Q2 2022 Lam Research Corp Earnings Call
So currently holding for the Lam Research Corporation December quarter 2021 earnings Conference call. At this time, we are assembling our audience and will be underway in about one minute. We thank you for your patience in holding I'll say please remain on the line.
[music].
Good day and welcome to the Lam Research Corporation December quarter, 2021 earnings conference call. At this time I would like to turn the conference over to Tina Correia, Corporate Vice President Corporate 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 Doug Bettinger, Executive Vice President and Chief Financial Officer during.
During today's call wheelchair our overview on the business environment.
We'll review our financial results for the December 2021 quarter, and our outlook for the March 2022 quarter.
The press release detailing our financial results was distributed a little after one o'clock P. M 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 today's call.
Today's presentation and Q&A includes forward looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC 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.
Otherwise specified a detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation.
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 and with that I'll hand, the call over to Tim.
Thank you Gena and happy new year to all that are joining us today.
Under 2021 was another year in which companies and our communities and to respond to significant challenges on many fronts.
<unk> operations and results were impacted by the effects of COVID-19, labor shortages freight and logistics cost escalation and supply chain constraints, but I am proud and thankful for how Lam employees responded at every turn with commitment and agility to support our customers and business.
As the digital transformation of both the global economy, and our everyday activities accelerated throughout the year demand for wafer fabrication equipment continued to strengthen.
Lam delivered record revenues and record earnings per share in calendar year 2021.
Embedded in these results is record revenue in every area of our business, including NAND, DRAM and foundry logic and within every sub segment of our customer support business.
Even in a year with relatively higher foundry logic spend versus memory, we gained market share in both etch and deposition.
As we closed out 2021 and enter the new year demand for land products has never been higher yes.
Yet as we have discussed in prior quarters, the global supply chain remains severely stressed that these unprecedented output levels in.
In the December quarter unexpected shipment delays, primarily for components from a critical supplier surfaced in the last two weeks of the quarter, leaving us with insufficient time for full recovery. Despite the diligent efforts of our supplier and our global operations team.
The resulting shipment delays caused revenues to come in below the midpoint of our guidance range.
Revenue for the tools that were impacted in December will be recognized in the March quarter.
Looking into the first weeks of 2022, we see that supply challenges have broadened with the Covid omicron, Serge, adding further disruption to freight and logistics operations as well as exacerbating skilled labor shortages.
We also continued to encounter significant scarcity of certain components and parts, including semiconductors.
As a result, our March quarter revenue levels will be limited by the output constraints of our global supply chain.
And this is reflected in our guidance.
We are aggressively working on the issues with our suppliers and believe we will see progressive improvement as we move through the next few quarters overall for calendar year 2022, we expect to deliver strong across the board revenue growth.
On the demand front.
We're seeing continued momentum in wafer fabrication equipment spending.
We believe that spending in calendar year 2021.
Ended consistent with the mid $80 billion estimate we provided on our last call stress.
Strength was broad based with NAND, DRAM and foundry logic, all growing double digits.
As we look to calendar year 2022, there are multiple themes underpinning our view for continued <unk> growth include.
Including powerful end market demand trends rising device complexity strong semiconductor industry operating profitability and regional government support and incentives in.
And markets with technology landscape continues to build.
Not only on the prevalent drivers of AI, Iot cloud and <unk>, but also now along another vector as advances in virtual and augmented reality lay the groundwork for the meta versus over the coming decade.
Immersive gaming experiences will be a primary driver of net adverse development and adoption and I've spoken on prior calls about how advanced processors and memory devices for gaming are favorable for <unk> demand due to both leading edge performance requirements and semiconductor content growth.
Across the semiconductor industry, we see more than 20, new fabs being built and customers have already announced significant capex increases for the year.
Consequently, we expect 2022 <unk> spending to be in the $100 billion range with strong growth across all segments.
We believe that our performance in 2021 has strengthened our ability to win in the robust demand environment. We see ahead.
We launched innovative new etch and deposition products.
<unk> market share of key technology inflections and rapidly grew our installed base.
On this last point, our customer support business group continues to exceed expectations.
Our chamber Count grew approximately 13% in calendar year 2021 to approximately 75000 units.
Our revenue per chamber, which we highlighted at our 2020 Investor day is a key growth objective increased nearly 24% year on year in 2021 were nearly twice the growth in chamber count.
We expect calendar year 2022.
Another strong growth year for our <unk> business.
Our large and growing installed base also adds immense value to our product innovation process.
High volume of wafers running on our installed base every day enable us to detect newly emerging challenges more quickly and accelerate our cycles of learning.
Both of which are critical in an era of increasing device and manufacturing complexity.
On the product front 2021 was a year of significant milestones for Lam to highlight just a few our van text dielectric etch system became the fastest ramping new etch product in <unk> history.
Built on our groundbreaking new sensor platform <unk> helps customers reduced costs by enabling higher attach rates and improving fab footprint efficiency, while new process capabilities extend our technology leadership and high aspect ratio edge.
