Q1 2024 Lam Research Corp Earnings Call

Good day and welcome to the Lam Research September 2023 financial conference call.

All participants will be in listen only mode.

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After today's presentation there'll be an opportunity to ask questions.

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The charter question. Please press Star then two.

Please note today's event is being recorded.

I would now like to turn the conference over to Tina Correia, Corporate Vice President Chief Accounting Officer, and Investor Relations. Please go ahead.

Thank you and good afternoon, everyone and 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 today's call wheelchair overview on the business environment and will review our financial results for the September 2023 quarter and our outlook for the December 2023 quarter.

Press release detailing our financial results was distributed a little after one o'clock P. M Pacific time this afternoon.

<unk> can also be found on the Investor Relations section of the Companys website, along with the presentation slides that accompany today's call today's presentation and Q&A include 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, unless 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.

It will be made available later this afternoon on our website and with that I'll hand, the call over to Jim.

Thanks, Tina and welcome everyone Lamb produced solid results for the September quarter revenues came in above the midpoint of our guidance for the second quarter row, our gross margin operating margin and earnings per share all exceeded the high end of the guidance range.

Our revenue and earnings per share are expected to improve further in the December quarter, demonstrating our continued strong execution in a cyclically soft calendar year 2023.

Turning to the wafer fabrication equipment environment, we see spending for calendar year, 2023, and the $80 billion range.

The adjustment in WP from our prior view of mid 70 billion.

Is based on updated checks on Nam Lamb related markets as well as restricted SAP spending in China. It does not change our assumptions on land revenues for the year.

On the device segment side NAND weakness continued in the quarter as customers adjusted spending levels down and further lowered utilization to drive a faster path to supply demand balance.

While <unk> is down significantly in 2023 supply actions are starting to have a positive impact customers have recently indicated the pricing trends have stabilized and NAND bit demand has increased from high single digits percent year over year growth.

And certain consumer markets are demonstrating greater demand elasticity in per unit content.

DRAM spending is modestly up relative to our prior view driven by better trends in the high bandwidth memory related demand as well as further upside from domestic China customers.

Unknown Executive: Day, and welcome to the Lam Research September 2023 financial conference call. All participants will be in listen only mode. Should you need assistance, please sign away conference specialists by pressing the star key followed by zero.

Meanwhile, the foundry logic segment is down slightly versus our prior baseline due to weakness in both leading edge and non China based mature node investments.

Unknown Executive: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than one on your telephone keypad. To withdraw your question, please press star than two.

Looking forward it remains hard to call the timing and pace of recovery.

But we believe Lam is in a good position to benefit from both cyclical and structural drivers of demand.

Unknown Executive: Please note today's event is being recorded.

Christina Correia: I would now like to turn the conference over to Tina Correia, Corporate Vice President, Chief Accounting Officer and Investor Relations. Please go ahead.

When memory investments begin to recover from current cyclical lows, we expect to see early benefits in our installed base business and fab utilization improves driving increased demand for spares and services and equipment upgrades.

Timothy Archer: Thank you and good afternoon everyone. Welcome to the Lam Research QuarterLearnings conference call. With me today are Tim Archer, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer.

Longer term Lamb's growth story is strong and is underpinned by the fact that etch and deposition are fundamental enablers of higher performance more scalable semiconductor device architectures.

Timothy Archer: During today's call, we will share our overview on the business environment and we'll review our financial results for the September 2023 quarter and our outlook for the December 2023 quarter. The press release detailing our financial results was distributed a little after one o'clock PM specific 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 a company today's call.

To address emerging technical challenges customers continued to identify new innovative use cases for vertical scaling.

Backside power delivery is a good example, as it is an emerging device architecture being developed to address the scaling limitations of traditional back end of line integration schemes.

<unk> deposition play a critical role in enabling this transition and backside power delivery is expected to add close to $1 billion of incremental Sam opportunity for Lam per 100000 monthly wafer starts today.

Timothy Archer: Today's presentation and Q&A include 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-gap financial basis unless otherwise specified. A detailed reconciliation between gap and non gap results can be found in the accompanying slides in the presentation. This call scheduled to last until three o'clock PM specific 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 Kim.

Today power Interconnects increasingly compete for space in the complex complex back end of line wiring.

We'll also taking up considerable area that's transistor level.

Additionally, managing power loss between external source in the transistors is increasingly challenging due to resistance.

Oxide power delivery architecture enables the separation of the signal and power delivery paths to free up valuable way for real estate and minimize power loss.

Furthermore, customers are implementing changes, including the use of thicker metal layers in order to efficiently integrate backside power with their advanced packaging schemes.

Timothy Archer: Thanks Tina and welcome everyone. Lam produced solid results for the September quarter revenues came in above the midpoint of our guidance and for the second quarter in a row our gross margin operating margin and earnings per share all exceeded the high end of the guidance range. Our revenue and earnings per share are expected to improve further in the December quarter demonstrating our continued strong execution in a cyclically soft calendar year 2023.

New etch and deposition capabilities are needed and the trends are favorable for Lam.

Due to our existing strength in back end processes, we have been able to quickly extend the capabilities of our copper electroplating and.

P CVD deposition products to address the throughput and productivity requirements backside power applications. We now have tool of record positions at a leading foundry logic customer and expect these positions to continue to grow.

Timothy Archer: Turning to the way for fabrication equipment environment we see spending for calendar year 2023 in the $80 billion range. The adjustment in WFE from our prior view of mid $70 billion is based on updated checks on non-lamb related markets as well as restricted fab spending in China. It does not change our assumptions on lamb revenues for the year. On the device segment side man the weakness continued in the quarter as customers adjusted spending levels down and further lowered utilization to drive a faster path to supply demand balance.

As we approach the end of the year our installed base is closing in on 90000 chambers.

As semiconductor manufacturing is becoming increasingly complex our customer support business group, you're seeing more opportunities to deliver innovation productivity and yield enhancement.

In the September quarter, we expanded our equipment intelligence offerings at multiple customers to include the first big data application of high resolution optical emission spectroscopy or Oems.

