Q4 2021 KLA Corp Earnings Call
[music].
Good afternoon. My name is Britney and I will be your conference operator today at this time I would like to welcome everyone to the KLA Corporation June quarter, 2021 earnings conference call and webcast.
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Thank you.
I will now turn the call over to you Kevin Kessel, Vice President of Investor Relations. Please go ahead.
Thank you.
Fiscal Q4, 2021 quarterly earnings call to discuss the results of the June quarter and the outlook for the September quarter with me on today's call is Rick Wallace, Our Chief Executive Officer, and Bren Higgins, our Chief Financial Officer. During this call. We will discuss quarterly results for the period ended June 32021, released this afternoon.
Afternoon after market close.
You can find the press release shareholder letter slide deck and infographic on the KLA IR section of our website.
Today's discussion is presented on a non-GAAP financial basis, unless otherwise specified and whenever we make references to a year. We are referring to calendar years, a detailed reconciliation of GAAP.
To non-GAAP results is in the earnings materials posted on our website. Our IR website also contains future investor events as well as presentations corporate governance information and links to our SEC filings.
Our most recent annual report and quarterly reports on forms 10-K and 10-Q.
Our comments today are subject to risks and uncertainties reflected.
Factor disclosure in our SEC filings.
Any forward looking statements, including those we make on the call today are subject to those risks.
And KLA cannot guarantee those forward looking statements will come true.
Our actual results may differ significantly from those projected in our forward looking statements let.
Let me now turn the call over to our Chief Executive Officer, Rick Wallace Rick.
In there as well and thank you for joining US today. The June 2021 quarter showed continued momentum and strength for KLA, we delivered on our top and bottom line goals and progress against our long term strategic objectives.
Specifically quarterly revenue grew 7% sequentially and 32% year over year to $1.95 billion.
Yeah.
Non-GAAP earnings per share was $4.43 reps.
Representing 15% sequential growth and 63% growth compared to the prior year.
These results demonstrate demonstrates strong growth momentum in our core markets and the operating leverage from the KLA model.
We continue to see incur.
<unk> customer demand across each of our major product groups. This demand is related to ongoing secular demand trends driving semiconductor industry growth across a broad range of markets and applications. Our customers are increasing their strategic capex investments to address these growth markets and investing in their leading edge R&D efforts.
Against this strong demand backdrop, we are navigating evolving customer needs and persistent supply chain challenges still KLA continues to outperform expectations by operating the purpose and precision and focusing on creating value for our customers partners and shareholders. This strong execution led by our talented global teams.
Continuing to go above and beyond.
Instantly rising to the challenge and opportunities of the marketplace I will quickly summarize our view of the industry demand environment. We're in a great position relative to growth drivers that are creating momentum for the industry and our business as a result, our outlook for the wafer fab equipment industry.
It continues to move higher we have increased our growth estimate from low to mid Twenty's stated last quarter to the low to mid thirties on a percentage basis. This is from a base of approximately $61 billion in calendar 2020 with strong secular semiconductor demand trends, continuing we expect positive industry dynamics to sustain into.
Calendar 2022.
As our business benefits from this increased demand and our customers are also investing in leading edge node development fab optimization and regional expansion KLA.
<unk> offers the leading portfolio of products to solve our customers' challenges, we continue to invest high levels of R&D.
And sure we're constantly improving and remaining indispensable to our customers specifically, we're prioritizing investment in artificial intelligence and machine learning Kla's unique capabilities and leveraging these technologies in our product and service offerings helped drive adoption differentiates KLA against the competition.
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<unk> benefits from long standing market leadership and high levels of investment and advanced laser sensor optics and data analytics technologies that leverage our AI and ml capabilities to identify critical defects in the production process and deliver ever increasing precision and metrology applications. This investment helps our product.
Product and service offerings to deliver best in class performance lower process variability higher yields improved time to market and reduce cost of ownership for our customers. Our growing R&D investment is happening as process control intensity is increasing kla's market leadership and the process control market remains greater than 4 times the nearest.
As reported by Gartner research in April of 2021.
KLA sustained performance and process control is augmented by a broader position when the electric within the electronics ecosystem.
Through our electronics packaging and components are EPC businesses, and the contributions of our large and growing services business.
For new and long time, KLA investors is essential to point out that Kla's market leadership is a result of consistent and focused execution of our company's differentiated strategy.
This favorable backdrop and our strong execution, we're on track to achieve our 2023 financial targets well ahead of expectations let's.
Let's now move along to the top highlights for our most recent quarter.
First KLA continues to execute well and outperform expectations in foundry and logic, we see simultaneous investments across multiple nodes and our customers continue to increase demand forecast, we remain encouraged by the breadth and consistency of investment across our customer base.
In memory demand is strong and spread across a broader set of customers.
During the quarter, we announced 4 new products targeting the automotive semiconductor market, including pattern and unfettered wafer inspection and in line test solutions KLA is automotive solutions aimed to help customers identify and mitigate potential reliability defects.
Based on the development and manufacturing of automotive semiconductors early in the manufacturing process, improving device reliability and driving significant value for our customers.
<unk> strong market leadership in optical pattern wafer inspection has helped to drive strong relative growth or our semiconductor process control segment 2000.
And 1 in fact optical pattern wafer inspection is forecast to be among the fastest growing segments of WSB in 2021 for product segments over $1 billion of revenue and is poised to outpace the overall industry growth by a factor of 2 ex this year. This follows similar growth and outperformance in 2020.