We expect continued growth in <unk> shipments in 2022 with overall revenues from this product roughly doubling year over year.
Our vector DT product for backside deposition achieved process tool of record status at all customers for <unk> NAND devices with more than 200 layers further demonstrating our leadership in <unk> scaling enablement.
We achieved several important leading edge wins with our selective etch strip and surface treatment solutions, including applications for gate all around at a foundry logic customer and our first selective etch win in DRAM.
As device complexity increases across logic and memory devices, the need for angstrom level precision is driving greater adoption of lambs selective edge solutions compared to conventional wet etch methods.
This should enable selective etch revenues to double this year as customers adopt our innovative suite of products for current leading edge applications as well as for future device architectures.
And finally, we increased our deposition market share with wins in critical deadline and spacer applications for RC reduction and are now qualified at all leading nodes for this application.
To conclude our product momentum and outperformance in our installed base business put lam in a great position to capitalize on the tremendous demand, we see for wafer fabrication equipment.
Our top priority is to alleviate the near term supply constraints that have impacted our output capacity our delivery predictability in our financial results with.
With progress expected on this front over the next several months, we believe calendar year 2022 will be another outstanding period of growth from them.
Thank you and now here's Doug to cover the financial results and our outlook.
Great. Thank you Tim.
Good afternoon, everyone and thank you for joining our call today during what I know was a very busy earnings season.
Calendar year 2021 was a record year for Lam research in many respects.
We closed the year with revenue at $16 5 billion.
Which includes record levels of revenue for both our systems as well as our <unk> businesses.
We also delivered an all time high for earnings per share coming in at $32 46.
I think it's important to point out that we had 59% growth in earnings per share over calendar year 2020.
Which outpaced the growth in revenue, which was up 39%.
Yeah.
We ended the year, however, on a bit of a down point.
As Tim spoke about our revenue came in at the lower end of the guidance range due to supply chain issues that impacted us in the last two weeks of the December quarter.
These delays primarily from one supplier for critical parts.
We were unable to recognize revenue for tools that we actually shipped to customers totaling more than $200 million.
You'll notice this reflected in the increased level of deferred revenue on the balance sheet at the end of the December quarter of $146 billion.
The vast majority of these parks have now shipped.
The full value of the tools will revenue in the March quarter.
While we continue to increase the output capacity of our own factories. We're.
We're seeing a broadening out of headwinds from the global supply chain, which is impacting the somewhat soft march quarter revenue and gross margin guidance.
These headwinds are partially <unk> labor related.
Partially supplier scaling related and partially due to freight and logistics constraints.
Our expectations are that the broader supply chain issues in the industry will persist for a while and we'll exit the march quarter with incremental supplier shipment delays potentially causing another growth of it.
As much as $500 million in deferred revenue.
I would just highlight that we often ship equipment to our customers on a modular basis.
Which accelerates deliveries and allows customers the ability to begin installation, while waiting for the fully configured tool.
As we get our suppliers caught up with our needs and these missing components ship. These tools will revenue in future quarters.
This is obviously a fluid situation right now.
Let me now turn towards the details of our December quarter results revenue for the quarter came in at 423 billion.
A slight decrease from the September quarter, but an increase of 22% from the same quarter a year ago.
From a segment perspective.
Memory represented 58% of systems revenues in the December quarter.
Down from the prior quarter level, which was 64%.
The strength of memory during the quarter was driven by investments in the DRAM segment, which increased both in terms of dollars as well as percent concentration at 23% of systems revenue versus 19% in the September quarter, and 10% in the June quarter.
The DRAM investments were primarily focused on the <unk> Z and one off a notes.
The <unk> segment was 35% of our systems revenue versus 45% in prior quarter.
We're seeing both capacity additions as well as conversions across our NAND customers with investments in 128.
192 layer devices.
We expect we will continue to see a blend of additions and conversions as we go through calendar year 2022.
Broad demand across both leading edge and mature device nodes drove continued strength in the foundry segment with the December quarter, representing 31% of our systems revenue versus 25% in the September quarter.
Multiple customers are investing in the segment to meet any demand drivers such as AI Iot cloud and five G, which is leading to significant unit growth.
And more silicon content in most technology devices.
We had another record quarter of system revenue dollars in the logic and other segment, which contributed 11% of systems revenue in the December quarter, which was consistent with the concentration in the prior quarter.
Our customers are investing to meet the demand requirements in the market for microprocessors image sensors and.
And heterogeneous silicon packaging technologies.
Now, let's switch to the regional composition of our total revenue.
The China region came in at 26% of total revenues and were being the top region for December It was down from the 30% plus levels, we've seen for the last few quarters.
This was an expected outcome and is related to the timing of customer investments.
China domestic customers with the majority of the China regional revenue in the December quarter.
The Korea, and Taiwan regions also had solid investment activity, representing 25% and 18% of revenues respectively in the December quarter.
Yeah.
