Q1 2021 Lam Research Corp Earnings Call

October 21, 2020

No no no no no.

[music].

<unk>.

Good day and welcome to Labs Research September quarter earnings Conference call.

At this time I would like to turn the conference over to Ms. Pina Korea.

Corporate Vice President of Finance and Investor Relations. Please go ahead ma'am.

Thank you and good afternoon, everyone welcome to the Lam Research quarterly earnings Conference call with me today are Tim Archer, President and Chief Executive Officer and.

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 will review our financial results for the September 2020 quarter and our outlook for the December 2020 corridor the press.

The press release detailing our financial results was distributed a little after one o'clock PM Pacific time. This afternoon there.

The release can also be found on the Investor Relations section of the company's website, along with the presentation slides that accompany today's call today.

Today's presentation in Q in a includes forward looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our FCC 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 todays earnings press release.

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

A replay of this call will be made available later this afternoon on our website with that I will hand, the call over to Tim.

Thank you Tina and welcome everyone.

Delivered very strong September quarter results revenues and gross margins came in above the mid point of the guided range.

Operating margin and diluted earnings per share exceeded the high end of the range or.

Our performance reflects solid execution across the company.

The operating environment remains challenging due to the cobot 19th limit, but the tremendous dedication of lambs employees and our partners worldwide is enabling us to perform at a high level.

Notably the September quarter, Mark record revenue and diluted earnings per share for the company and was also the first quarter in which we have exceeded $1 billion in revenue from our customer support business group.

At the midpoint of our December quarter guidance, we will be growing EPS more than 35% year over year in 2020.

The investments, we are making in manufacturing and supply chain resilience or enabling us to meet customers' critical needs in a period of strong demand and are preparing us for the continued growth we see ahead.

Before I talk about marketing product trends I want to touch upon China related trade regulations.

As has been widely reported us regulations have impacted our ability to ship.

Wafer fab equipment and parts to a large foundry customer in China.

We're working with regulators on this issue and have applied for licenses to ship the equipment and parts that are subject to the restrictions.

As a result of the current situation our December quarter guidance reflects an impact to sales to this customer.

From a market perspective, we see positive momentum in the underlying drivers of semiconductor growth and believe this translates into a healthy outlook for lamps business work.

Worked and learn from home trends continue to drive demand in key electronics categories, including Pcs storage and networking.

Third party data suggests that growth in PC notebook and workstation shipments in the calendar third quarter surpassed a 10 year high to reach record levels more.

Moreover, some memory manufacturers have noted shipping record levels of consumer solid state drive bids in their most recent quarter we.

We believe that many of the changes brought about by this year shift to remote working and learning environments will be structural the net result will be a pull pull forward of key long term secular growth themes for the semiconductor industry, including accelerated buildout of cloud Datacenters and expansion of high speed communal.

Station networks.

Against this backdrop, we see WSE spending growing across NAND, DRAM and foundry logic supported by demand fundamentals that should drive continued WFP strength into 2021.

Overall, our expectation for Wi Fi in calendar year, 2020 remains unchanged from our prior outlook of the mid to high $50 billion range with an improved memory mix compared to 2019 lead.

Leading edge spending in foundry logic remains robust with rising capital intensity and the secular growth drivers discussed earlier effectively resetting equipment spending expectations to a higher level in this segment for the foreseeable future we.

We are also experiencing strong pull for trailing edge foundry logic nodes due to a pickup in the automotive aiotv and image sensor markets. This.

This helped us deliver in the most recent period another quarter of record sales for our alliance business in.

In May and we see spending increasingly focused on nine next layer and beyond devices were higher capital intensity for etch and deposition combined with lambs strong market share positions create even greater opportunity for the company in a prior nodes.

Year on year total with NAND installed wafer capacity is expected to remain flat with NAND bit supplies growth still tracking below long term demand as we exit calendar year 2020.

In DRAM customers continued to invest cautiously and supply growth remains below long term demand.

As a result, we see a positive set up for next year and believe DRAM spending will increase as we progress into 2021, we.

We expect to provide our full 2021 WFP outlook in our January earnings call.

Turning now to our business updates we record.

We recorded solid progress in the September quarter towards our long term growth objectives, a fundamental part of our strategy is to deliver broad innovation in equipment process and support capabilities to help our customers accelerate the transition of next generation threed devices into high volume manufacturing.

We are developing a pipeline of differentiated products and services to address what we believe is one of the most pressing challenges for our customers the need to drive on ever more complex, leading edge devices, the node to node cost per bit and cost per transistor reductions that have been the key to our industry success.

With this goal we are investing significant focus this year in two areas.

One accelerating our vision for equipment intelligence solutions and to extending our technology leadership in critical high aspect ratio processing.

First Lamb equipment intelligence is a suite of capabilities, including data driven modeling state of the art syncing Adeptus feedback algorithms augmented reality remote support and self maintenance hardware aimed at shortening process development times and delivering predictable manufacturing.

Ramps at lower cost with fewer resources.

Our groundbreaking send site edge platform introduced earlier in 2020 is a great example of a tool designed to leverage our holistic approach to our equipment intelligence offerings.

Uncensored by these capabilities are used to enhance RF and temperature control improve as yield automate routine maintenance activities and reduce chamber matching times across large fleets of tools in.

In the September quarter, we continued to gain traction for this new product with initial shipments to two additional memory customers. We have aligned roadmap insertion plans with the top memory manufacturers and expect to ship multiple repeat systems in the next few months.

While new platforms like sense I are designed for equipment intelligence from initial concept. We have also demonstrated this year that customers can realize significant value by deploying select elements of our equipment intelligence solution set as options were upgrades for their current generation systems.

For example, our corvus our automated self maintenance feature available on our Kiyo conductor etch system has been.

It has been proven to shorten maintenance cycles and improved process repeatability on critical and semi critical applications as it is.

As a result, the installed base of Kiyo etch systems equipped with Qorvis, our technology is on pace to expand by more than four times in calendar year 2020.

Land equipment intelligence is also enabling new types of remote support that have proven vital to business resilience during the COVID-19 pandemic.

Big data analytics approaches to enhance troubleshooting and simplified process optimization or seeing growing adoption in 2020, our data enhanced service activities are on track to grow three X over the prior year.

Virtual reality technologies are allowing us to continue training engineers across the globe to further develop their skills on our latest systems without the need for international travel.

Similarly, the latest innovations in augmented reality headset devices are allowing us to connect the engineers at customer sites to real time experts supporting our factory often as much as halfway around the world.

Our customer support business group is projecting six X growth in remote support engagement this year.

We believe building an ecosystem of smart tools and intelligent services will help drive sustainable cost reductions across the semiconductor manufacturing process and generate growth for our installed base business.