20, <unk> <unk> flagship <unk>.
Local inspection business is on pace for a record year in 2021 growing faster than the market and growing our leadership position as proof of that we estimate that nearly all of the verticals today at 5 nanometer are inspected by KLA systems. Our next generation E beam based annex ex mask inspection.
Section platform shipped last quarter and has begun customer qualification for applications at 3 nanometer and below.
Our services revenue was $444 million from June quarter, or 23% of total sales, 75% of services revenue in our semiconductor process control segment and more than 90% of services.
Revenue in our printed circuit board business is from recurring subscription based contracts. We believe these are among the higher subscription service rates in the industry. The services business is on track for another year of strong double digit growth well above our long term growth model target. The growth is driven by our expanding installed base higher utilized.
Service position rates and increasing expansion of service opportunities for the trailing edge and the EPC group, our semiconductor process control service business revenue continues to grow faster than the rate of the growth of the installed base approximately 2.8 times faster from 2016 through 2020.
Kla's service business has the advantage.
They are always working in close collaboration with our customers and partners driving innovation and new initiatives for growth.
Finally in keeping with our commitment to deliver strong and predictable capital returns to our shareholders today, we announced that <unk> board of directors.
Proved a 17% increase in the company's quarterly dividend level from.
<unk> to $1.5 per share. This is the 12th consecutive annual increase in our dividend level, which has grown at a compounded annual rate of 16% since inception. In 2006. In addition, we announced a new $2 billion share repurchase authorization targeted for execution over the next 12 months to 18.
18 months, we believe KLA his track record of delivering strong capital returns is a key component of the KLA investment thesis and offers predictable and compelling value creation for our shareholders.
Before moving into the financial highlights, let's briefly summarize a few key points <unk> June quarter results demonstrate.
Great the critical nature of <unk> products and services and enabling the digital transformation of our lives the resiliency of the KLA operating model and our commitment to productive capital allocation.
KLA is exceptionally well positioned with a comprehensive portfolio of products to meet demanding customer requirements that balance sensitivity and throughput stemming.
Center and electronics landscape are constantly changing and we're seeing broadening customer interest driven by more technology innovation than ever before at the leading edge. Kelly also delivers enduring value through our commitment to corporate stewardship, we look forward to sharing an update on our ESG vision and our global impact report, which will be released.
Semiconductor in the coming weeks and with that I'll pass the call over to Brad.
Thank you Rick.
Aliens June quarter, 21 results highlight the soundness and strength of our ongoing strategies, we continue to demonstrate our ability to meet customer needs in a robust demand environment, while expanding market leadership growing operating profit.
<unk> strong free cash flow and maintaining our long term strategy of productive capital allocation.
Total revenue in the June quarter was 193 billion towards the top end of the guided range non-GAAP gross margin was 62% at the midpoint of the guided range for the quarter of 61% to 63%.
Non-GAAP EPS.
Generous was $4.43.
Above the guided range of $3.47.
$4.35.
GAAP EPS was $4.10.
Non-GAAP total operating expenses were $419 million about 7 million higher than expected, primarily due to engineering engineering materials timing and adjusted.
He has a variable compensation programs.
Non-GAAP operating expenses included $241 million of R&D expense and $178 million of SG&A.
KLA technical application support for our customers is included in SG&A and was $44 million in the quarter.
The combination of R&D expense and technical.
Implications represents about 70% of total operating expenses.
Kaylee innovation is fundamental to our go to market strategy focused on differentiated solutions R&D is at the heart of KLA remains a key element in driving our portfolio strategy and product differentiation.
This in turn helped sustain our technology and market leadership.
<unk> non-GAAP operating income was very strong at 42%.
Given higher revenue expectations for the second half of 'twenty, 1 product development requirements.
Regionalization of additional customer engagement resources and increased investment in our global infrastructure due to overall business volume we.
We expect non-GAAP operating.
Operating expenses to be approximately $430 million in the September quarter.
Going forward, we will continue to size the company based on our target operating model, which delivers 40% to 50% incremental operating margin leverage on revenue growth over a multi quarter horizon.
Other income and expense in the June quarter.
Other net was $11 million, reflecting the gain on an investment in a strategic supplier that recently completed its initial public offering.
This gain represented 15 of earnings per share at the company's tax planning rate of 13, 5%.
Should continue to model other income and expense net and approximately $43 million per quarter.
Accordingly, adjusted effective tax rate was 10, 4%, reflecting the benefit of favorable audit adjustments recognized in the period.
Non-GAAP net income was 684 million GAAP net income was $633 million cash.
Cash flow from operations was $466 million and free cash flow was $410 million.
The company had approximately 154 million diluted weighted average shares outstanding at quarter end.
Revenue for the semiconductor process control segment, including its associated service business was $1.581 billion, a sequential quarterly increase of 5% and also a 37% compared with June of last.
Year, the approximate semiconductor process control cut.
Customer segment mix was in line with our forecast from April as foundry logic was 68% and memory was 32%.
In memory, the business was split roughly 34% net and 66% DRAM.
Revenue for electronics.
Our components group.
A record in the quarter driven by continued strength in <unk> mobile and infrastructure as well as rising demand in automotive.
More specifically the specialty semiconductor process segment generated revenue of 98 up.
Up 7% sequentially and down 2% over the prior year.
Demand in this segment.