Timothy Archer: While man WFE is down significantly in 2023 supply actions are starting to have a positive impact customers have recently indicated the pricing trends have stabilized and then bid demand is increased from high single digits percent year over your growth to high teens as certain consumer markets are demonstrating greater demand elasticity in per unit content. He ran spending is modestly up relative to our prior view, driven by better trends in high bandwidth memory related demand, as well as further upside from domestic China customers. Meanwhile, the Foundry Logic segment is down slightly versus our prior baseline, due to weakness in both leading edge and non-China based mature node investments.

The equipment intelligence capabilities, we are delivering with oes are highly differentiated due to the complexity of collecting in interpreting plasma spectra in manufacturing over time and across a large fleet of tools.

Our solution allows customers to resolve performance of issues it would otherwise remained undetected.

Recently, our <unk> team also put the industry's first collaborative maintenance robot for cobalt into a production fab at a leading customer.

Cobalt has helped execute complex maintenance tasks with precision and reliability, leading to improved tool the tool performance matching and higher equipment availability.

Also we believe cobalt is a new service offering can play an important role in addressing anticipated skilled labor shortages as semiconductor manufacturing expands and becomes more regionalized.

Timothy Archer: Looking forward, it remains hard to call the timing and pace of double safety recovery, but we believe Lam is in a good position to benefit from both cyclical and structural drivers of demand. When memory investments begin to recover from current cyclical lows, we expect to see early benefits in our install based business, as fabularization improves, driving increased demand for spares, services, and equipment upgrades. Longer term, Lam's growth story is strong and is underpinned by the fact that edge and deposition are fundamental enablers of higher performance, more scalable, semi-conductor device architectures.

Overall, we see tremendous vectors of growth ahead for the semiconductor industry and for Lam.

Scaling and complexity challenges are driving multiple inflections for three of the architectures and in turn greater etch and deposition intensity Lamb.

<unk> has a strong track record of execution and we are committed to making the strategic investments needed to position the company to outperform as the industry and our markets growth.

Timothy Archer: To address emerging technical challenges, customers continue to identify new, innovative use cases for vertical scaling. Backside power delivery is a good example, as it is an emerging device architecture being developed to address the scaling limitations of traditional back end of line integration schemes. Edge and deposition play a critical role in enabling this transition, and backside power delivery is expected to add close to $1 billion of incremental Sam opportunity for Lam per 100,000 monthly rate resorts.

Over the last two years, we've been laying the groundwork for greater scale and efficiency with the expansion of our manufacturing supply chain and warehousing capabilities in Asia in order to better serve our customers in that region.

We are also increasing our R&D efforts to extend our technology differentiation and expand our product portfolio to capture new inflection driven applications.

While the current business environment remains challenging secular industry trends play extremely well to land strengths.

And we are excited by the breadth of opportunities we see ahead for the company.

Timothy Archer: Today, power interconnects increasingly compete for space in the complex back end of line wiring, while also taking up considerable area at the transistor level. Additionally, managing power loss between external source and the transistors is increasingly challenging due to resistance. A backside power delivery architecture enables the separation of the signal and power delivery paths to free up valuable way for real estate and minimize power loss. Furthermore, customers are implementing changes, including the use of thicker metal layers in order to efficiently integrate backside power with their advanced packaging schemes.

Thank you and I'll now turn it over to Doug excellent. Thank you Tim.

Good afternoon, everyone and thank you for joining the call today.

We delivered strong results in the September 2023 quarter.

Our revenue came in above the midpoint of our guided range and gross margin operating income and earnings per share all exceeded the high end of guidance.

We're pleased with the company's execution during the year, where memory Wip investment has declined by unprecedented amounts.

Let's look at the details of our September quarter financial results.

Revenue for the September quarter was $3 $48 million, which was up 9% from the prior quarter.

Timothy Archer: New edge and deposition capabilities are needed, and the trends are favorable for Lam. Due to our existing strength in back end processes, we have been able to quickly extend the capabilities of our copper electroplating and PVD deposition products to address the throughput and productivity requirements of backside power applications. We now have tool of record positions at a leading founder logic customer and expect these positions to continue to grow. As we approach the end of the year, our installed base is closing in on 90,000 chambers.

And down more than 30% from a year ago.

Our deferred revenue balance at quarter end was $169 billion, which was a decrease of approximately $150 million from the June quarter.

Mainly related to revenue recognized tied to customer advance payments.

We continue to have a higher deferred revenue balance versus historic levels, given these advanced payments.

We expect to recognize revenue in the December quarter for a portion of these deposits, which is comprehended in our guidance.

Within calendar year 2024, I believe the deferred revenue balance will trend to more normalized levels.

Timothy Archer: As semiconductor manufacturing is becoming increasingly complex, our customer support business group, we've seen more opportunities to deliver innovation, productivity, and yield enhancement. In the September quarter, we expanded our equipment intelligence offering and multiple customers to include the first big data application of high resolution optical emissions that cost the fee or OES. The equipment intelligence capabilities we are delivering with OES are highly differentiated due to the complexity of collecting and interpreting plasma spectra in manufacturing over time and across a large fleet of tools.

Let's now look at the segments from a segment perspective September quarter systems revenue and memory was 38%, which is an increase from the prior quarter level of 27%.

The growth in the memory segment was driven by DRAM, which increased sequentially coming in at 23% of systems revenue compared with 9% that we saw in the June quarter.

As we've noted in prior quarters non volatile memory spending is at historic lows in 2023.

And for the September quarter. This segment represented 15% of system revenue, which was down from the 18% that we saw last quarter.

Timothy Archer: Our solution allows customers to resolve performance issues that would otherwise remain undetected. Recently, our CSBG team also put the industry's first collaborative maintenance robot, or a co-bot, into a production fab at a leading customer. Cobots help execute complex maintenance tasks with precision and reliability, needing to improve tool-to-rule performance matching and higher equipment availability. Also, we believe co-bots as a new service offering can play an important role in addressing anticipated skilled labor shortages as semiconductor manufacturing expands and becomes more regionalized.