The revenue for our installed base business <unk> was nearly $1 $5 billion, which was 29% higher than the December quarter, and calendar 2020, and approximately 8% higher sequentially.
The continued strength of <unk> reflects our growing installed base of tools.
Customers operating at high utilization levels as well as our ability to monetize the growing installed base by offering more value added advanced service solutions.
Each subsegment of <unk> hit a new record in the quarter, but I want to specifically call out our alliance product line for achieving its 12 consecutive record quarter delivering value to a growing specialty market across numerous customers.
Well the <unk> business can have quarterly fluctuations, we continue to see sustained and stable growth on an annual basis.
Now moving onto gross margin the December quarter was 46, 8% above the midpoint of the guided range. The increase in gross margins came from a favorable customer and product mix due to shipment timing as well as high field resource productivity due to greater customer installation activity.
As we've discussed in the past gross margins can fluctuate quarter to quarter due to overall business levels, along with customer and product mix.
And I would just mentioned, we've got incremental negative cost impacts from the supply chain constraints that we discussed earlier that are negatively impacting the March gross margin guidance.
Operating expenses for December were $627 million, an increase from the prior quarter amount of $596 million.
The December quarter had higher variable compensation as we close the calendar year as well as additional research and development investments.
We've added head count in R&D to support our growing product portfolio and we're focused on supporting our customers' ongoing technology roadmaps.
December operating margin came in at 32% or approximately $1 $4 billion.
Our non-GAAP tax rate for the quarter was 11, 9% generally in line with our expectations.
Looking into calendar year 'twenty, two we expect the ongoing tax rate to be in the low teens level.
We continue to monitor potential tax changes under consideration in the United States.
Given the uncertainty there we have not yet reflected the impact of any changes in our financial modeling.
And as we've discussed in prior calls our tax rate may fluctuate from quarter to quarter.
Other income and expense came in for the quarter at $19 million in income.
This amount is better than the prior quarter and resulted in income in the December quarter due to a gain in one of our venture investments that recently raised capital in the public offering.
As we've noted in last quarter's earnings call. We did not include the estimated gain of approximately $50 million in our December quarter guidance.
And the amount in the results that Youre seeing was reasonably close to that forecast.
This game added 26% or excuse me 26 tax adjusted to earnings per share.
And I just have you note that overall <unk> is subject to market related volatility that could cause a difference from our typical run rate.
We continue to buy back shares with our focus on capital return and in the December quarter, we repurchased approximately $430 million worth of stock.
In addition, we paid $211 million in dividends during the quarter.
For the calendar year, we allocated a total of $3 8 billion towards capital return, which was approximately 94% of free cash flow.
During 2021, we've reduced share count by more than 4 million shares at an average repurchase price of $593 per share.
Yes.
Diluted earnings per share for the December quarter was $8 53.
And the diluted share count balance was slightly lower than the September quarter level coming in at 142 million shares which was in line with our expectations.
Let me now shift to the balance sheet cash and short term investments, including restricted cash totaled $5 6 billion up from the prior quarter level of $4 9 billion.
We generated strong cash from operations in the December quarter of $1 4 billion.
Which was somewhat offset by the capital return activities that I just spoke about.
Days sales outstanding was essentially flat coming in at 73 days.
Compared to 72 days in the September quarter.
Inventory turns were down slightly from the prior quarter level coming in at two nine times.
Which was much it pretty much as planned as we've grown inventory to increase the business volume.
Noncash expenses for the December quarter included approximately $63 million for equity compensation $62 million for depreciation.
And $20 million in amortization.
Capital expenditures in the December quarter were flat with September coming in at $138 million.
Capital expenditures are mainly focused on expansion activities, such as our silicon parts facility in Ohio, and the Korea Technology Center that will be opening in the first half of 2022.
We have 16300 regular full time employees at the December quarter at the end of the December quarter, which is an increase of approximately 900 people from the prior quarter.
Our head count growth was mainly in the factory and field organizations to support the growing output levels that we're seeing.
Now, let's look at our non-GAAP guidance for the March 2022 quarter, we're expecting.
<unk> revenue of $4 to $5 billion, plus or minus $300 million.
As we've discussed earlier the guidance reflects our expectation for a higher level of shipment delays in the March quarter due to the broadening out of supply chain constraints, we're seeing.
Customer demand is decently stronger than what we can currently supply.
Backlog has grown for five consecutive quarters as we exited the December quarter.
We're expecting gross margin of 45% plus or minus one percentage point.
Our guidance reflects a higher level of spending that we're incurring for managing the execution of the supply chain as well as extra costs to secure critical semiconductor component parts.
As we sit here today I believe our gross margin will improve as we progress through the year.
We're forecasting operating margins of 29, 5% plus or minus one percentage point and finally earnings per share of $7 45, plus or minus <unk> 75.
Based on a share count of approximately 141 million shares.
We're widening our range is out a bit due to the supply chain uncertainties that we're that we've discussed.
As we start calendar year 2022, we're in the strongest investment year in the history of the semiconductor industry.
