we're seeing accelerated growth in Internet video traffic as video becomes embedded in a broad range of business and consumer activities.

This is manifesting currently and work from home E learning Tele health online gaming and of course video streaming.

Nearly two thirds of global consumers site video as their preferred medium for obtaining information.

The demand this places on data transport analysis and storage will continue to rise.

Mobile networks are migrating to Fiveg video quality is doubling from Fourq to 8-K, and cloud and enterprise Datacenters are expanding support the enhanced data traffic.

A two X resolution improvement in mobile video drives roughly a 70% increase in Nam storage content and newer server architectures are expected to have over 30% more memory channels versus prior generations.

Despite the recent downtick in smartphone units, our own assessment of NAND content and smartphones in calendar year. Two 2020 has trended higher versus our prior baseline due to greater mix shift towards Fiveg devices.

We're also seeing increased NAND demand related to new product cycles in the game console segment.

With some of the new platforms, adding up to a terabyte of SSD based storage.

Launches of the new game consoles are expected to add low to mid single digit percent growth overall NAND bit demand in 2020.

These demand drivers in combination with increasing semiconductor manufacturing complexity create a compelling setup for sustained strength in WFP spending.

In 2020, we estimate WSE to be in the mid to high 50 billion.

Driven by growth in both memory and foundry logic investment.

Although we have seen underlying demand drivers fluctuate due to the challenges presented by the Cobot 19 pandemic. Our current WFP forecast in total is very close to what we expected at the beginning of the year.

From a mix perspective, we see memory share of WSE growing in 2020 off a low 2019 level.

This trend should continue into 2021, particularly in DRAM, we believe inventory levels will be lower as we get to the end of 2020.

In both NAND and DRAM, we see bid supply growth lower than long term demand this year and NAND recovery progressing ahead of DRAM.

By geography, domestic China customers continue to be a strong source of Wi Fi demand with expected calendar year 2020, Wi Fi spend in the $10 billion range.

Year on year growth in China investment is predominantly driven by NAND and foundries segments.

With this outlook, we are focused on delivering on our objectives to drive greater than 50% growth in revenue and more than a doubling of vps by 2023 2024 compared to our 2019 results.

Key to achieving these goals is to execute on the Sam expansion market share growth in installed base revenue opportunities, we laid out at our Investor day in March.

On the system side, we continue to see positive momentum across our businesses.

The June quarter marked a record for net penetration and defense wins in our etch business as measured by three year forward revenue, which is a metric we began tracking internally a few years ago.

We achieved key wins in high aspect ratio mask open in contact etch applications in both DRAM and NAND.

In the June quarter. We also made good progress in our effort to disrupt older equipment segments with more innovative extendable Lamb solutions.

With our enhanced LD family of products, we achieved two new wins for Threed NAND gap fill applications and a multi layer application when in foundry logic.

Superior film quality integration and architecturally enabled productivity were instrumental to our success.

In DRAM and foundry, we're also seeing accelerated adoption of our ale. These solutions for critical spacer applications, which has traditionally been done using furnaces.

Overall, we believe our enhanced Dale these solutions are helping to enable the performance and cost roadmaps are customers need.

At the same time, we continue to help customers extract more value from their installed base of land equipment.

In the June quarter, our customer support revenues grew approximately 8% from the March period, and our revenue growth has exceeded installed base unit growth year to date.

Our reliance systems business posted its eight straight quarter of record revenues, driven primarily by shipments to analog mixed signal CIA us in microcontrollers segments.

The challenges of the Cobot 19 pandemic have also accelerated the deployment of important new technologies for remote equipment support.

By enabling real time in fab access to Lamb service experts located worldwide, we have reduced installation and troubleshooting time without the need for extensive travel.

In addition, increasing adoption of our machine learning based analytics, leveraging big data at customer sites is enabling faster detection and resolution of issues.

These advances are the results of investments that as we shared at our Investor day, our targeted at delivering.

Services innovation that creates value for our customers and also increases our revenue opportunity per chamber.

So to wrap.

Lamb delivered a very strong June quarter, and we see continued strength ahead.

Thank you all for joining and for your support and I'll now turn it over to Doug Awesome. Thank you Tim.

Good afternoon, everyone and thank you for joining us today.

I hope all of you and your families have been safe and healthy.

Our operation steadily improved throughout the June quarter, as we executed well in this cobot 19 environment.

We have become increasingly more efficient and effective in our operations.

Which I think our well reflected in the results from the June quarter.

Our revenues came in at $2.8 billion, driven by broad based demand.

Customers are investing in leading a tuck leading edge technologies to service the growth are seeing in fiveg.

Datacenters and product cycle, driven demand in the gaming console market.

Well I am solid execution is reflected in our revenue result.

Our gross margin performance as well as our earnings per share that came in at $4.78.

I'd also just point out that our deferred revenue balance this back to a more normal range as compared to the end of the March quarter.

From a system segment perspective, the total memory segment in the June quarter increased to 61% of system revenues from the March quarter level, which was at 56%.

We saw increases in NAND spending, which contributed 45% of our system revenue.

Which was up from 40% in the March quarter.

Net investments our broad based focused on 64 96, and initial 128 layer devices.

DRAM spending was consistent across the June in March quarters at 16% and continues to be focused on node transition.

Primarily conversions to one why and Wednesday.

The combined memory market remains at a healthy place due to proactive inventory management.

As well as a prudent investment kids.

In foundry demand across diverse end market applications continues to drive the investment profile.