The spending levels in NAND or DRAM.

All of the levels, we have not seen planar NAND was the predominance.

Hey.

The foundry segment represented 36% of our systems revenue.

Lower than the percentage concentration in the June quarter, a 47%.

The decrease is related to timing of leading edge investments within calendar year 2023.

We performed well in this segment during the year with this quarter spending coming mainly from mature known customers.

Timothy Archer: Overall, we see tremendous vectors of growth ahead for the semiconductor industry and for LAM. Scaling and complexity challenges are driving multiple inflections for 3D architectures, and in turn, greater etching deposition intensity. LAM has a strong track record of execution, and we are committed to making the strategic investment needed to position the company to outperform as the industry and our market growth. Over the last two years, we have been laying the groundwork for greater scale and efficiency with the expansion of our manufacturing, supply chain, and warehouse and capabilities in Asia in order to better serve our customers in that region. We are also increasing our R&D efforts to extend our technology differentiation and expand our product portfolio to capture new inflection driven applications.

And finally, the logic and other segment was 26% of our systems revenue in the September quarter, which was flat with the prior quarter level.

Investments in this segment were heavily focused in the specialty device areas, including sensors analog.

And power devices.

I will now discuss the regional composition of our total revenue.

But China region came in at a high watermark of 48%.

Up from 26% in the prior quarter.

A majority of the China revenue this quarter was from domestic Chinese customers and we currently expect we will have another strong China geographic concentration profile in the December quarter is slow.

Our next largest geographic region concentration was Korea at 16% of revenue in the September quarter and that compares with a 24% that we saw in June .

Timothy Archer: While the current business environment remains challenging, secular industry trends play extremely well to land strengths, and we are excited by the breadth of opportunities we see ahead for the company.

Our customer support business group generated revenue in the September quarter totaling approximately $1 $4 billion.

Timothy Archer: Thank you, and I'll now turn the over to the other side.

Timothy Archer: Excellent. Thank you, Tim.

Was down 5% from the June quarter, and 25% lower than the September quarter and calendar year 2022.

Douglas Bettinger: Good afternoon, everyone, and thank you for joining me, Paul, today. We deliver strong results in the September 2023 quarter. Our revenue came in above the midpoint of our guided range and growth margin, operating income, and earnings per share of all exceeded the high end of guidance. We're pleased with the company's execution during the year where memory WFE investment has declined by unprecedented amounts.

Memory customers continue to operate their fabs at very low utilization rates and.

And customers are holding off on upgrading tools until there's more digestion of the outstanding inventory.

In the industry.

The specialty technology market has been a bright spot this year and we see that part of our business up year over year as we closed calendar year 2023.

Douglas Bettinger: Let's look at the details of our September quarter financial results. Revenue for the September quarter was $3.48 billion, which was up 9% from the prior quarter, and down more than 30% from a year ago. Our deferred revenue balance at quarter-end was $1.69 billion, which was a decrease of approximately $150 million from the June quarter, mainly related to revenue recognized tied to customer advance payments. We continue to have a higher deferred revenue balance versus historic levels given these advance payments. We expect to recognize revenue in the December quarter for a portion of these deposits, which is completely in our guidance. Within calendar year 2024, I believe the deferred revenue balance will trend to more normalized levels.

Spares in the reliant product line continues to be the two largest components of CSB Jay.

I'll turn to the gross margin performance.

September quarter came in at 47, 9%.

Above our guided range and higher than the June quarter level of 45, 7%.

Our strong gross margin performance compared to the prior quarter was driven primarily by favorable customer mix.

We've improved elements of our cost structure during the year and are on track with our plan to improve gross margin from the March quarter level by approximately one percentage point as we exit calendar year 2023.

Yes.

September quarter operating expenses came in at $622 million up from the prior quarter amount of $590 million.

Douglas Bettinger: Charles.

Douglas Bettinger: Let's now look at the segments. From a segment perspective, September quarter systems revenue and memory was 38%, which is an increase from the prior quarter level of 27%. The growth in the memory segment was driven by DRAM, which increased sequentially coming in at 23% of systems revenue compared with 9% that we saw in the June quarter.

R&D as a percentage of spending.

Somewhat higher versus the June quarter coming in at over 68% of our spending.

The increased investment was focused on key technology inflections and development engagements with our customers.

We will continue to invest in programs across multiple market segments to support our long term strategic objectives for continued company outperformance.

Douglas Bettinger: As we noted in prior quarters, non-volatile memory spending did that historic lows in 2023, and for the September quarter, the segment represented 15% of system revenue, which was done from the 18% that we saw last quarter. The spending levels in NAND are around the other levels. We have not seen since Planner NAND was the predominant technology.

Operating margin for the current quarter was 31% higher than the June quarter level of 27, 3% and more than 100 basis points over the high end of our guidance because of that strong gross margin performance.

The non-GAAP non-GAAP tax rate for the quarter was 13, 4% in line with our expectations.

Douglas Bettinger: The following segment represented 36% of our systems revenue, lower than the percentage concentration in the June quarter of 47%. The decrease is related to timing of leading edge investments within calendar year 2023. We performed well in the segment during the year with this quarter spending coming mainly from mature-known customers. And finally, the logic and other segment was 26% of our systems revenue in the September quarter, which was flat with the prior quarter level. Investments in the segment were heavily focused in the specialty device areas, including sensors, analog, and power devices.

Our estimate for the December 2023 quarter as well as for calendar year 2024, just for the tax rate to be in the low to mid teens range.

Other income and expense for the September quarter came in at $7 million in income compared with $7 million in expense in the June quarter.

The favorable fluctuation and aligning was due to a variety of factors, including rising interest rates generating income on our cash balance.

Well why don't you will continue to be subject to market related fluctuations that will cause some level of volatility quarter by quarter.

Let me now pivot to the capital return side of things.