It's important to note that the demand is clearly there.
We are dealing with broadening out of supply chain constraints, which we know we're going to fix over time.
We're laser focused on addressing these supply challenges and we're confident that we'll deliver improvements as we go through the year.
We're in solid market share positions.
We've gained further traction across all market segments in 2021.
And we've got a robust and growing installed base business.
Operator that concludes came in my prepared remarks, we'd like to now open up the call for questions.
Thank you.
I'd like to ask a question. Please signal by pressing star one on your telephone keypad and if you're using a speaker phone. Please. Thank you for your mute function is turned off to allow your signal can reach our equipment.
Please star one to ask a question.
Hello, everyone opportunity to signal for questions.
And we will go first to Harlan sur of Jpmorgan.
Hi, good afternoon. Thanks for taking my question. So can you guys just help us understand on the supply chain constraints as this more subsystems and part shortages or is it chip shortages and I assume that you are placing orders for both sub systems part 10 ships to the entirety of this year just given the extended lead times.
So looking at what your suppliers are committed to shifting to you. This year if all of this plays out.
Combined with the incremental systems capacity expansion from Malaysia can the team meet its for backlog and forecasted customer requirements. This year or do you think that there is some likelihood that you exit this calendar year with your shipments below.
Customers demand requirements.
So Harlan I'll start that and let Doug add if he wants to.
As we mentioned at the December issue was primarily critical parts, maybe call them call them, probably sub systems pretty pretty large critical components that goes into our tool.
But the underlying reasons for why certain suppliers are having challenges shipping goes across the board we've talked about broadening challenges in some cases it's.
Shortages of labor.
That had been driven then exacerbated by Covid.
Covid driven absenteeism.
Some cases its chip availability in some cases, it's has been freight and logistics, but I would say that we are working closely with the suppliers and we have committed schedules.
We've said our lead times are quite extended versus normal we have better visibility today into demand and customer schedules I think than we ever have and therefore to your point, we have placed those orders with suppliers and I would say, both lambs case, and our suppliers case, it's about executing to that much higher demand plan.
Now what we've given you as an outlook for Wi Fi that we do believe we can execute to.
And as we said, we believe we will make progressive improvement in supply chain capacity in coming quarters and that as we do that Youll see lab output the output of our supply chain increase and we will be meeting customer demand at that point.
What I would also point out is that.
From the standpoint of.
Our own capacity. This was a key area of focus in 2021, and we talked a lot about it.
<unk> significantly expanded our existing factories in the U S and Korea, and Taiwan, we ramped and started shipping from our new Malaysia facility, which ultimately will become our largest manufacturing site.
We increased our own employee.
Both in full time and temporary workforce.
And.
I would say right now our focus is ensuring that every aspect of our supply.
Supplier base has grown their capacity to match ours and that is something that we're working on every day and I do believe we will.
That said, we it's a fixable problem, but.
She is our primary priority at this point.
Maybe the only thing I would add just so it's crystal clear to everybody listening.
The December slight miss below midpoint.
Really one supplier that emerged very late in the month of December and we just didn't have time.
Upon to it so thats one statement second with Tim just told US there is a broadening out that we see beyond one supplier.
But we're working to mitigate.
We're doing lots of different things from us different suppliers to work away through this Harlem, but we know we're going to fix this because this is something that you can manage your way through and we will manage our way through it demand is very strong.
And maybe just a final comment as well obviously.
Everybody's mind is that.
We were fighting challenges all through 2020.
I mean, it's not as though supply chain has just become an issue, but I would say that some of the things that have changed and we talk about the slight worsening that we're seeing right. Now is also that in many cases, whether it's land inventory our suppliers' inventory.
<unk> been drawn down by these very high output levels to the point, where our vulnerability to a missed that might only be just a few days, but if the output right of our factories. Those few days can actually translate into into some pretty big revenue numbers in that.
Corresponding few days could be the same for our suppliers. So.
I think that what's different right now is that.
We just have a little bit less room to respond to the challenges, but I would tell you that all through 2021, we are fighting these.
In almost all cases, we were successful in mitigating them without them becoming.
This is in our financial results.
And that's what gives us confidence.
We will solve these as we go through 'twenty two as well.
And I appreciate the insights there and can you just given the strong.
<unk> backdrop, and a potential strong growth backdrop for Lam can you guys just give us an update on the Malaysia manufacturing ramp I believe that the target was to get to about $3 billion of annualized revenue output from Malaysia by the middle of this year is the team still on track for that and I've also heard that the team is trying to build out domestic supply.
Our support around this facility, which is potentially a big benefit for you guys right, especially during periods like this where having to procure materials from other geographies can pablo would be quite challenging. So maybe you can also update us on the strategy for building out the domestic support capability in Penang.
Yes.
What I would say is that.
The ramp of the Malaysia factory is on track and we're quite happy with the progress we're making there.
Again, it's red ramping per schedule demand is somewhat outstripping the ramp rate, but coming back to your point about why we embarked on Malaysia and also expansion as I mentioned in Korea, Taiwan and the U S.