Revenue from our productivity focused offerings, including advanced services is expected to grow approximately 25% in this calendar year.

In the area of process technology. The continued vertical scaling of Threed device and packaging architectures across all market segments creates a compelling long term growth story for Lam.

Over the past decade, we have built a winning track record in etch and deposition at the Threed inflections, most notably in the transition to Threed NAND.

In the September quarter, we further extended our lead in Threed NAND with favorable high aspect ratio conductor etch decisions for devices beyond 200 layers and new application wins in dire electric LD gap fill in carbon hard mask deposition.

Our high aspect ratio processing expertise also applies to emerging threed packaging architectures in foundry logic is an estimated that threed heterogeneous integration solutions can enable cost reductions of approximately 20% for leading edge nodes.

In addition, Threed chip stacking is delivering performance advantages for advanced image sensors and high bandwidth memory.

We expect etch and deposition intensity in advanced packaging and our corresponding revenue opportunity to continue to increase as more integration schemes leverage threed scaling.

In the most recent quarter, we received multiple follow on orders for our Saber Threed electroplating and Cindy in etch tools for this market and since 2015, our installed base for both tools has doubled.

Looking forward I am.

I'm more confident than ever that lambs capabilities and strategic investments are well aligned with the fundamental needs of our customers and our industry the complexity and cost scaling challenges for future technology nodes require comprehensive innovation in products and services to drive efficiencies from the very begin.

Some of the design process, all the way through to the support and maintenance activities in high volume manufacturing fab. This.

This focus is fast becoming the thread the ties together our strategic growth objectives, and we are pleased that we are beginning to see the results of our efforts reflected in our strong financial performance.

Thank you again for joining today's call and now here's Doug.

Question.

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

I hope everyone has continued to remain safe and healthy.

We're extremely pleased with our operational and financial execution in the September quarter.

We delivered record performance in multiple areas, including total revenue, which came in at $3.18 billion.

And as Tim mentioned as part of that revenue, we achieved over a billion dollars of revenue and our customer support business group.

These results are clear evidence of our ability to grow the company and meet the needs of our customers, while further improving our business resiliency.

Our September revenues increased 14% from the June quarter.

Driven by customers technology investments to meet long term growth opportunities.

These opportunities range across multiple vectors, such as data centers Fiveg networks.

Smartphones gaming consoles and personal computers.

In the September quarter, we also had a record level of earnings per share coming in at $5.67.

The results of our solid revenue and gross margin performance.

Let me now move on to provide some color on our systems revenue.

There were continued strong investments in the foundry segment and we've had the highest system revenue dollars for foundry in our company's history.

Our customers invested broadly with spending targeted at 14, seven and five nanometers.

Foundry represented 36% of our systems revenue for the September quarter.

The memory segment was also strong in the September quarter coming in at 58% of systems revenue.

NAND represented a 39% of our system quarter revenue with investment spending 64, 96, and 128 layer devices.

We saw increases in DRAM spending, which contributed 19% of our systems revenue which was.

Which was up from 16% in the June quarter.

Customer investments focused primarily on node transitions to one wine and Wednesday.

We continue to see memory bit supply growth in the near term below long term demand growth. So.

Supporting our belief that the memory market remains a healthy place from an inventory management.

As well as investment standpoint.

And finally, the logic and other segment was down quarter to quarter and contributed the remaining 6% of systems revenue in the September quarter compared to 10% in June.

For regional revenue concentration as we discussed last quarter, we see solid levels of investment in the China region, which can.

Which came in at 37% of total revenues in the September quarter.

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

We have a broad base of customers in the China region and despite the trade regulations that have impacted us with certain customers we see.

We see continued strength in this region for our business from both domestic and multinational customers.

We achieved another record quarter revenue for our customer support business group at just over $1 billion as I previously mentioned.

This was an 11% increase from the June quarter level in over 28% higher versus the same quarter in 2019.

In addition to the strength of our advanced service offerings, we're optimizing the capabilities of our installed base through technology and productivity upgrades.

We also continued to see strong demand in the refurbished tool business driven by growth in various applications within the specialty technology markets.

You should think about things like Aiotv RF and power devices.

We're on track to deliver the growth objective of over 40% cumulative revenue growth between 2019, and 2023 pursued a strategy that we outlined at our Investor day earlier this year.

Our gross margin for the September quarter was 47.5%.

The high end of our guidance range.

Customer and product mix are always factors impacting our gross margin.

We also experienced favorable impacts in the quarter related to increased factory and field utilization.

We made more progress on our production efficiencies as we operate with COVID-19 related safety protocols.

We are experiencing higher cost in the global freight and logistics area and expect these elevated costs will continue until broader airfreight availability becomes available.

September quarter operating expenses were $523 million.

Over two thirds of our spending remains focused on R&D as we continue to make progress in our growth initiatives for market share and technology disruptions to expand our served available markets.

Incentive compensation was higher as well during the quarter related to our higher profitability levels.

We are maintaining travel and other expenses at lower levels as we continue to remote work excuse me to work remotely in many locations.

Our operating margin in the September quarter came in over the guidance range at 31.1% with operating income of $988 million.

Our non-GAAP tax rate for the quarter was 10.9%.

We will have fluctuations at our tax rate from quarter to quarter and you should continue to expect the ongoing tax rate to be in the low teens level.

As we've noted before we expect other income and expense will vary quarter to quarter based on several market related items.

Think about things like foreign exchange and the level of interest rates.

Other income and expense was approximately $51 million in expense, which was higher than in the June quarter.

The increase was driven by lower interest income on our cash and investment balances as well as.

As well as the impact of a full quarter of interest expense associated with the $2 billion debt offering that we completed at the end of April.

Let me now shift gears and move on to capital return.

We continue to drive strong cash flow and remained committed to the targets we laid out at our Investor day earlier this year to have our capital return at 75% to 100% of free cash flow.

We were active in our buyback activity during the September quarter, and repurchased approximately $450 million of stock.

In addition, we paid $167 million in dividends in the quarter.

I would also like to highlight that we announced in August a dividend increase from $1.15 to $1.30 cents per share each quarter, which was paid in October.

Lift earnings per share came in at $5.67 above the guidance range, we provided for the September quarter.

Our diluted share count was essentially flat for the September quarter at 147 million shares as we expected.

The share count includes the dilutive impact of approximately 900000 shares from the 2041 convertible notes.

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

Let me now move on to the balance sheet cash and short term investments, including restricted cash decreased slightly in the September quarter to $6.9 billion from $7 billion in the June quarter.

Cash flows from operations came in at $643 million, which is solid performance in an environment, where we continue to deploy cash towards working capital to support increased business volumes.

Dsos decreased slightly in the September quarter to 66 days from 68 days in the June quarter.

Inventory turns were also slightly down from the prior quarter coming in at six or excuse me 3.1 times.