It was mostly driven by growth in the automotive power semiconductor applications, where we have a leading position in etch and deposition products.
Especially semiconductor processes performance was also highlighted by the second straight quarter of record bookings.
PCB display and component inspection revenue was $247 million.
20%.
Actually and up 22% year over year with the data center driving strength in advanced PCB and packaging and inspection.
KLA ended the quarter with $2.5 billion in total cash total debt of almost $3.5 billion.
Flexible and attractive bond maturity profile supported by strong investment grade ratings.
<unk> from all 3 agencies.
We were also pleased to see Moody's upgraded our debt rating in early June to 8.2 from <unk> 1.
Further underscoring the strength of our balance sheet.
And sustainability of our business and financial performance.
We have tremendous confidence in our business over the long run and are committed to our long term strategy of.
Sequential runs to shareholders executing a balanced approach split between dividends and share repurchases targeting long term returns of at least 70% of free cash flow generated.
Our announcement today of our 12th consecutive annual increase in the dividend and the additional share repurchase authorization are representative of our explicit approach and strong track.
Cash flow predictable and productive capital deployment.
Over the last 12 months, KLA returned $1.5 billion to shareholders, including $559 million in dividends paid and $939 million in share repurchases.
While circumstances can change our current expectation remains that our capital returns for calendar 'twenty 1 will exceed.
Record, 85% of expected free cash flow.
L. A has a history of consistent free cash flow generation high free cash flow conversion and strong free cash flow margins across all phases of the business cycle and economic conditions.
During the quarter, we generated $410 million of free cash flow and repurchased $300 million.
<unk> non stop while also paying $139 million in dividends.
Our overall semiconductor demand and W. A few outlook continues to increase from our views earlier in the year.
At the start of this year, we characterize the expected growth of the Wi Fi market to be in the low teens, plus or minus a few percentage points.
In April we.
Of course that you to the low to mid twenties on a percentage basis with a bias to the upside.
Today, we see further improvement and expect the WP markets grow in the low to mid thirties from approximately $61 billion in calendar 2020 to approximately 81 billion at the midpoint and calendar 'twenty 1.
We were of items reflects the broad based strengthening of demand across all customer segments.
KLA is in position to deliver strong relative growth this year, driven by our market leadership and strong momentum in the marketplace across multiple product platforms in both the semiconductor process control and EPC groups.
Looking ahead, we remain encouraged by.
Zane ability of our current demand profile.
As a result, we continue to expect total company revenue to improve sequentially quarter to quarter throughout the remainder of the calendar year.
We also expect the second half of calendar 'twenty, 1 to grow in the mid teens on a percentage basis versus the first half as more of our manufacturing capacity comes online.
And support the strong customer demand.
Furthermore, our system shipment expectations point to meaningful growth in semiconductor process control equipment systems.
The second half of calendar 'twenty 1.
This strong backdrop supports our current expectations of high 30 to low $40 year over year percentage growth for the semiconductor process.
Hi, This is troll systems business in calendar 'twenty 1.
As a result, we continue to believe that this business is positioned to outperform in 'twenty, 1 relative to the overall ws free markets.
Our September quarter guidance is as follows total revenue is expected to be in a range of 2.02 billion plus or minus $100 million.
Foundry logic is forecasted to be approximately 59% and memory is expected to be approximately 41% of semiconductor process control systems revenue to semiconductor customers.
Within memory DRAM is expected to be about 60% of the segment mix.
We forecast non-GAAP gross margin to be in the range of 60.
<unk> can 0.5% to 63, 5%.
At the midpoint. This is 50 basis points above the June quarter level, due principally to product mix.
While in any given quarter the mix of our business across products and business segments will affect our gross margin results.
Structural trends, both in terms of product costs and manufacturing efficiency.
And product positioning remain compelling and our sustainable tailwind going forward.
Other model assumptions for September include non-GAAP operating expenses of approximately $430 million other income and expense of approximately $43 million.
The effective adjusted tax rate of approximately 13, 5%.
1 day GAAP diluted EPS is expected to be in a range of $3.76 to $4.64, and non-GAAP diluted EPS in a range of $4 and once that the $4.89.
The EPS guidance is based on a fully diluted share count of approximately 153.5 million shares.
Finally in closing the industry dynamics, driving semiconductors and investments at WSI remain compelling.
But broad based customer demand and simultaneous investments across multiple technology nodes.
We're encouraged by the leading indicators for our business, including our backlog and sales funnel visibility over the next couple of quarters.
Are customers more.
Our investment plans also point to the stability of demand in the future.
KLA continues to execute well and is on track to exceed our 2023 financial targets well ahead of expectations.
The KLA operating model positions us well to outperform and guys are important strategic objectives.
These objectives fueled our growth operational excellence.
And differentiation across an increasingly diverse product and service offerings.
They also underpin our sustained technology leadership deep competitive moat strong financial performance and long standing track record of free cash flow generation and capital return to shareholders.
And with that I'll now turn the call back over to Kevin to begin the Q&A.
Thanks, Brian.
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And we will take our first question from Harlan.
Harlan sur with J P. Morgan Your line is now open.
Hi, good afternoon.
And set up on the quarterly execution and strong results.
The adoption continues strong and if I look at the outlook for easy Litho systems.
So like mid 30% this year.
Positive exposure here via your wafer inspection systems, but also the strong leadership and UV mask inspection and project.
This doesn't represent.
And great Giro process control business, but it's sort of a good proxy.