And even even in our factories in Europe and that is we get the opportunity to tap into.
Different talent pools, so I talked about labor shortages.
Not all Covid related these are just driven by surging demand in lots of parts of the industry. So by having factories in different locations with tap into different talent pools and also as you mentioned, we have the opportunity to qualified different supplier sets or even in some cases, we have global critical suppliers.
They build factories and those same locations next door to us very close to our site and they also tap into that different talent pool, and so theres many ways in which these this expansion of our global footprint, we think in the long term actually.
Makes us less sensitive to disruption in any one particular region, whether it's in our freight and logistics or it's in.
Yes.
Workforce or it's in the supply chain. So it's all part of our strategy. We are executing on it and we just need to get it just need to get to the endpoint a little bit faster.
Thanks, Harlan Thank you very much yes. Thank you.
And we'll go to our.
Next question from Krishna Shankar of Cowen and company.
Yeah, Hi, Thanks for taking my question I had two of them.
Doug and Tim you mentioned, the WP to be 100 billion. This year, but if I look at the current <unk> run rate. It seems like it's like more of the low to mid 90 billion. So to get to 100 billion in the second half run rate has to be more like $105 billion to $110 billion.
The demand is strong and it's all about supply constraints today.
My math is right does it mean that the WMC and the revenues have to step up in the second half is that kind of the implication of 100 million Wi Fi from where we are today and is it fair to assume that land revenues have to head up.
Step up in the back half of this year, none of that follow up.
Yes, Krish I do think <unk> is back half weighted this year.
Maybe as much to do with where.
True demand is but also a little bit because I believe the industry in the first half of the year is going to be somewhat supply constrained. So I think it's going to be a second half second half weighted spending here Christian.
Got it and then Doug just quickly just follow up on that is that the implication that your revenue should also step up in the back half.
Likely yes.
Got it got it alright fair enough and then my follow up question is yes.
Just quickly on China, you mentioned about domestic was pretty strong in December it looks like the domestic China business is going to be strong with tier two can you just help us understand what is driving it there was some recent news about <unk>.
<unk> the parent company of Y M. D C. Having some issues with some investors believe thats going to cap why mtc.
Capex at WPZ here, so I'm kind of curious what do you think is going to drive China. WPZ is this still the long tail of smaller.
Trailing edge customers would you expect the big guys like SMIC and <unk> DC to also be a big part of domestic China Wip. This year. Thank you.
Yes, I think.
From a China WP perspective, we think it remains.
Very broad demand across many different players in fact, even some new new fabs and new players entering the market there and while some of it of course, our big players a lot of it is our.
Our fabs that are addressing what we all know is a very tight.
Trailing edge technology landscape. So I think that is a pretty big driver for Adobe Athene land participate well in that market and as I've mentioned, our reliant business that.
10 years to show record after record in terms of business and a lot of that stems from investments in places like China.
Leading edge nodes.
Yes.
Pro forma.
I was just going to say, it's a very broad set of customers was all I was going to add krish.
Lot of whom you've probably not even heard of frankly, so there's a long tail of people spending spending dollars in China.
Got it I mean, Tim and Doug I, just wanted to obviously youre not too worried about all the China news on single at this point.
I'm not overly concerned no there's ample liquidity in China for the aspirations that they have to make the investments they are planning to make.
Thank you very much guys really appreciate the input thank you.
And welcome Chris.
Okay.
And we'll go next to Jamie <unk> of Evercore.
Yes, good afternoon, and thank you for taking the question I guess first question.
A derivative to the supply chain issues that youre seeing in and higher freight costs curious your ability to pass along higher input costs could.
<unk> customers I understand there's a long tail and contracts, but would love to get a sense of how youre seeing that.
Play out here in 2022.
Yes C J I'll take a shot at it.
First of all I mean, we're not going to go into detail on conversations we may be having with customers on that point, but I guess I'd point to a couple of things.
One it's hard to see perhaps what we are doing given the overwhelming.
Cost challenges, Doug talked about relative near term.
Projections, but longer term.
Lam equipment is absolutely vital to ramping global semiconductor capacity that's important for every one of our customers and industry more broadly and we're also our equipment is also vital to achieving the technology roadmap for the industry. So there's tremendous value in what we what we do for our customers.
The industry and we always fight to get paid fairly for for that value delivered.
Right now I would say that.
We're focused squarely on solving these supply chain issues, having conversations with customers and suppliers about how we do that in the most efficient way and I think as you see us work through that.
You'll see our financial results.
Including gross margin continued to improve into the future.
Sure.
Okay.
Great very helpful and I guess as my follow up.
As you look at your installed base business.
You talked about 24%.
<unk> revenue growth.
Yes.
Chamberlain, which is pretty impressive curious.
How we should think about growth beyond.
2021, I think historically, you've kind of talked about a 6% to 10% kind of anticipated revenue per changes chamber CAGR has that changed and should we be thinking of higher number of go forward.