Douglas Bettinger: I'll now discuss the regional composition of our total revenue. The China region came in at a high water mark of 48% up from 26% in the prior quarter. The majority of the China revenue this quarter was from domestic Chinese customers, and we currently expect we will have another strong China geographic concentration profile in the December quarter as well. Our next largest geographic region concentration was Korea had 16% of revenue in the September quarter, and that compares with the 24% that we saw in June.

Allocated approximately $830 million to open market share repurchases and paid $230 million in dividends in the September quarter.

I'll highlight that in September we announced a 16%.

Growth in our dividend in line with our plan to deliver disciplined annual dividend growth.

Since paying our first dividend in 2014, we have now raised the dividend amount nine times.

We returned over 120% of free cash flow in the quarter and we have $2 $7 billion remaining on our board authorized share repurchase plan.

Douglas Bettinger: Our customer support business group generated revenue in the September quarter, totaling approximately $1.4 billion, which was down 5% from the June quarter, and 25% lower than the September quarter in calendar year 2022. Memory customers continue to operate their FAFs at very low utilization rates, and customers are holding off on upgrading tools to tell us more digestion of the outstanding inventory that is in the industry. The specialty technology market has been a bright spot this year, and we see that part of our business up year over year as we close calendar year 2023. Spares and the reliant product line continues to be the two largest components of CSBJ.

Calendar year to date, we've returned 83% of our free cash flow to shareholders.

September quarter diluted earnings per share was $6 85 over.

Over the high end of our guided range.

Diluted share count was 133 million shares on track with our expectations.

And down from the June quarter.

Let me pivot to the balance sheet, our cash and short term investments at the end of the September quarter totaled $5 2 billion.

Down from $5 $6 billion in the June quarter.

Yeah.

The main driver of the cash decrease was obviously our capital return activity.

I just mentioned, we also purchased buildings at our company headquarters as well as our Bay area of California factory for approximately $250 million retiring the leases that were on the balance sheet.

Douglas Bettinger: Let me now turn to the gross margin performance. The September quarter came in at 47.9% above our guided range, and higher than the June quarter level of 45.7%. Srinivas Pajjuri, Toshiya Hari, and our on track with our plan to improve gross margin from the March quarter level by approximately one percentage point as we exit calendar year 2023. September quarter operating expenses came in at $622 million, up from the prior quarter amount of $590 million.

You should jump to cash was somewhat offset by improvement in day sales outstanding which were 73 days in the September quarter down from the 80 days that we saw in the June quarter.

Inventory turns were flat with the prior quarter level at one five times.

We continue to work to bring our inventory down but as we've noted in prior quarter.

We expect this to occur at a slower pace.

Then we have done in the past.

Our non cash expenses for the September quarter included approximately $67 million for equity compensation.

Douglas Bettinger: Our end use of percentage spending was somewhat higher versus the June quarter coming in at over 68% of our spending. The increased investment was focused on key technology inflections and development engagements with our customers. We will continue to invest in programs across multiple market segments to support our long-term strategic objectives for continued company outperformance. Operating margin for the current quarter was 30.1%, higher than the June quarter level of 27.3% and with our 100 basis points over the high end of our guidance because of that strong gross margin performance.

96 million and depreciation and $14 million and amortization.

Capital expenditures for the September quarter came in at $77 million, which was flat with the June quarter.

Spending in September was primarily centered on product development activities and lab expansions in the United States and Asia.

We ended the September quarter with approximately 17200 regular full time employees, which was a decrease of 200 people from the prior quarter.

Most of this decrease is related to the restructuring actions. We took earlier in the calendar year with the timing of the head count reduction occurring in the September quarter.

Douglas Bettinger: The non-gap tax rate for the quarter was 13.4% in line with our expectations. Our estimate for the December 2023 quarter, as well as for calendar year 2024, is for the tax rate to be in the low-to-mid-teens range.

Okay.

Now I'll turn to our non-GAAP guidance for the December 2023 quarter.

We're expecting revenue of $3 7 billion, plus or minus $300 million.

Gross margin of 47% plus or minus one percentage point.

Douglas Bettinger: Other income and expense for the September quarter came in at $7 million in income compared with $7 million in expense in the June quarter. The favorable fluctuation in aligning was due to variety of factors, including rising interest rates, generating income on our cash balance. All Y&E will continue to be subject to market-related fluctuations that will cause some level of volatility quarter by quarter.

This level of gross margin reflects a continued favorable customer mix.

Albeit not quite as favorable as we saw in September .

Operating margin of 29, 5% plus or minus one percentage point.

The operating expenses embedded in this guidance increase from the September level due to growth in R&D.

Yeah.

I'd also just mention that the June 2024 quarter.

Douglas Bettinger: Let me now pivot to the capital return side of things. We allocated approximately $830 million to open market share repurchases and paid $230 million in dividends in the September quarter. I'll highlight that in September we announced a 16% growth in our dividend in line with our plans to deliver disciplined annual dividend growth. Since paying our first dividend in 2014, we have now raised the dividend amount nine times. We returned over 120% of free cash flow in quarter and we have $2.7 billion remaining on our board authorized share repurchase plan.

<unk> will be higher as it includes an extra week in the fiscal third quarter, which occurs every six years.

We're gonna be a 14 week quarter in March.

And finally earnings per share of $7, plus or minus 75 based on a share count of approximately 132 million shares.

With our December quarter guidance, we see solid performance in both revenue and profitability.

Lamb is delivering strong financial results and technology leadership to our customers as we deliver developed solutions for the next industry inflections.

And before I wrap up I'd, just like you mentioned two things as you think about modeling our business into 2024.

The first is that we're currently experiencing favorable customer mix.

Douglas Bettinger: Calendar year-to-date, we returned 83% of our free cash flow to shareholders. September quarter diluted earnings per share was $6.95 over the high end of regarded range. Diluted share count was 133 million shares on track of the expectations and down from the June quarter. When we pivot to the ballot sheet, our cash and short-term investments at the end of the September quarter told $5.2 billion down from $5.6 billion in the June The main driver of the cash decrease was obviously our capital return activity I just mentioned we also purchased buildings at our company headquarters as well as our Bay Area California factory for approximately 250 million dollars retiring the leases that run the balance sheet.