Regarding your optical inspection in your mask inspection and your overall process control business to go well above that range. So what are the 2 or 3 dynamics that are driving the strength above easy adoption and more importantly, with the visibility that you guys have.
How are you feeling about the sustainability of the overall second half momentum into the first half of next calendar year.
Heartland is alright, thanks for the questions.
Youre right I think we are we are seeing a lot of strength in the process control portfolio driven.
As I mentioned in the prepared remarks, we look at optical.
However, inspection and really seeing a lot of uptake on that what's interesting about that is it.
A pretty good mix between Gen 4 and Gen..5 so both of the Gen..5 is more exposed I would say that the E V dynamic, but we're seeing more proliferation of gen or also as people continue to add.
Advanced capability, and we expected that with the rising complexity really across the board and it's not just in the <unk> areas of memory logic foundry, but also we're seeing it in memory. That's 1 area. We mentioned also radicals, having a really strong year as the number of advanced designs continue so we're seeing both related.
Pickle weighted to <unk>, but also just increased process control intensity really across the entire portfolio. So that's why we feel so strongly about the remainder of the year and as Brian indicated we're looking into 2022 for that strength to continue or do you want to provide more color. Yes. So as Rick said I think.
As we continue through the second half of this year both of those businesses are growing faster than market as we said in the prepared remarks.
In fact, I would think that the optical inspection business is 1 of the fastest growing markets in all of your fee if not the fastest so theres a lot of inflections around U V. But also other process dynamics that are driving that.
Related reduction would be you'd be driving driving shrinks in the business or shrinks in design rules is creating an opportunity for both platforms and also leveraging optical inspection or for validating radical quality also at 5 nanometer in the radical part of the business you also have increasing radical complexity and.
Our offering in that market after a number of years, where it radical complexity wasn't changing all that much in the double patterning environment as we move to EV critical complexity is changing dramatically and our offering is a more technical offering and we're getting strong customer interest in that product. So I think theres a sustainable tailwind here.
But the internet through the rest of this year and as we move into 'twenty 2.
No I appreciate that and then on the gross margin from if you could just help us understand the uptick in your gross margins into the September quarter. It looks like you know component costs are rising I'm, assuming the team also has to pay expedite fees for some parts.
And your end market mix is more weighted.
Our memory, which I would think would have some slight negative bias on gross margins. So it's great to see the team driving the margin profile higher but just help us understand some of the drivers of that.
So customer mix doesn't impact our margin profile our products across all segments have the same margin profile. So it really is a mixed dynamic.
That is driving the quarter to quarter as a 50 basis point increase we have most of the growth quarter to quarter is coming from semi process control systems and those carry higher margins than obviously, our service business or our <unk> business. So that's been the bigger driver we have supply chain challenges like like everybody else and we're constantly trying.
Trying to manage our way through those freight costs are higher are those are embedded in and maybe over time is as some of those pressures alleviate will get a little bit of benefit from that into the future, but we certainly have that in our numbers and unexpected net to remain at that level over the next couple of quarters on the components side there is pressure on components.
There's there's pressure on raw materials for for frames.
And you know steel specifically for the frames of our tools.
So we're dealing with that labor pressures and there are different occur around the world we have factories in different locations, but we're also doing with that as well.
I would expect as we move forward, we'll see some pressure so far it's been offset.
The strength of the volume so we've worked with our suppliers.
Volume upside has been.
Has been favorable, but but I do expect we will see some pressure on components. The way we price products tends to be value centric, we are a value pricing model at a cost base model.
But we're certainly going to have to deal with that as it comes.
Through these revenue levels into the future I would think we're probably looking at 10 to 20 basis points type of impact over time from from some of the inflationary pressures on our Cogs.
But that's contemplated in the guidance, we provided in terms of our margin expectations.
Moving forward.
By Great insights. Thank you.
And we will take our next question from John Pitzer with Credit Suisse. Your line is now open.
Yeah, Thanks, Brian Congratulations on the strong quarter and thanks for letting me ask the question.
Wanted to go back to your prepared comments about the investments that you're making in AI and.
M. L. I mean, clearly some of your peers have talked about big investments in that area I'd be curious if you could help us understand how you think your approach might differ from theirs. How maybe your incumbency gives you an upper hand here and as you think about this is this a weighted to maintain already outstanding share.
What do you think there's actually incremental revenue and Sam capability as you bring this out and Brent maybe on the gross margin what could be the influence the gross margin I'm. Assuming this is mainly software IP, which would seem to be gross margin accretive.
John Thanks for the question.
We've been working on.
There or what has been what is now called AI and ml for years now and of course.
Because we handle so much data in our systems, especially in the optical wafer system, but also in the medical system.
We've been having to manage that data and look for signal and that data for a long time what.
Mel enables and machine learning enables along with AI is just extracting more information out of that data. So as we continue to have more capability to manage it or work on AI has proliferated across most of our products now in some form or another but we continue to add upgrades. So I.
I think to answer your question 1 way to think about it is we can squeeze more capability out of existing generations by leveraging the algorithms and the AI work and in the past, where we may have needed to ship wavelengths for example to get more capability, we can do that with algorithms. So.
1 of the questions that had been brought up in the past was for example, the limitations of optical wafer inspection and M Y E beam was going to maybe take a large prior to the share that was a thesis a few years ago, but it was through AI and through ml and our advanced optics capability that we've actually created additional node capability out.