Inventory balances are somewhat higher as we are growing inventory to support higher business levels as well as to mitigate risk from potential supply chain disruptions.

Non cash expenses were approximately $56 billion for equity compensation 50.

$56 million for depreciation.

$17 million for amortization.

Capital expenditures in the September quarter of increased from June to a total of $63 million.

We are slightly wrapping up capital spending to support things like the sense I platform development.

Our new Malaysia factory.

And the technology lab that we announced in Korea.

And then headcount for the September quarter was approximately 11700 regular full time employees.

We added resources to support the higher levels of customer activity in the factory and in the field.

Additionally, we are supporting new activities and research and development areas like send side then.

Enhance the LP and dry resist.

Looking ahead I'd like to provide our non-GAAP guidance for the December 2020 quarter.

We are expecting revenue of $3 billion $300 million, plus or minus $200 million.

Gross margin of 46% plus or minus one percentage point.

Gross margin is a bit lower as we see a less favorable mix as well as ongoing coated related expenses.

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

And finally earnings per share of $5.60, plus or minus 40 cents based on a share count of approximately 146 million shares.

Not all in an effort to address the question I know everyone has concerning our business with a large Chinese foundry I'll just give you a direct update relative to the guidance as Tim mentioned, we are fully complying with all regulations.

And have applied for licenses to allow us to ship tools and parts to them.

The status of the license approval is uncertain.

The revenue and earnings guidance I, just provided is lower than it otherwise would have been as a result of this uncertainty.

With the results, we have delivered and the guidance we've provided for the December quarter. The 2020 calendar year is expected to be the strongest ever in the 40 year history of Lam research.

We are well positioned to Dan from the continued strength and investments across all segments of the semiconductor industry.

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

Thank you very much if you'd like to ask a question on todays call. Please press star one.

From.

Yeah listen today, using a speakerphone please pick up your handset before pressing the digits.

Do you find that your question has already been addressed you May press star two to remove yourself from the queue. Once again that is star one during the question Q1.

Well go ahead and take our first question from CJ Muse with Evercore. Please go ahead.

Hi, good afternoon, and thank you for taking the question I guess first question on the NAND side I think there's a notion that perhaps we might be nearing a peak on spending so would love to hear your thoughts on a.

A how do you think about your revenue opportunity on just node migration purchase new wafer starts.

And then Dave can you kind of walk through what the revenue opportunity, which sounds like is increasing.

As we migrate from the nine next layer nodes are 128 layers in above.

Sure let me start CJ.

Yes, I think that you probably called out the most important point right. There at the end what we have continuously said is that because of the role that etch and deposition play in building. These devices are our opportunities growing quite significantly at each of those node migrations and so from our revenue perspective, we clearly see that.

Revenue continues to grow in Threed NAND into the future.

From a from a spend spending perspective, obviously anytime you can we continue to see higher and higher numbers. It will start to think about a peak.

But again, if you looked at it and thought about what I said about supply growth, we still see ourselves exiting this year with supply growth remaining below the long term trend line and also if you go back and reference the data point and given a couple of times that the NAND flash the flash memory summit about five years spending requirements to meet what we.

As long term demand growth in the high 30% range that is.

We are kind of nearing those spend levels right now after a couple of years.

Previously of understanding that and so I think that we're still.

Quite confident about how we entered 2021 from a NAND spending perspective.

Thats really helpful. As my follow up.

I would see SPG side.

Great acceleration on a year over year basis, I think we're up 20.

29%. So security is that a function of higher utilization rates at customers is there kind of one time upgrades in there or is that tools coming off warranty and as Paul.

And as part of that how should we kind of think about.

The growth trajectory of that business for all of fiscal 21. Thank you.

Sure well, it's maybe maybe the last part first which is as Doug pointed out probably the best way to think about its future growth is still the same as what we said in March which is a 40% growth between our.

2023, but.

While we did see an acceleration and.

I think what you're seeing is is in some ways. The power of that business, which is made up of a several different components you pointed out some of them.

A sensitivity to utilization on which is primarily in the spares business.

And then also as customers look to to get more out of their existing installed base in a lot of my script talking about how customers are looking for ways to.

To enable these transitions and enable high volume manufacturing ramps, but but we are sensitive to how much it cost to do that and so customers continue to look for technology and productivity upgrades to make that installed bases as valuable to them as possible. So we we have seen upgrades increase.

In terms of that and then I also mentioned.

Spending on refurbishment and other systems as well and so it's a multifaceted business and I think that right now we're we're hitting all all of the angles that are very important to our customers.

Thanks Richard.

And we'll go ahead and take our next question from Harlan Sur Jpmorgan. Please go ahead.

Good afternoon, great job on the quarterly execution and strong results in less than two years of sort of weak flattish DRAM spending, but as the demand profile looks strong next year and you have the early move to one alpha node 2021 is looking like a growth year for DRAM spending and on top of that.

Architecture has always been very street like any similar to NAND bike aspect ratios are increasing tighter tolerances on materials sickness is and so on so ahead of the shutdown DRAM here, how do you view your Sam any share expansion potential on some of these next generation one out for DRAM architecture.

Chris.

Yes, just to kind of it reiterate comments we've made in the past I mean, we as you pointed out every time you move forward and technology.

Whether it's whether Threed NAND, we just spent time talking about our here in DRAM.

The the features are getting taller the aspect ratio is it getting more difficult and that is that is requiring more etch and deposition technology and it tends to expand our Sam we.

What we've said is every technology node in DRAM NAND.

NAND and foundry logic, our Sam grows as the technology moves forward. Sir your question of DRAM is no different.

We do anticipate and we said that we think we entered 2021 with a good set up the rising DRAM spending as.

As you pointed out a couple of years of a flattish DRAM spending were really kind of been under growing long term demand and so we combine increased spending with BC as higher intensity due to these technology changes that require more etch and deposition equipment.

We think it's a good set up for Lam going into 2021.

Okay. Thanks for that and then Doug.

Obviously very strong gross margin performance by the company and Thats, even still with the higher logistics and transport and freight related cost included 19 can you just give us an update here and maybe give us a sense on how big that impact is to your gross margins either in the just reported September quarter or in the December quarter.

Our guidance.

Yes, Harlan I haven't quantified it.

But it but it's it's noticeable I mean, let me put it that way I mean freight logistics spending is is quite expensive right now simply because theres just not enough airfreight flying across the Pacific Ocean, where lot of our stuff comes and goes.

But I havent quantified it Harlan the right way to maybe just thinking back longer term to the financial model, but the right way to think about it is still the numbers that are embedded in there.

Right now when I think about the revenue levels were add were trending a little bit below what might be in that model and it's because of the cobot inefficiencies in particular freight logistics I'm not going to quantify it for you, though that thats, how you should be thinking about it and we had a really positive mix in September we don't have quite as positive mix in.