Well foundry as a percentage of our system revenue slightly declined from the March quarter percentage of 31% to the June quarter at 29%.

Revenue actually increased in dollar terms coming in at the second highest system revenue level for foundry in lambs 40 year history.

We continue to be pleased with our trajectory here.

And finally, the logic another segment contributed the remaining 10% of systems revenue in the June quarter as compared to 13% in March.

Turning to investments continue to be strong in the June quarter, with 34% of our total revenue coming from that region.

We're seeing investments from customers in all market segments within China.

The majority of the revenue again came from domestic Chinese customers.

We continue to expect solid investment levels in this region throughout the calendar year.

China is obviously, an important market for Lam and remain confident in the strength of our business there.

The June quarter revenue for our customer support business group was a record at $927 million.

Representing an increase of 8% from the March quarter level.

And an increase of over 17% from the same quarter a year ago.

We are delivering sustainable growth across the components of our customer support group and spare parts service upgrades in our refurbished relying tool business.

Within the June quarter, we executed two significant longer term spares contracts.

Further improving the recurring nature of the revenue streams in this business.

And demonstrating further evidence of the trust our customers, having us to continuously deliver value.

Gross margin for the June quarter was 46.1%.

At the start of the June quarter, driven by uncertainties related to covert 19 situation, we saw a potential capacity limitations, both from our supply chain partners as well as our own internal production capability.

However, as of June quarter progressed, we were able to increase our production efficiency.

The resulting expansion in production volumes yielded better effects better factory performance that enhance gross margin from our original expectations.

In addition, gross margins fluctuate as you know based on customer and product mix.

In the June quarter, we ended up with a slightly more favorable mix than we anticipated at the start of the quarter.

We are seeing higher costs due to cobot in several areas, most notably freight and logistics.

We're doing our best to mitigate that headwind by managing other expenses in the factories and in the field.

Third quarter operating expense came in at $493 million slightly higher than the March quarter.

Weve focused our spending in the research and development area as we address our customers most critical needs.

Roughly two thirds of our spending remains focused towards R&D.

Our incentive compensation expense increase from the prior quarter, which is tied to our improved profitability levels.

At the same time, we manage expenses elsewhere, most notably travel.

And they came down throughout the June quarter.

Operating income in the June quarter was $795 million, an operating margin was 28.5%.

It was an increase of 160 basis points from prior quarter.

Our tax rate this quarter was 7.6%.

Our rate was low in the June quarter, primarily due to a more favorable mix of geographic income.

And maybe more importantly, a onetime onetime year end adjustments recorded as we closed our fiscal year.

We will have fluctuations in the rate from quarter to quarter.

You should continue to expect the ongoing tax rate to be in the low teens level for your models.

Other income and expense increased slightly in the June quarter coming in at approximately $33 million of expense.

Within the June quarter, we're opportunistic with our capital structure.

At the end of April we completed an offering of $2 billion of investment grade bonds with maturities of 10.

30, and 40 years.

I was pleased with the demand for our paper as well as the pricing, which came in with coupons of 1.9%.

2.875% and 3.1% to 5% respectively.

We used $1.25 billion of the debt proceeds to pay down the revolving credit facility that was then outstanding.

Facility is now complete we paid down.

As we've discussed in last quarter's call.

The cost of our employee deferred compensation plan and the offsetting hedging balances remain mismatched and adapt piano.

You can see these results in the GAAP reconciliation table of our earnings release.

Given the volatility in the market in the June quarter, there were large fluctuations between our GAAP expenses.

Oh I any lines.

At the hedge essentially offsets at the net income level.

And you should note the other income and expense balance includes interest expense of our outstanding debt amounts, obviously offset by the interest income from our cash and investment balances.

You should expect that other income and expense will vary quarter to quarter based on several market related items should think about things like foreign exchange.

As a result, we had only a small amount of share repurchases in the latter part of the June quarter.

And that together with dividends ended up having us deploy approximately $200 million towards capital return.

Long term capital return of 75% to 100% of free cash flow remains our plan.

Diluted earnings per share as I said was $4.78.

I will mention that the onetime benefit from the tax items I referenced was roughly 14 cents.

Our diluted share balance for the June quarter rounded down to 147 million shares let me a very slight decrease due to the minimal share repurchase activity.

The share count includes a dilutive impact of approximately 1 million shares from the 2041 convertible notes.

The dilution scheduled for the remaining 2041 convertible note is available on our Investor Relations website for your reference.

Let me now move onto the balance sheet, our cash and short term investments, including restricted cash increase in the June quarter to $7 billion from $5.6 billion in the March quarter.

Cash flows from operations in the quarter were strong at $813 million.

Due to healthy profitability and solid collections during the quarter.

The remainder of the increased quarter over quarter was related to the debt issuance offset by the pay down of the revolving credit facility.

Dsos decreased in the June quarter to 68 days from 80 days in the March quarter, demonstrating strong collection performance and the resulting timing of customer payments.

Inventory turns were flat with the prior quarter at 3.2 times.

We have consciously increased our inventory balance to support the higher revenue level that we see in the September quarter.

Noncash expenses included approximately $50 million for equity compensation.

Before million dollars for depreciation and $17 million for amortization.

Good quarter capital expenditures were consistent with the prior quarter amount coming in at $51 million.

Ending headcount as of the June quarter was approximately 11300 regular full time employees.

This headcount reflects added resources in our factory and field operations supporting increased volume.

As well as additions in research and development to support ongoing critical deliverables like the new send side Thats platform and the dry resist program that we announce at our Investor day in March.