Optical systems. So I think that's another way that we've expanded and lengthened the lifetime of the products part of Y. Gen..4 has a longer life now as we're squeezing more capability out of that leveraging it.
To answer your other question it is expanding into our other products. Those are the first really and the work we do at radical.
But it's also driving some opportunities for us in other segments as we expand the leverage of that capability into both metrology, but also some of our traditionally lower end wafer inspection systems that are applying and trailing edge capability. So it's really kind of across the board and you're right. It's Barry.
If you can.
Out of the highest day engineering the way, we do it's pretty accretive to the overall business volume because your we do make a large investment we're by far the we have the most investment going on it no question among our peers, because we're doing it across such a broad portfolio, but we're getting leverage as we have multiple products that are leveraging it.
So Brian can speak to how that drives the P&L.
And I think it's much more of an operating margin statement or a reduction in R&D intensity. It's another way to think about it platform extend ability is is 1 of the biggest decisions we make in our product lifecycle processes, we're making choices and we can extend platforms. It means that.
Every time, we get a higher return on investment on those engineering dollars. So we don't have to go develop the next 1 which is what drives significant costs in the model as you're developing and bringing a new product.
Market, so by extending it we see the leverage in our operating margins now in terms of gross margin software content.
Over our software offerings are increasing across the whole company not just within semi process control, where we have businesses now that are starting to get to meaningful revenue levels, where we're selling software directly and we have that there and we also have it in the EPC business, where we're providing simulation capabilities data analytics.
Computational methods design based capabilities.
Capabilities to help point, our inspectors and get more value out of the KLA offerings. So there's a few dynamics that are there that are there that I think are good for us in terms of solving some of these problems as technology roadmaps get more and more complicated.
But then also driving operating margin leverage over time.
Thank you very much.
Thanks, Sean.
And we'll take our next question from C. J Muse with Evercore. Your line is now open.
Yeah. Good afternoon, thanks for taking the question.
And as you think about your employee.
Net revenue guide for December it looks like it's about $250 million of process control.
And it sounds like that is coming on a based on new manufacturing capabilities that you're bringing online.
So curious.
What's the impact to gross margins are at that timeframe.
And will that satisfy all pent up demand or.
Will your lead times still be extended heading into calendar 'twenty 2.
Yeah C J, it's a great question.
As far as lead times go I think lead times are holding pretty flat a 1 of the challenges we had.
Had hoped that we'd start to see those pull in a bit but demand has continued to increase so we're seeing stronger demand and we're doing a lot of work to add capacity, so things aren't extending out, but they're not necessarily pulling it in either.
Yeah based on our comments you do have a ramp in our.
In semi process control.
Korean equipment into the December quarter, that's a richer mix, so I'm not going to guide December, but but that should carry a richard gross margin profile given the nature of the products that we're shipping that.
That capacity has come online and that's from revenue recognition dynamics related to new facilities and product transitions is pushing.
Troll of of those shipments if you will that are happening this quarter that revenue Rec will happen next quarter. So that's also part of the the higher sequential growth that we're seeing into the December quarter.
Did I answer your questions.
Yeah, that's great if I could just sneak a second 1 in ex.
As you think about your foundry logic.
<unk> outlook for 2022, and you talked about.
<unk> strength was hoping you could speak to perhaps any changes that you see in the landscape, whether leading edge lagging edge.
EV adoption DRAM anything we should be thinking about portfolio was that there could be a little different in 2020.
Not really I think you know just in terms of overall sustainability, we would expect to see the leading edge continue to invest as we go into next year and given the public statements that have been made there I think that's pretty consistent with what we're seeing on the trailing edge side. We are seeing orders that are coming into backlog, but also in the funnel.
From a number of customers and much more meaningful levels of customers that haven't invested all that much in the past and are addressing some of these automotive and industrial and some of these other more trailing edge challenges. So I would think from a shipment and revenue point of view, we'll see that business actually start to come to the P&L are in as we move into 'twenty..2 you know China has.
Ben mostly logic centric this year, neither China and so I think we'll have to see how that plays out as we move into next year in terms of growth certainly theres I think sustainability with the business levels that have been elevating through this year, but but you know I would expect to see a little bit more memory activity.
Hopefully next year in China, and I think that's probably the 1 area, where you don't have as much visibility in terms of of logic growth. There. So I think those are the dynamics and how they're playing I think in terms of DRAM and NAND I would expect those to continue to to maintain the momentum that we've been seeing through 'twenty, 1, but but C. J I mean, just 1 thing to add a lot.
Out of the business that we're booking now is revenue in 'twenty 2 I mean, that's part of our confidence in 'twenty 2 we're filled out for 'twenty, 1 and so that's part of what we're seeing and then some of the players you know who are trying to regain the lead a lot of that in the us but hasn't really shown up in our revenue numbers yet.
Very helpful. Thank.
But he probably wants we will take our next question from Chris Schaper with Cowen and company. Your line is now open.
Yeah, Hi, Thanks for taking my question and congrats on the stronger so I have 2 of them first 1 political Brian I didn't want to have the December quarter question a different way.
You said your semi process control should grow 40, but from this year.
We have with mid teens growth.
If I look at that it looks like December quarters around $2.3 billion give or take is that a decent proxy for just from our revenues and Oh, you're not seeing any impact from any of the component shortages.
Factoring some of your friends in the industry.
I had a follow up.
Yeah, so I'm not going to guide.