That may not continue at the same level going into next year.

This may create near term headwinds for gross margin.

Second given all the opportunities we see in long term technology inflections like gate, all around dry resist advanced packaging changing metallization schemes and continuing the evolution of other <unk> structures like DRAM.

2024.

Maybe R&D spending growth year to take advantage of these future opportunities that we see.

As a result, it's possible the historic leverage we've delivered takes a temporary pause.

We will obviously continue to aggressively drive the operational efficiencies that we always have.

And our longer term profitability objectives remain unchanged.

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

Douglas Bettinger: This is your cash was somewhat offset by improvement in this as outstanding, which were 73 days in the September quarter down from the 80 days that we saw in the June quarter. Inventory turns were flat with the prior quarter level at 1.5 times. We continue to work to bring our inventory down, but as we've noted in prior quarter, we expect this to occur at a slower pace than we've done in the past.

Thank you.

I'll ask a question please first stove and run on your telephone keypad.

You are using a speakerphone please pick up your handset before pressing the keys.

If at any time <unk> question has been addressed I would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

And today's first question comes from Timothy Arcuri with UBS. Please go ahead.

Douglas Bettinger: Our non cash expenses for the September quarter included approximately 67 million dollars for equity compensation 76 million dollars in appreciation and 14 million dollars in amortization. Capital expenditures for the September quarter came in at 77 million dollars, which was flat with the June quarter. Standing in September was primarily centered on product development activities and lab expansions in the United States and Asia. We ended the September quarter with approximately 17,200 regular full time employees, which was a decrease of 200 people from the prior quarter. Most of this decrease is related to the restructuring actions we took earlier in the calendar year with the timing of the head count production occurring in the summer quarter.

Thanks, a lot I had a question on China. So obviously, you've had a huge second half in China.

It sounds like you think it's going to remain pretty strong in December it sounds like maybe it's going to remain close to 50% of the mix, but it sounds like Youre, a little worried about it sorry, now not worried but sure.

Do you think that it could actually come off a bit during the first half of 2004 can you talk about that what are the puts and takes.

I asked because if you sort of back into where they're running in terms of Wi Fi theyre running probably in the high Twenty's. If I just take the back half of the year. So I'm wondering if that could sustain.

Yes, Yes, Tim let me, let me start on that and I'll, let Doug add.

When we think about China investment clearly it has been strong as we've messaged part of the mixed story and why it's such a high percentage of our mix right. Now also is we do expect that other customers come up not spending and we all know that memory and then in particular is it.

Douglas Bettinger: Let me now turn to our non get guidance for the December 2023 quarter. We're expecting revenue of 3.7 billion dollars plus or minus 300 million dollars. Gross margin of 47 plus or minus 1 percentage point. This level of gross margin reflects a continued favorable customer mix, albeit not quite as favorable as we saw in September. Operating margin of 29.5 percent plus or minus 1 percentage point. The operating expenses, embedding this guidance increase from the September level student growth in R&D.

Extreme lows.

As we look into next year, and it's a bit too early for us to give 2020 for WPZ. So we're not going to do that.

We think about longer term, China and this overall move towards regionalization.

That you see people investing for long term demand in mature nodes and so we're not going to comment on whether we think it's sustainable in the first half of the second half of next year, but long term. We do believe that there is growing demand in mature nodes drivetrain investment in a rather sustainable manner for the next.

Several years.

Douglas Bettinger: I'd also just mention that the June 2024 quarter will be higher as it includes an extra week and fiscal quarter, which occurs every few years. It's going to be a 14 week quarter in March. And finally earnings per share of $7 plus or minus 75 cents based on a share count of approximately 132 million shares. With our December quarter guidance, we see solid performance in both revenue and profitability. LAM is delivering strong financial results and technology leadership to our customers as we deliver developed solutions for the next industry influxions.

And Tim just to parse my comments a little bit.

I said, we believe China will continue to be strong, but I also said, albeit not quite as strong perhaps as we saw in September .

And as Tim alluded to the China investment cycle underway.

I don't know if its up down sideways next year, but it's not going away. They are investing for opportunities in the market that they see.

I think we're hopeful the rest of the market begins to recover at some point, because it's a pretty low points and that will mitigate the China mix to a certain extent.

Thanks, a lot.

For that can you just talk also.

Your major.

Douglas Bettinger: And for a wrap up, I'd just like to mention two things as you think about modeling our business into 2024. The first is that we're currently experiencing favorable customer mix that may not continue at the same level going into next year. This may create a near-term headwind for gross margin. Second, given all the opportunities we see in long-term technology collections like data all around, dry resist, advanced packaging, changing metalization schemes, and continuing devolution of other 3D structures like VRAMF.

Peer that makes Elisa talked this morning about there being a handful of Fabs now with these new.

Restrictions that they can't ship into its predominantly a litho thing, but can you just talk about sort of where we are in terms of restrictions.

And then also.

You were talking about that whats the commonality in the etch and the etch and Dep toolset for let's say 28 nanometer versus let's say seven nanometer because technically you can buy tools for 28 nanometer.

Douglas Bettinger: 2024 may be an R&D spending growth year to take advantage of these feature opportunities that we see. As a result, it's possible the historic leverage we've delivered takes a temporary pause. We will obviously continue to aggressively drive the operational efficiencies that we always have, and our longer-term profitability objectives remain unchanged.

You can use them to pattern and seven nanometer from them from a debt point of view, it's not as efficient, but you can do it can you just talk about that thanks.

Yes, Tim I guess, what I'd say is we've reviewed the details of the regulations and our our early assessment is we don't see any material impact or forecasted business now.

Some of that has to do with the fact that we've already we've already been quite restricted due into what we can ship into China relative to technology engagement.

I think the other point about tools being purchased one node used for another I mean thats something that obviously we are.

Unknown Executive: Operator, that concludes our prepared remarks. Tim and I would now like to open up the call for questions. Thank you.

Sure.