Well.
Yes, I mean, if you project out these current growth rates get to a pretty big customer support business group in future, but we as.
As I mentioned exceeding expectations. The business is doing extremely well I would say that.
We anticipate some mitigation to that growth rate I think at our analyst day, we kind of put out a model that says look our objective every year is to go in saying that we will outgrow the revenue will outgrow the growth of the installed base, which means fundamentally you're moving forward.
Revenue capture per chamber right now.
We pulled those numbers away, but some of it maybe a little bit short term I mean, clearly everyone is increasing held inventory that probably goes to our spare parts business as well over time and I don't know when that would be because I think people are going to be a little bit.
Cautious for quite some time about supply issues as for as we're talking about.
Eventually they will they will draw those inventories back to probably more efficient numbers and that would cause some mitigation and the spare parts business.
We've also talked about the reliant business and tremendous growth.
Upgrades in sales of tools for trailing edge I don't know that that will mitigate so much but it's been on a red hot pace of the last.
Year, two and so I would expect some mitigation there so maybe the best way to think about it is.
Again, our goal is always to outgrow the growth of the installed base capturing more revenue per chamber.
You can model it languished expected timber growth rate plus zone.
Okay.
Thanks J J.
Okay.
Yes.
And so we'll move to our next question from Timothy Arcuri with UBS.
Hi, a question Donna Karan offer.
Timothy Arcuri.
I was wondering if you could touch base on it to be a great talk about like Mckeon gross margin headwind from Malaysia.
Can you just help us quantify how shall we think about the impact from that in the next few quarters.
Is the timing for the new Malaysian manufacturing tisha friendly headwind to tailwind maybe in the second half of this year.
I understand about gross margin impact okay.
Yes, Malaysian Malaysia will be a tailwind to gross margin certainly as we get into the second half of the year and in my scripted remarks I.
Basically said.
As I look through the rest of calendar year 'twenty two I expect gross margin will improve from the levels that we're at today part of that'll be Malaysia part of it will be the mitigation of the supply chain and part of it will be new products coming out in the positive mix factor that so.
Alright good.
A few things to think about there.
Got it and maybe just possible the domestic China Debbie.
Can you just talk about where you think 2021 that came in and how do you think about that right.
Turning to domestic China.
Yes, the way we've been talking.
Talking about it.
That it was a growth year in 'twenty, one we didn't quantify how much but it was very much in line with the expectations. We described 2020 is roughly $10 billion in indigenous Chinese Wip grew last year, it's going to grow again. This year is what I would tell you.
Thank you very much.
Youre welcome.
And well go next to Stacy Raskin of Bernstein research.
Hey, guys. Thanks for taking my question.
I had a question on your segment mix with regard to your WP forecast for the year, just given where you guys do tend to focus do you think it back.
Is it potential disadvantage with regard to your ability to grow in line with how you view the AWP market itself growing in 2022.
Yes, Casey its a good question I do think when I look at growth in 'twenty two.
Youre going to see the highest level of growth in foundry logic, that's just what's going on and I think that's pretty well understood and you are right in your observation I think inherent in your question is historically we've been somewhat.
Less represented there I guess in terms of share of spend as compared to memory.
Having said that though we've made nice step up there in the last couple of years. We continue to 2021 was a good share position year for us in foundry and logic.
So thats going to going to benefit us.
Also when I look at 'twenty, two WPZ, I think youre going to see nice growth in.
In memory and I'll, let Tim add on too.
Sanjay I guess I just wanted to dimension.
Maybe gotten that question a lot of times on how we're doing in foundry logic and what our plans are and you know what I think we've done a nice job of and it'll play out over the next several years as we focused on a lot of our product portfolio and product development on products that put us out in front of that technology roadmap and you just just to name a couple of them.
So when you look at we've done an atomic layer deposition selective edge to low our seed materials dry <unk> resist and heterogeneous three D packaging all of those are quite tied to.
Ramps in foundry logic spending now the good news is many of those also placed over into our strength in.
In memory like like <unk> does and selective etch will.
But again, we've been very conscious about trying to position the portfolio such that our exposure to foundry logic.
Ultimately as a positive for the company and I think we're making progress and we'll continue so.
So does that suggest you see the share gains that you saw on 'twenty, one in foundry logic continuing into 'twenty two.
Yes, I think momentum is going to continue in 'twenty two spacing tests.
Got it helpful. Thank you guys.
Yes. Thank you.
And we'll go to our next question from John Pitzer of Credit Suisse.
Hey, guys. Thanks for let me ask the question like many I'm juggling multiple calls.
So I apologize if it's a little bit repetitive, but just relative to kind of the first question and your ability to meet demand Doug and maybe this is a little bit longer term, but you've got a situation where.
The semi industry took 50 years to get to half a trillion dollars of revenue and Theres. Many models out there that suggests in the next eight years, we'll get another $500 billion it'd be a trillion dollars in revenue.