December so thats the commentary around sequential gross margin.

Yep, great insights. Thank you.

Thanks Harlan.

Go ahead and take our next question from John Pitzer with Credit Suisse. Please go ahead.

Yeah. Good afternoon, guys congratulation on the strong results when somebody asked a question I guess, Tim you talked about some I see in the December quarter being.

Being a hit but I was hoping you could quantify that and as you do kind of help us understand how.

How China might that trend as a percent of revenue in the December quarter, it's been well above trend and I know you've talked about broad based strength do you see that kind of well above trend representation in the December quarter as well.

Yes, John I'm, not going to quantify the large Chinese foundry impact to the guide.

I think that the numbers I've seen people suggest a percent of revenue Wi Fi in a longer term basis, the right way to kind of think about where that particular customer might have been.

Could continue to be if we are all in the industry able to get licenses.

And any given quarter it can be up or down as all customers are so I'm not going to switch that really quantified in December but I think you know roughly how big there.

No thats helpful and I apologize for the follow up did you guys clearly understand the concern out there is how much of the China strength gains related to customers there'd be worried about.

Full bands going into China by the US government, Tim I'd like to get your kind of thoughts.

The worst case scenario with the U.S. more to ban equipment going into China, how much of the China Capex and WFP today do you think that need to be reconstituted in other geography support demand and how much of it do you think could be lost interest representative of kind of China building.

In anticipation of demand multiple years out as they go.

Pursue their semiconductor unit domestic semiconductor strategy.

Well I mean its a.

It's a very difficult question to answer from the standpoint that that.

In many ways, which you just implied in the question was that some of that may be building in China in anticipation of demand they see several years out.

We think that demand I mean for all of the reasons that we talked about whether it's.

I mean, it's just the digitization of the global economy, that's occurring everywhere and so we think that demand remains and so to your point of.

How much of it gets reconstituted how much of it get satisfied I think China demand global demand has to be satisfied with something by somebody and so.

I think ultimately a lot of it gets reconstituted and the only part that might not be as what we have acknowledged and I think most people recognize as you're coming up the learning curve there.

There there can be in the short term some over spending as your as your learning and you're building yield and you're you're gaining efficiencies but.

But even in the long run that we've seen that play out over every region. What ends up happening is that turns and ultimately to business for our for our installed base business, where we go back years later, and we're making that installed base productive and so.

This this industry is so efficient that I don't think theres ever really anything that gets lost quite honestly and thats.

But I mean, there is a lot of the road probably a lot of pieces to your question that or require assumptions, but I think that.

So it it would it would cause some disruption as we've said in the short term, but in the long term demand.

Demand drivers and the need to supply semiconductors, and semiconductor equipment to meet them doesn't fundamentally change our in our view.

Maybe John just had a couple of things when I think about it when I look at the revenue in China for US it's split fairly evenly between the multinational customer base some of the local Chinese customer base. So to help you frame it a little bit that multinational stuff. Obviously it was a decision to put in a country that could have gone anywhere quite honestly and then as Tim.

Alluded to in a lot of the Chinese customers are relatively new in their process ramps, so maybe they're a little bit inefficient or somewhat inefficient.

But at the end of the day. They are building capacity to support long term demand that somebody else will step into over a period of time.

So.

And our I hopefully thats helpful.

Very helpful. Thanks, guys.

Thanks, Jeff.

And we'll go ahead and take our next question from Timothy.

Arcuri with GBM. Please go ahead.

Thanks, a lot.

I had two I guess the first one Doug is on service and I guess the question is how much if any inventory stocking experience you can do going on I know you try to put controls around that but it seems pretty clear how much service has taken.

Taken on for the past six months and maybe that is actually happening.

Been pretty clear that you can't run the tools you won't get the spare so it wouldn't make any sense to pull the tools that we have heard that there was some communal stocking happening in China.

Parts and parts and whatnot. So can you speak to how much of a factor that is you actually see that happening.

Yes, Tim it's hard to know to be perfectly honest.

One thing I looked at in in anticipation as question coming up is from the beginning of the quarter to the end of the quarter did any customer meaningfully increase their spares.

Orders with us in China, and the answer to that was no not really.

That doesn't mean that maybe they weren't planning to stock a little bit ahead, it would be pretty hard at times to know but.

I don't see a big stocking going on in China for spares as maybe the way I would summarize I know Tim if you think any differently, but I think that I think thats fair I mean, obviously, just as you see in sometimes in our own numbers as you're building for growth I mean, there is no doubt the inventories themselves the number of parts that have to be.

Stockton and May.

And maybe that is what we'd call the safety stock levels. When those may rise I mean, when you're in the early days of a manufacturing fab.

Aren't as concerned about like the to the the time to get another part shipped in but as you as you really start to time working towards.

Efficient mass production you as you do that so I think we.

I think we have seen clearly we have seen that that shipments have increased or whether they're increasing more than the growth plans as the.

Those customers a little bit more hard to it to say.

And I would say just across the board there is a little bit about.

Everybody's focused on business resilience, but you know as we talked.

As we talked about things that may be structural I think for quite a long time and people going and looking at what do I have to do to ensure my business can run and.

So I don't think those you see those immediately like turn on and off.

Got it and then I guess my follow up just on the balance sheet.

You did start to veeco back up you know $450 million definitely stuck them a number but you still have $7 billion in cash and I think in the past you said, maybe 4 billion Bucks kind of the optimal cash should we definitely have a lot of excess cash and maybe can you update us on your thoughts on what you're thinking initial excess cash I can get it seems a little high.

We would be able to do M&A and assembly.

Assemblies to get.

To get some loses to prove that so can you talk to more excess cash levels.

Yes, Tim.

Specifically reiterated the 75% to 100% return to free cash flow as the company's plans objectives and of fingerprint. However, that's that's.

What.

Planning to do.

Over the last couple of years, we've done more than that we've done more than a 100 and your observations right. We probably have a little more cash than we need sitting on the balance sheet right now and we'll be looking at that periodically overtime, but.

I don't have anything new to tell you right now relative to any change in our our plans are thinking.

Okay Thats helpful.

Thanks, Tim.

And we'll go ahead and take our next question from Krish Sankar with Cowen and company. Please go ahead.

Hi, Thanks for taking a question part two of them first one for Tim on the demand side year over year.

Similarly go from 96 to 128 lives.

Organically the edge nine rent up and just the big.

Positive for lab, but going beyond 128 megawatt customer trucks cocky radios EBITDA slight negative on im trying to figure out is.

It's Scott in Utah.

Neutral and negative for that than the GDP today.

For them.

I mean, the simple answer is no sans fuel gross under every scheme to to build more layers.