We have to follow very strict regulations to adhere to.

Unknown Executive: If you would like to ask a question, please press star them on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys.

Ex regulation, so I don't know that Thats something that.

Might be quite as covenants, what youre, saying, so but it's.

Unknown Executive: If at any time your question hasn't addressed you'd like to enjoy your question, please press star them too.

It's something that we make sure that.

We're fully compliant.

Unknown Executive: At this time we'll pause momentarily to assemble our roster.

Of course, alright, thanks, so much.

Yes.

Timothy Arcuri: And today's first question comes from Timothy Archeri with UBS. Please go ahead. Thanks a lot. I had a question on China, so obviously you've had a huge second half in China. Doug, it sounds like you think it's going to remain pretty strong in December. It sounds like maybe it's going to remain close to 50% of the mix. But it sounds like you're a little worried about it, sorry, not worry, but you think that it could actually come off a bit during the first F-24.

Thank you and our next question today comes from Harlan sur with Jpmorgan. Please go ahead.

Timothy Arcuri: Can you talk about that? What are the puts and the takes? I ask because if you sort of back into where they're running in terms of WFE, they're running probably in the high 20s if I just take the back half of the year. So I'm wondering if that can sustain. Yeah, Tim, let me start on that. I think that when we think about China investment, clearly it has been strong as we've messaged.

Good afternoon, and thanks for taking my question on <unk> down 8% year over year.

First nine months of the year. It did decline as you mentioned, 5% sequentially I assume the sequential decline was driven by continued utilization declines by your customers.

Especially.

Your your NAND customers as you pointed out you did talk about improving bit shipments for these customers in second half of the year pricing stabilization it sort of seems to be reflective of this sort of steadily improving supply demand environment.

So does the team believes that utilization.

Bottom the costs your memory and foundry and logic customers have they started to at least stabilize at current levels.

Timothy Arcuri: Part of the mixed story, why it's such a high percentage of our mix right now also has to do with fact that other customers are not spending. And we all know memory and man in particular is that extreme lows. As we look into next year and it's a bit too early for us to give 2024 WFE, so we're not going to do that. You know, we think about longer term China and just overall move towards regionalization that you see people investing for long term demand in mature notes.

Yes Harlan.

What we said was that those are the comments that obviously our customers are all talking about their business. There is clearly some time lag from when they start to see improvement in bit demand in pricing before they start to I think bring some of that fab utilization back online our <unk> business. As we said is affected by a couple of things one is clearly.

The fab Utilizations.

At levels that we have we have really haven't seen in terms of how much capacity has been taken offline in the NAND space and.

Timothy Arcuri: And so we're not going to comment on whether we think it's sustainable in the first half of the second half of next year. But long term, we do believe that there's rolling demand in mature notes that will drive time investment in a rather sustainable manner for the next several years. And yeah, Tim, just to parse my comments a little bit. I said we would China will continue to be strong, but I also said I'll be not quite as strong perhaps as we saw in September.

And thats affected spares, but also when you don't need to add bits and you are really trying to conserve your own spending theres been quite a <unk>.

Significant delay and technology upgrades to the installed base you have that those tools offline youre not really upgrading them at this point so.

That has also hit the <unk> business in terms of our upgrades.

Component yes.

Timothy Arcuri: And as Tim alluded to, you know, the China investment is not going away. I don't know if it's up down sideways next year, but it's not going away. They're investing for opportunities in the market that they see. I think we're hopeful the rest of the market begins to recover at some point because that's pretty low points. And that will mitigate the China mix to a certain extent. Thanks a lot for that. Can you just talk also?

We anticipate that as the.

The memory business starts to improve which is what it seems to be the leading indicators are pointing to we would think spares that start to come back and the technology upgrades will be done because in that next leg of growth customers are going to want to be able to scale on that next technology node for their own efficiencies of manufacturing. So we're not seeing that.

Yet but.

Leading signs are that.

Timothy Archer: You're a major peer that makes Litho talk this morning about, they're being a handful of fabs now with these new restrictions that they can't ship into. It's predominantly a Litho thing, but can you just talk about sort of where we are in terms of restrictions? And then also when you're talking about that, what's the commonality in the etch and depth tool set for, let's say, 28 nanometer versus, let's say, seven nanometer.

It will come.

Okay. Thank you and then.

Talked about this on the last earnings call, but you know you've got a strong position in stack chip architectures advanced packaging you guys have talked about this segment has been a few hundred million dollars per year for Lam potentially with a path to $1 billion business on HCM, specifically when you have very strong share right, which began to HBM two to three to four.

Theres, a doubling of TSB fees per chip every new generation of HBM the DRAM stockpile.

Timothy Archer: Because technically, you can buy tools for 28 nanometer and you can use them to pattern seven nanometer from a depth edge point of view. It's not as efficient, but you can do it. Can you just talk about that, thanks. Yeah Tim, I guess what I'd say is we've reviewed the details of the regulations and our early assessment is we don't see any material impact or forecasted business. Now, some of that has to do with the fact that we've already been quite restricted into what we can ship in the China relative to technology engagement.

It is also growing from like eight to like 24 at some point. So this is this all of this sort of a very strong tailwind for the team.

Guys anticipate strong growth next year for your HDL Slash advanced packaging business.

And some of your DRAM customers are also talking about HCM driving 10% of overall industry DRAM wafer starts is that how do you guys just seeing it as well.

Timothy Archer: And I think to your other point about tools being purchased one node used for another, I mean, that's something that obviously, you know, we're, we have to follow very strict regulations to adhere to the US regulations. So I don't know that that's something that might be quite as common as what you're saying. So, but it's something that, you know, we make sure that we're fully compliant. Of course, right. Thanks so much.

We'll let them talk about how much it affects their business but.

What are the effects of ours I mean, everything you just said I think we are generally aligned with which is.

Trying to drive performance generally leads to.

Some more equipment needs and more sophisticated equipment needs and so we do see HBM.

What about the uptick in our business that we've already seen from it.

This appears to be an area right now that is still under supplied and we're seeing strong demand and so I.