What do you have to do incremental over a multiyear period to invest to make sure you have.
Two to support kind of that kind of demand for supply and is that already in the backlog for what you guys are doing in Malaysia and has it already sort of <unk>.
<unk> and some of the Opex sort of targets you gave us at analyst day.
Yes, let me, let me take a shot at it and Doug can add.
As I kind of.
Might not a purpose if youre jumping between calls but.
Our manufacturing strategy, we've been playing out for the last several years I think is really what gives us confidence that we can meet this demand going forward and that is Malaysia as you pointed out but also expansions across our Korea manufacturing facility.
This past year, we bought out our joint venture for manufacturing in Taiwan, We expanded all of our U S manufacturing sites and a pretty big way.
And we also grew our output from our European facility and so I think that when you asked the question what is it that prepares us for the industry to add another 500 billion.
<unk> meet that.
Output is the ability to tap into this global supply chain, which gives us access to larger talent ghouls largest supplier basis.
So many of our parts some are very critical but many of them are.
Sure.
<unk> locally to those factories and I think that's going to help us increase not all of our own capacity, which I think we're making good progress on but also the capacity of our global supplier base and that's something that I'd say, we're pretty far down that path, but clearly.
As evidenced by the current limitations.
<unk>, we still have more room to go and we will be making progress in the next one.
Coming quarters.
And then Tim as my follow on giving US visibility 90 days out given all the logistical issues are hard it now thinking about the entire year as you did with your WSB comment even harder, but I'm kind of curious clearly logic foundry grows faster than memory. This year, but we're sort of in this odd.
Position, where it kind of looks like from a cyclical perspective, the memory companies tend to be seem to be spending at a much more constrained level that maybe their logic foundry partners for the first time ever if you look at Capex to Rev ratios and growth of Capex off the bottom is that how you see it and I guess importantly.
If it is what implications might that have for memory spending as we go from 'twenty two into 'twenty three.
Okay well.
Constrained is always more in the eye of the builder for the customer, perhaps but I think youre right that.
We're seeing a fairly balanced in fact, maybe more balanced spending profile within the memory space at least is our current view.
Maybe back to your original point of visibility.
Our visibility at this point as much we feel further out in terms of demand side. Our challenge is not understanding demand six 912 months out maybe even longer it really is about growing the supply.
Capability of our supply base and also our own capacity to meet that growing demand.
But I think the implications are that we exit this year.
Still perhaps with robust demand going into 2023, it's too early to we're not going to give a guide at this point for 2023, but I would say is whether it's in memory and logic.
Logic foundry and lot of big investments planned fabs under construction many of those don't take equipment. Even if you will starting in 'twenty, three or maybe even beyond and so I think we're going to see.
Robust Wi Fi for the industry for years to come at this point.
Thanks, guys. Thanks, Sean.
You bet.
Yes.
And we'll go to our next question from Mark <unk> of Jefferies.
Hi, Thanks for taking my questions.
First question and I apologize I'm kind of new on the land cost I apologize if this is elementary but.
If we have if we have the semiconductor shortages globally that that are causing different vertical markets to lose tens if not hundreds of billions of dollars.
In revenues you guys make the equipment that actually.
Solve consult that problem why arent Lam and your peers.
Absolute number one priority.
Customers for the semiconductors that kit.
Can make that can make the equipment that is solve these challenges it's surreal to hear you.
You guys talked about component shortages are preventing you from shipping product that can solve everybody's problems.
That's the first question I had a follow up.
Yeah.
Okay I'm not sure it's such an element to your question is actually quite a complex one but.
Yeah.
Ed.
Boy I guess I'd say that we try to make that point quite clear and I think theres been a lot of discussion.
Between companies like ours and.
The manufacturers just as there are many many industries talking to those same suppliers about the urgent needs that they have and so I.
I don't think we want to make this.
We certainly did not say it was all about chips and that's what's limiting our supply it's one element of.
Some of the component shortages and subsystem shortages.
It has been several other things as well, but I do believe that as we increased both our supplier capacity our own capacity and output goes up then that is key to alleviating the problem and so maybe it becomes a virtuous cycle.
Moreover, our output goes up the easier the constraints get and therefore, our output goes up even faster. It's certainly our objective to drive that and we're in close conversation with.
The semiconductor chip manufacturers, who happened to be our customers as well about how they can help and I would say that in most cases those customers are stepping in and doing everything they possibly can.
Because they want the equipment that we're shipping to them, yes, Mark I think the only thing I would add is typically we wouldn't be in the business of buying semiconductors, right, that's our suppliers or sometimes even the suppliers of our suppliers that would be procuring those chips and because we know that.
Group of our customers their suppliers really really well that's why we're stepping in there.
Maybe that helps and we have clearly have access to those guys. So we can make this better quicker I think is as Barbara pointed this out right now.
Got you that's helpful. A follow up if I may.
I appreciate that.
It sounds like you have very good visibility this year.
What kind of.
Conversations you have with your customers about 2023, appreciating that they may not be giving you hard orders that that far out or maybe they do but.