December specifically at what we're trying to do is give you some perspective on our expectations for growth of semiconductor process control equipment for the year that was the high thirties to 2 <unk> to low 40 statement. We also talked about the total company growing mid teens.
Half to half and so that was another statement there as well.
So and you know so I don't want to put a point out there in terms of the revenue guide, but hopefully you can get there with with the with the details. We have provided our components are a daily challenge, we are managing across our factories across our teams managing.
Our suppliers to be able to deliver the parts that we need.
Need some components have intrinsic lead times for us that are that are long term and so we have to make decisions and we've been making decisions to make investments or for that to commit and make commitments to those suppliers to be able to provide that supply force as we move into a into 'twenty..2 so it's a challenge.
Well, so working our way through it I'm spending more time I've been with KLA for 21 years, and I'm spending more time on supply chain than I ever have and certainly as our CFO since 2013 so.
We're dealing with it we're making our way through it and that the guidance in context, we provided contemplates what we.
Expect to happen is our best expectations based on what we know today.
Got it got it thanks, Brian and then just as a follow up.
1 question on China, obviously, a really strong sales there.
June quarter, and if I try to back out your.
Ex China sales it actually declined from March to June.
And you also said China is mostly logics I'm kind of curious.
No.
I'll do that many logic foundry players from China or is this just a long tail of <unk>.
All of the players buying equipment and any kind of color you can give on China with regards to your sales and any kind of split between domestic amendment fees.
Very helpful. Thank you.
Yeah, you have to remember that when we just talk about our mix of business. That's the total company. So that includes V. P. C. So I believe where China percentage was like 32%. If you looked at the native investment as a percent of our semiconductor process control segment, it's about 25% so the numbers when you're.
We didn't like that can can lead you to different conclusions.
There are a number of small projects that are logic centric projects in China that are young they're targeting specific markets.
Around Iot and AR image sensors, and a bunch of those those kinds of opportunities obviously.
A motive and industrial so I think there there are new projects and a lot of cases, which are which are going to be coming online over time.
And but there was a lot of activity there. So yes there are.
Got it thank you very much.
Well we.
We will take our next question from Joseph Moore with Morgan.
Stanley Your line is now open.
Great.
I Wonder if you could talk about you mentioned, having new products for the automotive sector and how are you thinking about this you sort of see the older foundry nodes. It looks like it's gonna be a source of sustainable strength for a while.
Can you actually target that business.
More directly than you have and just generally what kind of activity are you seeing in the older foundry nodes.
Yes, sure Joseph we've actually been engaged.
For quite a while with some of the leading automotive even the automotive customers coming to us asking us to help them with their suppliers that's been going on for a few years.
A little bit really happened now as it's broadened the number of customers that are recognizing and of course, a shortage of automotive semiconductors contributed to that so we've been developing products that have I would say are adaptations of existing products that provide additional capability in support of automotive, whereas you know theyre looking for.
More reliability, there's there's some cases, where we're helping traceability in terms of how they're driving those fabs. So yeah that is that's an area. We outlined at our 2019 analyst day, where we talked about that was a growth area for us and we believe it continues to be obviously it was a rough start in 2020, where a lot of customers.
Shut down their plans for automotive semiconductor now to their dismay, but those are back on and so we do have those products, we're engaging with customers. There's a strong demand for that and we think that's sustainable and we think that'll continue to grow as more of the automotive players see the value in that and that will just continue to broaden that we have.
Have a segment in a work area that we're focused on that and it's also where our business that we got through <unk>.
<unk> Sbcs works also some of the process capability. There. So it's more than just inspection, it's broader for us from that so it's pretty exciting. It's a good growth area and I think it's 1 that we'll continue to see.
I guess over the next several quarters.
Great. Thank you very much.
And we will take our next question from Joe <unk> with Wells Fargo. Your line is now open.
Yes, thanks for taking the question.
Curious on your advanced packaging, you recently talked about packaging.
See probably coming more like front and I was curious you know how would you compare maybe contrast, the 2 in terms of just the increasing capital intensity and then maybe can you touch on your position in front end and how that maybe drives differentiation for the packaging.
Richard I think there's a couple of things 1.
1 is as more of the big players are focused on packaging as a source of either maintaining differentiation or closing of differentiation GAAP, there's more investment with larger players that know KLA and frankly, I think we're getting more seats at the table and engagements with them because of their knowledge of KLA and their.
In the foot.
Put their best behind a proven player. So we have capability, we have some products, we're doing some product development or product adaptations.
In support of that but the technology. There is moving the process control intensity is significantly lower than it is of course in the leading edge, but the rate of growth. This is very.
Desired has the rate of growth of process control. So I would say, we have an abundance of opportunities there to execute on but it will require us to bring new capabilities and so we're engaging with our customers in that and I can tell you we're getting as much pull there as we are in the front end for capabilities as customers try to accelerate their roadmaps.
So we're seeing strong growth as we increase the process control intensity and it's not just process control. Once again some of the process equipment, we have with S. P. T. S has also being leveraged.
In that area as well as in our PCB business, which isn't all inspection and measurement. So we do see strong growth, we see a lot of potential consistent with the plans.
We laid out in 2019 at our Investor day.
You also have the integration of the PCB board through IC substrate into the package and so that's a that's a good driver for us moving forward.
Working on new capability to better address that market. We also the Iqos finished component inspection business is is this.