Harlan Sur: Thank you. And our next question today comes from Harwin sir, which AP Morgan, please go ahead. Good afternoon. Thanks for taking my question on CSBG down 8% year over year to the first nine months of the year. It did decline, as you mentioned, 5% sequentially. I assume the sequential decline was driven by continued utilization declines by your customers. Especially your, your nan customers as you pointed out, you did talk about improving bit shipment for these customers in second half of the year, pricing stabilization, it sort of seems to be reflective of this sort of steadily improving supply demand environment.

I don't anticipate given the interest in AI that you hear so broadly in the industry right now that are HBM business written so pretty strong next year.

To characterize our overall advanced packaging you mentioned a couple of hundred million dollars and we basically said that we think that this could be a market in which our revenues actually exceeded $1 billion over the next.

Over the next couple years and so it is it is a rapidly growing part of our business.

And one in which we have quite high share.

Yes, thanks, Harlan thank you.

Thank you and our next question today comes from <unk> Malik with Citi. Please go ahead.

Harlan Sur: So does the team believe that utilization to bottom the cross your memory and found your logic customers have they started to at least stabilize at current levels. Yeah, Harlan, you know, what we only said was that those are the comments that that obviously our customers are out talking about their, their business. There's clearly some time lags from when they start to see improvement in in bit demand and in pricing before they start to, I think, bring some of that tab utilization back online.

Hi, Thank you for taking my question.

Tim My first question is on the equipment spending I know you guys don't guide Ws detailed January but you're only positive peer was talking about maybe a softer first half and then things sticking up into five and curious if you think a similar profile, where first half with more in like the land out like the line.

Okay.

Unlike a landmark like in Latam.

Harlan Sur: Our CSBG business is affected by a couple of things. One is clearly fab utilization. You know, are at levels that we have, we have really haven't seen in terms of how much capacity has been taken offline in the man space. And that's affected spares, but also when you don't need to add bits and you're really trying to conserve your own spending. There's been a quite a significant delay in technology upgrades to the install base.

I think that.

It's what we would say and without guiding 2024 at this point I think it is reasonable.

To my prior comments that.

I think spending will come back cautiously.

So even though we may be seeing some of the leading indicators and some of our markets.

I think.

People aren't going to want to see sustainability of that condition before we start to see.

Significant spending so.

If we if we were to think and I believe that the general feeling is that 25 is probably.

Harlan Sur: Yeah, that those tools offline, you're, you're not really upgrading them at this point. And so that is also hit the CSBG business in terms of our upgrades component. You know, we anticipate that as the memory business starts to improve, which is what it seems to be the leading indicators point to, we would think spares would start to come back and the technology upgrades will be done. Because in that next leg of growth customer, we're going to want to be able to scale on that next technology noted for their own efficiency of manufacturing. We're not seeing that yet, but the leading signs are that it will come.

I mean, a lot of fabs opening a lot of lot of demand.

Demand out in that timeframe.

It's not unreasonable to think that you would ramp towards that as you move through 2024.

And Doug on the gross margin are you still guiding to year over year growth, but down sequentially because of the mix.

You've talked about can you walk us through which end.

RV incomes of the structural gross margin improvement that you guys have been talking about this year.

Yes.

You take yourself back to we were talking about this in the March call.

Harlan Sur: Thank you. And then you talked about this on the last thing called, but you know, you've got a strong position in stack, chip architectures, events, packaging. You guys have talked about this segment. It's been a few hundred million per year for Lam, potentially with the past of a billion dollar business on HBM specifically where you have very strong share right HBM to HBM 2 to 3 to 4. I think that there's a doubling of TSCs per chip every new generation of HBM.

We're at roughly 44% gross margin and we articulated a view that we would be able to drive 100 basis point improvement in that from the operational efficiencies that we were undertaking during the year.

And I'm Super confident.

Thats, absolutely already happened frankly, and we will continue to be again, a good spot as we exit the year.

Thanks.

Thank you.

Harlan Sur: The DRAM stack height is also growing from like eight to like 24 at some point. So this is this all is sort of a very strong kill win for the team. You guys anticipate strong growth next year for your HBM slash events packaging business and some of your DRAM customers are also talking about HBM driving 10% of overall industry DRAM wait for starts is that how you guys are seeing it as well.

Sure.

Our next question today comes from Krish Shankar with Cowen. Please go ahead.

Yes, hi, Thanks for taking my question I have two of them first one either Doug or Tim I don't know if you guys quantified in the past you've said like the export restriction of the $2 billion of impact on a revenue or is it a way to quantify what the new export restrictions and I noticed that <unk> added to it.

To quantify the impact in calendar 'twenty, four or incremental dollar value and then I had a follow up.

Harlan Sur: We'll let them talk about how much it affects their business, but from what it affects ours. I mean, everything you just said, I think we were generally aligned with, which is trying to drive performance generally leads to some more equipment needs and more sophisticated equipment needs. And so we do see HBM. I talked about the uptick in our business that we've already seen from it. This appears to be the so an area right now that is still under supplied and we're seeing strong demand.

Yes, Chris there really was nothing material incrementally and what was clarified I guess it was yesterday right.

So you are right when we came into the year, we said two to $2 5 billion number that clarification, we could ship a little bit we took it on to $2 billion, that's still kind of what we see this year and nothing incremental really came out yesterday.

And the reason for that Chris is that in many of those cases, well specific tools might've been now our technology is now called out they were already the types of tools that were used to produce the technologies that were below the <unk>.

Harlan Sur: And so I don't anticipate given the interest in AI that you hear so broadly in the industry right now that our HBM business wouldn't throw pretty strong next year. To characterize our overall dense packaging mentioned a couple hundred million. We basically said that we think that this could be a market in which our revenues actually exceeded, you know, billion dollars over the next sometime in the next couple of years. So it is a rapidly growing part of our business and one in which we have quite high share.

Limits that were already alone. So we had already recognized in our initial statement.

Got it got it that's very helpful. And then just a follow up.

Unknown Executive: Thank you.