I mean do you have those kind of planning discussions with your customers about what 2023 might look like.
Can you give us any sense of.
How those conversations go.
That's all I had thank you.
Yes, it's a good question I mean, obviously, we have sufficient conversations were very long lead time decisions that we have to make.
So as I talked about our expansion of manufacturing facilities and hiring rates one of the components.
It has a relatively long lead time is the hiring of engineers that go on site to support those new customer facilities and projects and so I would say, we're already having discussions with customers about 2023 in earnest.
It's a little too early to get as precise as many of you probably like in terms of what does the number for 2023 to <unk> look like and we're not going to have that conversation today, but I would say customers are giving us.
They want us to be ready and we're having those same conversations with our suppliers, because we need them to be ready and so.
You can just you can just believe that we're having those conversations quite frequently in quite some depth with customers today.
Thanks Mark.
Thank you.
And we'll go to our next question from Joe Moore of Morgan Stanley .
Great. Thank you.
I certainly understand the gross margin pressures based on the.
Of course that you guys are taking on to sort of deal with all these issues.
But your customers are kind of dealing with some of the same stuff and are raising prices and passing that on to their customers.
If this ends up being a persistent situations, where you have high freight costs and component costs and things like that.
Do you see gross margins kind of getting back to.
The level they were a couple of quarters ago.
Yes, Joe I, do specifically and you might've been jumping between calls as well.
The prepared remarks, I, specifically said I believe gross margin will improve for us as the year progresses, meaning the March quarter. I believe is a low point for the for the gross margin in the year a lot because.
Because of these freight and logistics.
And other things in the supply chain.
Just need to go fix it and Thats what were doing.
Okay that makes sense I mean, I guess just.
Fixing it because those costs are going away or are you able to actually charge your customers expedites and things like that to deal with on it.
So I think our objective is probably to do a little bit of both as you mentioned some of the issues may become persistent and built into the cost structure history in which case.
Ultimately has to be accounted for.
The pricing for the industry.
And yet obviously, we're very sensitive to the fact that.
Customers in certain parts of our market our cost sensitive.
Therefore, we will try to eliminate as many of the costs first so without taking the easy way out I'm just trying to pass costs on trying to first eliminate them and then those inner persistent will be dealt with.
On a case by case basis.
Great. Thank you very much.
Yes. Thank you thanks, Jeff.
And we'll go on to our next question from Patrick Ho Stifel.
Thank you very much most of my questions have been answered, but maybe for Doug with the supply chain issues that are going on right now.
It's difficult to.
Give me a granular answer but.
How do you look at the allocation between what's needed for new shipments of new tools versus your installed base business, which also has a lot of those type of components as well and obviously a lot of the customers are at high utilization, what's the balance there that you're trying to do at least in the near term.
Keep your customers as happy as possible on both things.
I'm going to actually give this one to Tim and Patrick.
Well I think that because you know what I'm going to tell you that.
The most valuable tool for the customers. The one that's been as fab and running and so of course.
It doesn't we prioritize today, keeping the installed base operating and outputting and so one of the earlier questions. If we don't do that.
Probably just gets worse because chips aren't being produced so we are having to make that call at certain points, but I can tell you is that.
Our priority is the installed base and keeping tools in manufacturing and help putting wafers and chips for the industry.
Professor Dr. Gregg stone in either arm.
We're mitigating both at the same time it is not exactly the same supply.
Group debt.
Creating a spare part and new equipment. So it's maybe as much of an overlap as you might not yes, not every not every constraint right now exists on our part that would be a spare certain subsystems and our tools.
Are not field replaceable spares unit so.
There is some overlap, but not the retirements et cetera.
Great. Thank you very much.
Thanks, Patrick operator, we have time for one more question. Please.
And we'll go to that last question from <unk> Malik of Citi.
Hi, Thank you for taking my question, Tim You mentioned the gate all around selective edge revenues to double this year I'm curious about.
About the size of this opportunity this year.
Yes, I think as with the most prolific with extra service.
What I actually said was that the.
The selective edge revenue with double the selective edge is actually used in more applications and just get all around and I don't think were going to quantify the exact size of the business yet.
Got it and then is it possible for you to buy.
Quantify your exposure.
Sales to advanced packaging heterogeneous computing.
Just ballpark.
Yes, we I don't know that we've actually quantified it.
But what I would say is that.
We provide a number of the very critical steps there obviously some of the processes that we've talked about in the past our electroplating.
Our edging processes are both critical to.
Some of the high aspect ratio.
This is like through silicon via or other parts of the process is going to really packaging. So it is a priority market for us and we've been doing quite well for a number of years in that space.
Thank you.
Thanks, a lot Jeff.
And I'll now turn the call back to Tina Correal for any additional or closing comments.
Thank you operator, and thank you all for joining our call today, we appreciate your support.
Okay.
Yeah.
And this concludes today's call. We thank you for your participation and you may now disconnect.
Okay.
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