It translates into different parts again.

I've talked about this where you kind of pick you kind of pick your battle, whether you're trying to build ever taller stacks in one shot or you're trying to.

Build efficient stacking, but.

Simple answer is etch and dep intensity rises in either case.

Just perhaps guidance, let differently different applications.

Great. Thanks, gentlemen, a follow up for Doug.

When you do get into shared how much if you have surplus of CVG revenue.

In domestic China on overall, China.

I don't know that I'm willing to share occurs because up to up my I'm not sure.

Not sure I know what that number is.

[music].

You know that the way to think about it overtime is consistent with the equipment shipment with OLED right in the way, we've generally been talking about the business for us from a system standpoint in China is it's been pretty evenly split between multinational customers and local China.

And overtime, the CPG business kind of would get caught up to a similar footprint. If you will maybe not immediately but.

Chris sensors to opt out of off the cuff reaction to the question.

Thanks, Doug.

Thanks, Chris.

We'll go ahead and take our next.

A question from today with thanks.

Hi.

Thank you for taking my question.

I was hoping if you could give us some directional view on the China versus non China.

The foundry logic rush since may mix for the December quarter guidance.

You are asking Vic about December specifically.

Right.

Just a.

How do you see it does mix things trending and.

In December I think China is going to remain strong in December is is how I view it right now as we sit here today and I think the the.

Broad based set of customers in China that I tried to describe we will continue to be what it looks like.

And on the foundry logic question that remix.

Well the large China foundry customer led.

Lastly, isn't going to get much from us if anything unless we get a license in December so that will probably trend down a little bit in December.

Hi.

And as my follow up I wanted to revisit this data and question I understand you know eight.

I'm, sorry, I said below their peak, but that's still back to the levels you had in the second half 18, how are you thinking about your DRAM growth over the next several quarters. What are the signs that you are looking for to say that down now.

Trough and now we can get back to some normalized trend.

I mean visit but we look at is we rewrote run our own models a bit supply growth and do our best to try to understand inventory that's out there with customers are holding with customers customers are holding what's good.

What's going on pricing, what's gone on profitability and as we look at all of those things.

Our view is right now the investment levels that are occurring in DRAM are generating supply growth below long term demand growth and at some point that we'll need to get itself caught up and we think it's sometime in 2021, I think it sets up to be a pretty.

Decent year for DRAM and 2021 is as much as I can tell you right now I know Tim you want to add anything no I think I think also just.

You referred back to like 2018, and I think that again for US we look and there are across all semiconductor segments I mean significantly.

Greater drivers and broadening of drivers, we're seeing today and we point out a couple of those on previous calls, but just given the difference in DRAM content and in the high end smartphones and the dramatic jump that takes.

From into the Fiveg phones, and then of course, if we talk about the build.

The build out of data centers and everything else. It's just.

There's there's demand element to it there is to supply element and I think.

We just see as positive into 2021.

Thank you.

Yep. Thanks.

Well go ahead and take our next question from Toshiya Hari with Goldman Sachs. Please go ahead.

Thanks for taking the question and congrats on the strong results I had two as well first one I guess is very much a follow up to the last question on DRAM and NAND supply growth exiting the year.

Doug you just talked about your internal models your Intel suggesting that.

Supply growth exiting the year.

Below the long term trend line as you see it or is there any way you can get kind of quantitative.

Color around that for for DRAM, or you're looking at kind of 15% to 20% ish supply growth exiting the year and now that that kind of around 30 or below 30, and I guess related to that you talked about your expectations for DRAM into 2021 being positive any directional guidance you can give on the downside.

Got to share those numbers you referenced probably are fairly consistent with what I think is the consensus view as well as our own models.

Anything incremental to add there your second question, sorry ask that again.

Yes directional guidance on unmanned enter.

2021.

If any.

You know my view NAND is pretty pretty decent right now and I think it will be pretty decent next year again based on our view of the industry inventory investment plans.

I think it would be a pretty decent year for 21 next year, we're not going to give you numbers on 21, yet we'll do that in next quarter's earnings but.

I think it sets up pretty well.

Got it and then of course.

Then a quick follow up in terms of in terms of market share you guys talked about 44 to eight percentage points of share growth I, probably have 2023 target.

Your analyst day, if I take the midpoint of your December quarter guidance and they make assumptions around your CPG business I think your systems business is going to be up close to 25 ish percent in calendar funny.

So you're pretty clearly gaining share what's sort of the outlook into next year based on wins that you have already spoken about we saw the logic and foundry side do you think you can sustain this level of.

I'm showing up on that or could that accelerate that slow down a little but any color would be great. Thank you.

Well, we're certainly going to try and and I think that our businesses. We've described this in many ways.

Every quarter, we come in and we talk about wins and new applications and I know it kind of starts to sound like a.

Like we're a broken record there, but the reality is it takes a couple of years for those wins to start to translate into the numbers that you're starting to see now and so if you go back and you kind of look at the old transcripts, you'll see us talking about pretty significant momentum.

It started really in the 2019 timeframe.

And it's been building through 2020, and Thats, what you're going to start seeing I think play out as those those wins.

At those future nodes start to roll in through high volume manufacturing and make the same caution we're extremely happy with them.

Then sign momentum right now is its winning sort of those slots and sockets and in future nodes, but no.

The timing for those to then become the main driver of revenue and market share growth won't be until those nodes that are in development now and moving into pilot become high volume nodes.

That's so so I'd say that we look back two years to our progress and Thats kind of what we're starting to see and we look at winds were making now and that's our that's our pipeline to hit the 2023 2024 objectives and I think we as we've said we feel we're on track and and almost couldn't feel better about the strength of the product portfolio and the.

Pipeline right now.

Great. Thank you.

Yes, thanks to show.

Huh.

And we'll go ahead and take our next question from Joe Moore with Morgan Stanley. Please go ahead.

Great. Thank you I wonder if we could get some additional color on the restriction is in China, when exactly today kind of going to place and just so I understand.

For modification if it happens again, what happens to product that's being installed on site to product that shipped on the way that it's stuff. That's in backlog are you still able to ship against that.

Maybe I'll make a couple of comments and then Tim If you can you comment on what your I mean, they are incremental item that came out was really an application of a rule that was previously out there around military end use.

Basically said you know you are enabling bad one of our customers is you need a license and so what what ended up happening is I guess.

Guidance, if you will from the department of Commerce that you need to license to ship to at least one customer the foundry customer in China, I mean, thats really the only thing that was new Joe.

So we're applying for licenses is basically what's going on I don't.

I don't know how long, it's going to take to find out whether those license will be granted or won't we're kind of in sort of uncharted territory and in our way.

Well wait and see how it plays out so timing I don't know that I can help you much with.