<unk> just finished packages. So that complexity is also driving an inflection in that market, we're seeing very strong growth in that market as well probably the fastest growing part of EPC is today is through a through iqos. So.
I think theres a lot of opportunities for <unk>, because some of it is dependent on us, bringing new capability to market, but certainly customers.
We're trying to leverage.
The different positions, we have across a number of different applications trying to leverage the relationship with us to do more there yeah and just to put a number on it and we said $400 million. In 2019 were ahead of plan and we can beat that.
Do more than that with some of the developments we're conscious.
Got to play day, So I think we've got the product now to perform to that and we can do more and we're getting encouraged by the signs that we're seeing in engaging with these customers.
Super helpful. Thank you.
And we will take our next question from Patrick Ho with Stifel. Your line is now open.
Thank you very much and congrats on a nice quarter and outlook, Rick maybe first of all a big picture kind of a long term outlook for the process control industry in Europe positioning.
All around it's becoming more and more it will be coming onboard in the next few years and I know, you're probably going to work with your customers.
You've got an incremental benefit when the industry transition transition to Finfet transistors, how do you see the incremental opportunities as you go to gate all around where not only are you seeing more new materials, but more materials in that transistor area.
Yeah, that's a great question.
And as you know our business any of these technology transitions inflections present opportunity for process control because the first thing that our customers need to figure out is how to get the process ramp. So I think we're seeing advanced indicators.
Indicators that that's going to be great for adoption of additional capable.
It's also where the portfolio really matters because in the case of gate all around adaptation to the Gen..4 wafer inspection and in some ways is more important than what Gen..5 day. Gen..5 is very important for the smaller deep activity that we need to detect and the lower rates, but gen..4 for the contrast, and so some of the development we have been.
Ability with our customers has been to tune our products for that advanced transistor capability. So I think that what you'll see is a continued increase in process control intensity. The way we modeled it is relatively modest over the long term, but of course, the cumulative effect as it adds up and that's why we think process control intensity.
Our outgrows WMC.
You know on the order of half a percentage point, if we're going from 15 to 15 and a half depending on what the aggregate that's a blended between logic and memory, but we will see it over time that you'll see it creep up as a result of those new infections provided we have the products.
<unk> to support it which is a lot of the work that we've been doing so we feel like we're in really good position to support our customers to do that.
Great. That's helpful and my follow up question, maybe for you Brian in terms of the investments you're making we talked about systems.
You know picking up.
Handing capacity, bringing.
<unk> onboard to meet the increased shipments of services are also growing quite rapidly and you've mentioned that it's growing faster than the target CAGR. You were looking at what are the types of investments you need to make and services given that not only is your semi service growing the installed base growth, but PCB tends to be a very serve.
Service intensive business as well and that marketplace is also showing signs of some more secular growth trends you know given some of the marketplaces that they are penetrated how do you look at service investments both near term and over the next few years.
Yeah, No. That's a great question and certainly trying to to get more leverage.
<unk> out of the service businesses of the acquired companies acquired businesses for KLA has been 1 of our parks are a key component of the investment thesis. When we look at these kinds of transactions and smaller companies have a hard time trying to have the infrastructure just given the nature of their size to be able to support a broad service footprint.
To leverage our infrastructure now the go to market is different how we engage those customers is different so leveraging the infrastructure. We have is I think a big part of that so there's a there's a big cost element. We've made the investments I think we need to make are certainly China and the investments we made back in 2016 and 2017 to build infrastructure.
Being able to the.
China businesses.
Great for US now and we're seeing scale on that with some of the regionalization dynamics that are out there. If we see new fabs popping up we have to build that capability and some new places. We think those are great opportunities for us because our customers rely on us to help bring those kinds of facilities up and to bring our capability.
To support to help them do that and so whenever they are building a new fab in a new geography. It creates a big opportunity for KLA, we're working on remote diagnostics remote capabilities. So we can do a lot more diagnostic diagnosis a tool problems from back here from the factory or from or.
From our development team's depending.
Is happening.
1 of the challenges in Covid, obviously, it's been getting people in and out when we have an escalation situation. So I think those are the kinds of areas that we're investing and it's a it's a great opportunity force just in terms of growth given the strength of the W. E. But also the lengthening of.
Lifetime on the tools in.
Depending on women's or using them from a utilization point of view and then the biggest investment really right. Now is in is in the work force to support that and so as Brent mentioned, we're working on that I think that hiring training on boarding as we anticipate the continued growth.
It's an area, we've done well with but as you know, there's a big demand for talent out there.
So we have to keep on it keep hiring and doing that training.
So that's that's probably the biggest area of investment over time, it's going to be the the workforce.
Great. Thank you.
And we will take our next question from Timothy Arcuri with UBS. Your line is now open.
Hi, Thanks, I had 2 clarification, Brian and then I and then I had a real question.
The first 2 clarifications are.
The comment you made about 15% half on half of that was a corporate revenue comment somebody attach that to a process control systems, but I don't think I think your process control systems.
It was up like mid 30, you see at a high <unk> to 40% for the year that half on half comment was a.
Corporate revenue comment correct.
That's correct, yeah, and I attempted to clarify that 1 of the earlier questions, but yeah, you're right that's.
The total company aggregate revenue expectation second half versus first half mid teens.
Okay Perfect and then the second clarification did you say that domestic China is 25% of your process control systems revenue because there'll be a fee. It's like it's like 15% of total W. E.
Yeah in the quarter that we just completed.