Okay, and then in terms of the backlog and anything that might be assembled on site.

Generally speaking when these rules come out you get a little bit of a lead time. So you can adjust whatever is like in the very near term going on but.

It's hard to know quite honestly. So at this point, we are complying with all regulations that are out there relative to this one customer.

Which means were.

You know were de rating to shipment plan for the December quarter disclose whats going on until we know more.

Great. Thank you very much.

Thanks, Joe.

Well go ahead and take our next question from Blayne Curtis with Barclays. Please go ahead.

Hey, Thanks for taking my question I had is just.

Would love a little more color on just the the trailing edge strength, how much of a distributor that was.

So you've heard about tightness that clearly seeing a rebound, but a lot of that market. They are kind of still down a bit or is your perspective is a different mix, particularly markets higher content. In your guidance perspective is this just a little bit of a catch up or is it some more sustainable trend.

No I think this I mean at least from our view I mean I mentioned it was another record.

Order for our business.

Group to satisfy that demand, we've just seen tightness in this market and kind of a broadening of those activities quarter by quarter, but.

So.

And if you go back and look with reported record quarters now for quite a number.

So I think it's just tightness is it's difficult in fact, we just had a very strong.

Very strangely, but new product release, where we talked about.

Releasing of the product now for 200 millimeter photoresist strip and so.

So I think you can kind of get a sense from that when we're going back and basically refreshing 200 millimeter products.

But the demand is out there and it cannot be solved or.

Or serve just by refurbishment of the existing base as the the requirement is actually expanding beyond that yes blayne.

Yes, Blayne I mean, I know you know this market really well I kind of think of the analog giotti edge kind of devices that are out there you know what's going on there I mean, thats really whats going on with this part of our business as well back at our Investor Day in March we suggested that we think WSE in this space.

Eric would grow two to three times faster than WSE broadly.

And Thats whats going on.

Got you and then maybe as a follow up you mentioned that there will be a few would grow next year not giving the specific guidance you mentioned memory up I Didnt hear you say foundries I guess Im just curious you know obviously, you don't know whats going along with that might be in licenses in China in general, but just kind of curious with the strength the trailing edge is foundry going to.

Next year as well connect that you guys have factors there.

Yes, Blayne, our normal practice at this point in the year is not to give specific numeric here's what next year looks like we'll do about a quarter from now.

We're giving you a little bit of color that we think is going to be a good year next year, but it's too soon for us to quantify we're just our practices to to wait until the December quarter earnings to give you that and we will give it to them.

Thank you.

Thanks, Brian.

And well go ahead and take our next question from Keith Good luck.

Please go ahead.

Hi, Thanks for taking my question.

You have talked about the 10 billion domestic China Wi Fi number in the past.

That's the right number within that mid Fiftys that'd be a fee for the market.

Yeah. Our view is still mid high Fiftys from WPP standpoint, and China, roughly 10, plus or minus a little bit in over three quarters over <unk> of the way through the year. So if the one customer that everybody is thinking about right now is unable to spend in the fourth quarter were were still in that range.

Okay and the follow up has the backlog normalized COVID-19 impact in the March quarter and now what do you get selected in your Q4 revenue guidance you still have some Candy award.

Jeff were pretty much caught up at this at this point.

Thank you.

Yeah. Thank you.

And we'll go ahead and take our next question from Sidney Ho with Deutsche Bank. Please go ahead.

Hi, Thanks for taking my question my.

My first question is going back and trying to get him in the strength you've seen last quarter I think.

I think any risk of customers pool purchases.

Yes, I think you addressed the spare parts like earlier, but the question is not just from a onetime three customer, but also maybe other customers in the middle East side.

Well I guess.

You addressed it is there is there a risk steaming backward looking risk into September vis vis the pull ins occurred thing done kind of answer that which is right. We really haven't we really haven't seen.

Well you know anything.

Anything that feels out of the ordinary relative to the growth plan for these customers going forward.

You know I think again in many ways you see us guiding to yet another record for the company and.

I don't think that that will be I don't think any of that right now sectors and we again think is.

Abnormal pull in activity.

Okay. I think I can you guys could talk about say parts earlier, but I guess to systems, new systems as well. So I mean, I know working with it I think I think I think the question maybe wasn't I'll spare parts, but it's really more of a I think it's a broader statement yeah I agree okay.

Okay.

Maybe my follow up question based on Intel I think last quarter, you guys pretty much set us there's no impact if it doesn't matter who makes the the chips, but on the Monday side now that's all in place so that they said ample since the hind legs.

Given that they have very different architecture do you think they will be and that impact you guys going forward.

Well, it's hard to know that's correct. That's a pretty recent announcement in there it would be a little bit of speculation I mean since you know long term the way I think about this is that the end of the day demand is what matters right. Our customers are putting wafer capacity in place to supply demand and.

Thanks can get pulled and pushed out a little bit on the margin, but at the end of the day when I think about where I think the industry heads supply and demand have to be in relative equilibrium.

Over the medium or longer term and whether that means we have five customers in NAND or three it largely doesn't matter, they're going to investors to satisfy demand in my mind.

Yeah, and I guess the question was is that all targeted towards that strength I mean, we basically have talked I think in the past were strong across all our flavors and Threed NAND.

Okay, great. Thanks.

Thanks Aaron.

And we'll go ahead and take our next question from Joe could Trashy went well.

Well I can please go ahead.

Yeah. Thanks for taking the question on the Nance I was curious within your bit supply growth model or expectation. How do you think about the growth from node transitions of technology transitions in terms is it big demand is closer to 30% next year and of course, it's kind of a long term of high 30% do you.

You think the install base needs to grow to support that.

You know in any given year, Joe when we look at it there's always have a blend of both its always in the best interest of the customer to do the node conversions first because it's a very cost effective way to do it.

And then generally that means you lose wafer capacity needs to get topped up a little bit.

In any one year and the mix is different a one year to the next but it's always a blend.

Okay. That's helpful. And then just I thought your comments in the prepared remarks around support engagements being a remote I was interesting obviously with Covidien just curious how do you see that trending over the next few years, maybe what percentage of engagement our remote now and maybe how do we think about the cost.

Savings potential there.

Well you know here I guess, what I would say is we featured the equipment intelligence solutions you imagine if we're launching since I designed around becoming intelligence. We started that activity long before cobot was was ever even something we could imagine so.

Yeah, we feel very fortunate now that were driving that aggressively and it really is designed to do things like removes the need for people to be physically located at the tool in order to troubleshoot and repair the tools and so we have seen I mentioned, a six x. increasing remote support engagements year over year, a lot of that is because.

As you know our engagement customers, there's kind of like not many other choices at this point to bring the kind of expertise you need to the tool and I think that what.

Just as we are seeing with work from home and I think there was a lot of that will remain structural it is it does save money for the customers by allowing us to repair the tools and get them back into production more quickly.

And it saves money for Lam, because we don't have to deploy as many people.

Flying all over the world trying to to service. These tools. So I think a lot of that I hope and I believe will be structural and long lasting.

Well go ahead, okay aspect.

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

Perfect. We'll go ahead and take our last question from Lamb Weston Twigg.

Keybanc capital markets. Please go ahead.

Hey, Thanks for squeezing me in.

Quick two questions first advanced packaging you talked about it in the.

Opening remarks can you help quantify what that is as a percent of systems revenue per hour through how relevant is the overall top line.

You know west right now, it's small but with.

With nice growth trajectory and were excited about what the future looks like it's not huge right now, but when you listen to the industry and our customers to talk about it over time, it's clearly part of their roadmap to drive Moore's law forward. So we're excited about it it's not huge now we hope it will be over time I think though it also is.

So Wes maybe you know you've been around a long time to recognize the the sabre nameplate and the point there is in many cases. These are I mentioned this is about leveraging a lot of the expertise we've already built broader application into new areas, where we can gain high share and doesn't require in those cases.

As for those markets to be quite so big to have will have start to have an impact. So saber three D. Very very strong position very long track record a lot of that R&D already kind of been being done before larger markets.

Indian same thing in terms of very high very strong market position and then as Doug pointed out there, but we're really trying to say we have those positions and we actually see the market coming to us as more of these integration schemes continue to go three d. So.

Highlighted it just as it's it's one other example of three D., helping drive incremental growth for the company.

Okay that makes a lot of sense and then the other question I had is just you absolutely remarkably low in terms of revenue contribution last quarter. I was wondering if you could offer any commentary on that if that's a trend that you see or it's just an abnormally low quarter.

Theres not a lot of fabs in the U.S. taken equipment I mean, that's what's going on and this is a shifty statement and most of our customers Fabs are outside United States West Weve, you know that.

Yeah, I I guess had dropped a lot quarter over quarter as well. So it seems like investment is declining and it.

Didn't know if that's a sustainable trend it it could be but that's the commentary was that before.

No. It's just you know how this works equipment can be lumpy to anyone fab.

From one quarter and then it needs to ramp and it's Lumpiness, but you know the faster in the U.S. and that's what's going on it's just timing.

Understood. Thank you.

Thanks Russ.

And that does conclude todays question and answer session I'd like to turn the call back over to today's speakers for any additional or closing remarks.

I know my closing remarks, thank you everyone for joining today, we appreciate that.

Once again that does conclude today's conference. We do appreciate your participation you may now disconnect your phone lines.

Our.

[music].

Good day and welcome to lands Research September quarter earnings Conference call.

At this time I would like to turn the conference over to Ms. Korea.

Korea.

Corporate Vice President of Finance and Investor Relations. Please go ahead.

Thank you and good afternoon, everyone welcome to the Lam Research quarterly earnings Conference call with me today are Tim Archer, President and Chief Executive Officer and Doug.

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

During today's call wheelchair our overview on the business environment.

Well review our financial results for the September 2020 corridor, and our outlook for the December 2020 corridor the price.

The press release detailing our financial results was distributed a little after one o'clock PM Pacific time this afternoon.

The release can also be found on the Investor Relations section of the company's website, along with the presentation slides that accompany todays call.

Today's presentation and see when a includes forward looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our FCC 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 todays earnings press release.

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

A replay of this call will be made available later this afternoon on our website with that I will hand, the call over to Tim.

Thank you Tina and welcome everyone.

Delivered very strong September quarter results revenues and gross margin came in above the midpoint of the guided range.

Operating margin and diluted earnings per share exceeded the high end of the range our.

Our performance.

Solid execution across the company.

The operating environment remains challenging due to the COVID-19 limit the tremendous dedication of lambs employees and our partners worldwide is enabling us to perform at a high level.

At the midpoint of our December quarter guidance, we will be growing EPS more than 35% year over year in 2020.

Investments, we're making in manufacturing and supply chain resilient or enabling us to meet customers' critical needs in a period of strong demand and are preparing us for the continued growth we see ahead.

Before I talk about marketing product trends I want to touch upon China related trade regulation.

As has been widely reported U.S. regulations have impacted our ability to ship.

Wafer fab equipment and parts to a large foundry customer in China.

We're working with regulators on this issue and have applied for licenses to ship the equipment and parts that are subject to the restrictions.

As a result of the current situation our December quarter guidance reflects an impact to sales to this customer.

From a market perspective, we see positive momentum in the underlying drivers of semiconductor growth and believe this translates into a healthy outlook for lamps business work.

Worked and learn from home trends continue to drive demand in key electronics categories, including PC storage and networking.

Third party data suggests that growth in PC notebook and workstation shipments in the calendar third quarter surpassed a 10 year high to reach record levels more.

Moreover, some memory manufacturers have noted shipping record levels of consumer solid state drive bids in their most recent quarter we.

Occasion networks.

Against this backdrop, we see WFP spending growing across NAND, DRAM and foundry logic supported by demand fundamentals that should drive continued WFP strength into 2021.

Overall, our expectation for WFP in calendar year 2020 remains unchanged from our prior outlook of the mid to high 50 billion dollar range with an improved memory mix compared to 2019 lead.

We're also experiencing strong pull for trailing edge foundry logic nodes due to a pick up in the automotive aiotv and image sensor market.

This helped us deliver in the most recent period another quarter of record sales for our alliance business.

In May and we see spending increasingly focused on nine next layer and beyond devices, where higher capital intensity for etch and deposition combined with lambs strong market share position create even greater opportunity for the company and that prior nodes euro.

Year on year total NAND installed wafer capacity is expected to remain flat with NAND bit supply growth still tracking below long term demand as we exit calendar year 2020.

In DRAM customers continue to invest cautiously and supply growth remains below long term demand.

As a result, we see a positive set up for next year and believe DRAM spending will increase as we progress into 2021, we.

Expect to provide our full 2021 WFP outlook in our January earnings call.

Turning now to our business updates.

We recorded solid progress in the September quarter towards our long term growth objectives.

A fundamental part of our strategy is to deliver broad innovation in equipment process and support capabilities to help our customers accelerate the transition of next generation threed devices into high volume manufacturing.

With this goal we are investing significant focus this year in two areas.

One accelerating our vision for equipment intelligence solutions and to.

And to extending our technology leadership in critical high aspect ratio processing.

Ramps at lower cost with fewer resources.

Our groundbreaking sense edge platform introduced earlier in 2020 is a great example of a tool designed to leverage our holistic approach to our equipment intelligence offerings.

Onsite. These capabilities are used to enhance RF in temperature control improve edge yield automate routine maintenance activities and reduce chamber matching times across large fleets of tools.