Oh, Okay, Okay got it okay. Okay.
Okay. So from my from my real question I guess.
So I wanted to ask you about a clinic.
And it's always really been tiered to higher day for easy otherwise you use the index ex and now you have.
The big microprocessor maker, that's now pushing more aggressively on high alert.
So are you going to accelerate your development timeline for a clinic.
Yeah, Tim its a great question, we feel confident that we will have the capability, we need when it's needed for the high in a so I understand what your question is we believe that with the products that we have.
With the 8 ex accent in particular and actually the continued capability, we're seeing in 6 ex us we feel that we will be there when the market is needed for the.
The higher net.
Yeah.
Okay, but I can also clarify on the China's statements. So that's of the semiconductor.
Doctor process control segment, which includes the service was 25% of the revenue in the June quarter.
Ah I see including service Okay, Brian.
Yeah.
Sure.
And we will take our next question from the peak Aruba with Bank of America. Your line is now open.
Thanks for taking my question I'm curious, if let's say hypothetically wf fees 90, or 100 billion next year are you prepared to support that right from your capacity perspective, or I guess, a different way of asking the question is how much additional capacity are you planning to bring online.
Next year.
Yeah Vivek.
Interesting question and you know right now what we're trying to do is ramp up and to support the customer demand that we have and I have expectations for an incremental capacity as we move forward now I feel like these are good investments to make for us over the long run given our expectations.
<unk> for multiyear growth in WMC, I think given the strength of the Wi Fi investments in some of the end market drivers that we're talking about that we would expect to see Wi Fi grow over the next few years at least in line with semiconductor revenue with rising capital intensity probably faster than that.
These investments and given.
And the ability of our platforms in the lifetime of our tools in terms of how we're shipping to a very broad a demand environment from a technology point of view that these are investments that are important for us in terms of just being able to support that kind of environment moving forward sort of a through cycle overtime statement.
But we're continuing to invest to make sure that we have the flexibility to be able to respond to our to our customer demands.
So I think that's you know as I look at it right now in terms of the first half of the year in terms of expectations hard for me to see how it's it's at least as strong as what we've seen in the second half of 'twenty 1.
In terms of what we see in the funnel and in our backlog in terms of how we're managing it I don't want to make any statements much beyond that.
I think the 1 thing I would add is as we are we are cognizant of our customers desire to get more capabilities sooner and we're doing everything we can to size it but the numbers you've talked about we have contemplated in our plan.
Maybe a quick follow up if I can at what point do you sense that because of all the headlines around you know the capacity Crunch. You know you have players who are now trying to become foundries on their own that there is a pull forward of demand at what you know what's on your dashboard to to tell.
Whatever your shipping right that the utilization levels are quite high and it's not just customers from are scrambling.
To add more capacity they like do you track what the usage is off the equipment that you ship.
Of course, we tried to usage I mean, that's a.
Metrics that we're looking at all the time, but I would back up a little.
Little bit and say that the industry actually has a self governing mechanism in it which is the ability of all the equipment companies to ramp to the demand and right now when you talk to customers. They they would take more shipments I think from everyone. If they could get them sooner. So theres, a natural governance and I'm sure you heard.
ASML.
If you would talk about EU vs. Through 2022, so it's a it's naturally governed by that so I don't I think we're in we're in a good place for a sustained.
At this point.
Okay.
Thanks Vivek.
Britney we have time it looks like for 1 last question.
And we will take our final question from Sidney Ho Sidney Ho with Deutsche Bank. Your line is now open.
Great. Thanks for taking my question. So speaking of this multiyear investment plans.
You just talked about there obviously, there's a lot of new fabs being announced in the past few months when do you expect those new.
Top investment to start generating revenue for you and when do you expect to start seeing those orders coming in.
Well a lot of cases, we've already seen the orders right. So I think that that you know customers are getting into the Q4.
For deliveries and in some products you know deliveries could it could be 12 months from.
Now. So then it's absolutely happening and customers are trying to make those commitments as they're planning for their facilities. Obviously they plan across a lot of different types of equipment and so those planning cycles tend to move around a little bit sometimes they're also dependent on an on winning business and product ramps and so on.
So theres always a little bit of variability around the timing and then of course generally as you're trying to build something there's always infrastructure and delays in Poland that can happen associated with just construction overall, but yeah. We're absolutely seeing are seeing that demand and in the backlog and you know certainly in in the sales funnel.
Okay, Great maybe my my follow up it's a lot of questions on day process semi process control side, but on the EPC business is 15% growth for this year still a realistic assumption given the strength in auto and <unk> and maybe you can talk about with or without the display side of things. Thanks.
Yeah, including display.
We're in the I T.
For that business. So we're seeing strength there are displays.
As we expected and we're seeing strength I mentioned earlier about component inspection.
Semiconductor is also seeing strength PCB is is ahead of plan a little bit. So I think that's moving along obviously, it's very tied.
I too to mobility and Prime G. So yeah, we're seeing that tick up in terms of expectations for growth out of it but the product group.
Okay, great. Thanks.
I would now like to turn the program back over to you, Kevin Kessler Castle I apologize for any additional or.
Closing remarks.
Yeah. Thank you very much and wanted to thank everybody for their for their time their interest and their questions we will be in touch.
Sure.
Yeah.
This concludes today's KLA Corporation, 2 quarter 2021 post earnings call. Please disconnect your.
Have a wonderful day.
Okay.
Oh.
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Yeah.
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