While new platforms like since I are designed for equipment intelligence from initial concept. We have also demonstrated this year that customers can realize significant value by deploying select elements of our equipment intelligence solution set as options were upgrades for their current generation systems for it.

For example, our quarters are automated self maintenance feature available on our Kiyo conductor etch system has been.

It has been proven to shorten maintenance cycles and improved process repeatability on critical incentive critical applications.

As a result, the installed base of key which systems equipped with Qorvis. Our technology is on pace to expand by more than four times in calendar year 2020.

Land equipment intelligence is also enabling new types of remote support that have proven vital to business resilience during the COVID-19 pandemic.

Big data analytics approaches to enhance troubleshooting and simplified process optimization or seen growing adoption.

In 2020, our data enhanced service activities are on track to grow three X over the prior year.

Virtual reality technologies are allowing us to continue training engineers across the globe to further develop their skills on our latest systems without the need for international travel.

Our customer support business group is projecting six X growth in remote support engagements this year.

We believe building an ecosystem.

Smart tools and intelligent services will help drive sustainable cost reductions across the semiconductor manufacturing process and generate growth for our installed base business.

Revenue from our productivity focused offerings, including advanced services is expected to grow approximately 25% in this calendar year.

In the area of process technology. The continued vertical scaling of Threed device and packaging architectures across all market segments creates a compelling long term growth story.

Over the past decade, we have built a winning track record in etch and deposition at the Threed inflections, most notably in the transition to Threed NAND.

Our high aspect ratio processing expertise also applies to emerging threed packaging architectures in foundry logic. It has been estimated that threed heterogeneous integration solutions can enable cost reductions of approximately 20% for leading edge nodes.

In addition, Threed chip stacking is delivering performance advantages for advanced image sensors and high bandwidth memory.

We expect etch and deposition intensity in advanced packaging and our corresponding revenue opportunity to continue to increase as more integration schemes leverage threed scaling.

Looking forward.

I'm more confident than ever that Lam capabilities and strategic investments are well aligned with the fundamental needs of our customers and our industry the complexity and cost scaling challenges for future technology nodes require comprehensive innovation in products and services that drive efficiencies from the very begin.

Some of the design process, all the way through to the support and maintenance activities in high volume manufacturing fab. This.

Thank you again for joining today's call and now here's Doug.

Question.

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

I hope everyone has continued to remain safe and healthy.

We're extremely pleased with our operational and financial execution in the September quarter.

We delivered record performance in multiple areas, including total revenue, which came in at $3.1 billion.

And as Tim mentioned as part of that revenue, we achieved over a billion dollars of revenue and our customer support business group.

These results are clear evidence of our ability to grow the company and meet the needs of our customers, while further improving our business resiliency.

Our September revenues increased 14% from the June quarter.

Driven by customers technology investments to meet long term growth opportunities.

These opportunities range across multiple vectors, such as data centers Fiveg networks.

Smartphones gaming consoles and personal computers.

In the September quarter, we also had a record level of earnings per share coming in at $5.67.

The results of our solid revenue and gross margin performance.

Let me now move on to provide some color on our systems revenue.

There were continued strong investments in the foundry segment and we've had the highest system revenue dollars for foundry in our company's history.

Our customers invested broadly with spending targeted at 14, seven and five nanometers.

Foundry represented 36% of our systems revenue for the September quarter.

The memory segment was also strong in the September quarter coming in at 58% of systems revenue.

And represent a 39% of our system quarter revenue with investments spanning 64, 96, and 128 layer devices.

We saw increases in DRAM spending, which contributed 19% of our systems revenue which was.

Which was up from 16% in the June quarter.

Customer investments focused primarily on node transitions to one one and one Z.

We continue to see memory bit supply growth in the near term below long term demand growth. So.

Supporting our belief that the memory market remains a healthy place from an inventory management.

As well as investment standpoint.

And finally, the logic and other segment was down quarter to quarter and contributed the remaining 6% of systems revenue in the September quarter compared to 10% in June.

Original revenue concentration as we discussed last quarter, we see solid levels of investment in the China region, which can.

Which came in at 37% of total revenues in the September quarter.

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

We have a broad base of customers in the China region and despite the trade regulations that have impacted us with certain customers.

We see continued strength in this region for our business from both domestic and multinational customers.

We achieved another record quarter of revenue for our customer support business group at just over $1 billion.

As I previously mentioned.

This was an 11% increase from the June quarter level in over 28% higher versus the same quarter in 2019.

In addition to the strength of our advanced service offerings, we're optimizing the capabilities of our installed base through technology and productivity upgrades.

We also continue to see strong demand in the refurbished tool business driven by growth in various applications within the specialty technology markets.

You should think about things like Aiotv RF and power devices.

We're on track to deliver the growth objective of over 40% cumulative revenue growth between 2019, and 2023 procedures synergy that we outlined at our Investor day earlier this year.

Our gross margin for the September quarter was 47.5%.

At the high end of our guidance range.

Customer and product mix are always factors impacting our gross margin.

We also experienced favorable impacts in the quarter related to increased factory and field utilization.

We made more progress on our production efficiencies as we operate with COVID-19 related safety protocols.

We are experiencing higher cost in the global freight and logistics area and expect these elevated costs will continue until broader airfreight availability becomes available.

September quarter operating expenses were $523 million.

Over two thirds of our spending remains focused on R&D.

As we continue to make progress in our growth initiatives for market share and technology disruptions to expand our served available markets.

Incentive compensation was higher as well during the quarter related to our higher profitability levels.

We are making in travel and other expenses at lower levels as we continue to remodel work excuse me to work remotely in many locations.

Our operating margin in the September quarter came in over the guidance range at 31.1% with operating income of $988 million.

Our non-GAAP tax rate for the quarter was 10.9%.

We will have fluctuations and our tax rate from quarter to quarter.

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

As we've noted before we expect other income and expense will vary quarter to quarter based on several market related items.

Think about things like foreign exchange and the level of interest rates.

Other income and expense was approximately $51 million from expense, which was higher than in the June quarter.

The increase was driven by lower interest income on our cash and investment balances as well.

As well as the impact of a full quarter of interest expense associated with the $2 billion debt offering that we completed at the end of April.

Let me now shift gears and move on to capital return.

We continue to drive strong cash flow and remain committed to the targets we laid out at our Investor day earlier this year to have our capital return at 75% to 100% of free cash flow.

We were active in our buyback activity during the September quarter, and repurchased approximately $450 million of stock.

In addition, we paid $167 million in dividends in the quarter.

I would also like to highlight that we announced in August a dividend increase from $1.15 to.

$1.30 cents per share each quarter, which was paid in October.

Lived earnings per share came in at $5.67 above the guidance range, we provided for the September quarter.