And do my asked this question last time to kind of like you know with respect to the whole cryo ex dielectric.

Dielectric etch.

Non thinking from a product kind of can you give us like an update on where you are or market share wise.

On the dielectric etch side and as the cryo ex having any impact because my understanding is cryo, which does help the throughput, but it's probably a negative from selling number of tools for <unk> NAND applications I'm, just trying to figure out how to handicap that.

Unknown Executive: And our next question today comes from a team with city. Please go ahead. Hi, thank you for taking my question. My first question is on equipment spending. I know you guys don't guide the details January. But your positive peer was talking about maybe a software first half and then thinking of into 25 and curious if you're seeing a similar profile where first half is more in like a lamb and out like a lion. Like a lamb out like a lion.

Yes, there is.

There is no change from what we've said before I mean land is as is.

As a leader in high aspect ratio etch without a doubt.

It also on the last call I did point out the fact that while a lot has been made of cryo or these very cold benching conditions. This is already standard land condition and so to a certain extent many of as we've talked about our business and any impact that you talked about with throughput those are already already factored in to our commentary so.

Timothy Archer: You know, I think that it's you know what we would say and without getting 20 24 at this point, I think it is reasonable to my prior comments that I think spending will come back. Cautiously. And so even though we may be seeing some of the leading indicators in some of our markets, I think people are going to want to see sustainability of that condition before we start to see significant spending.

It's not something that's new to us.

Yes, I think that in general.

Our focus in NAND has been and always will be and memory in general driving productivity. At every every technology node that goes into our projected growth outlook that we talked about.

That's helpful.

Timothy Archer: I think so. You know, if we if we were to think and I believe that the general feeling is the 25 is probably, you know, a lot of apps opening, a lot of press demand out in that timeframe. It's not unreasonable to think that you would wrap towards that as you move to 2020.

Thank you and our next question today comes from Joe Moore of Morgan Stanley . Please go ahead.

Great. Thank you I Wonder if you could talk about the DRAM uptick that you saw in the quarter.

Can you kind of help us just understand qualitatively how much of that is coming from China, how much of that is from advanced packaging.

Douglas Bettinger: Thanks, and Doug, on the growth margins, you feel guiding to year via growth but down sequentially because of the mix that you talked about. Can you walk us through, you know, which innings are we in terms of the structural growth margin improvement that you have been talking about this year? All right, yeah, if you take yourself back to when we're talking about this in the mark call, you know, we're at roughly 44% growth margin, and we articulated a view that we would be able to drive 100 basis point improvement in that from the operational efficiencies that we were undertaking during the year. And I'm super confident that that's absolutely already happened, frankly, and we'll continue to be in a good spot as we exit the year. Thanks.

Are you seeing kind of a resumption of technology spending just that kind of thing, but what are you seeing thats driving that improvement.

I guess, Joe what I would point to and then I'll, let Tim add yes, China was a part of it but it's not all of it.

Unknown Executive: Thank you.

There was an earlier question about where are we done with memory yes.

It's getting pulled in it I mean customers want it sooner we can ship you've got a transition from DDR, Florida DDR five with these new Cpus that are out there. So that also is a little bit of a bright spot. So I guess I'd point to both of those things as part of what we saw in DRAM.

Yes, no I think that's.

That's pretty much it I mean, as we've said before.

You also have this transition to higher higher die sizes, which ultimately will be.

<unk> of wafer outs, and therefore equipment demand probably starting to see some of the initial phases of that right now as well.

Great. Thank you and then in your upfront remarks, Tim I think you had talked about.

Krish Sankar: Our next question today comes from Krish Sankar with TD Cowan, please go ahead. Hi, thanks for the question. I had two of them. First one, either Doug or Tim, I don't know if you guys quantified in the past, you said, like, you know, the export restriction of the $2 billion impact on a revenue, is it a way to quantify with the new export restrictions, and I noticed that ALE was added to it.

Trailing edge mature node.

Somewhat weaker outside of China can you is there something there that could be a trend or is that just kind of more of a one quarter phenomenon.

Well, obviously since we're not guiding future quarters Sunday night.

I think it's just somewhat natural but in general I mean, we've seen in certain segments.

Krish Sankar: Way to quantify the impact in calendar 24 or incremental dollar value, and then I follow up. Yeah, Chris, there really was nothing material incrementally in what was clarified. I guess it was yesterday, right? So you're right, when we came into the air, we said, two to two and a half billion, now we've got clarification, we could chip a little bit, we took it on to two billion, that's still kind of what we see this year.

Hi spend rates.

Companies have looked to bring on capacity to meet demand in these mature nodes.

In our industry goes through digestion phases, where those tools have been started up and you get output and you sort of figure out whether demand is is there that requires more and it's what makes our investment cycle somewhat lumpy and I think that's what we're really looking at right now and this is long term demand, which we believe long term demand for semiconductors is is growing.

Krish Sankar: And nothing incremental really came out yesterday. And the reason for that, Chris, is that in many of those cases, well, specific tools might have been now, or technologies now called out, they were already the types of tools that were used to produce the technologies that were below the limits that were already allowed. So we had already recognized that in our initial statement. Got it, got it, that's very helpful. And then I just follow up.

Essentially you come back and put in more.

More capacity into those fabs as well.

Great. Thank you thanks John .

Yes, Thanks Chuck.

Thank you and our next question today comes from Toshi Hari with Goldman Sachs. Please go ahead.

Hi, guys. Thank you so much for taking the question I had a follow up question to Joe's question on non China trailing edge.

Krish Sankar: And to my as this question last time to kind of like, you know, with respect to the whole cryo edge, a dielectric edge, which is still announcing a similar product, can it give us like an update on where you are market share wise. On the dielectric edge side, and is the cryo edge having any impact, because my understanding is cryo edge does help the throughput, but it's probably a negative from selling number of tools for dielectric at non applications, I'm just trying to figure out how to handicap that.

Tim I apologize if I missed this but can you point to any end markets or any device types, that's driving the near term weakness in generic bind us how.

The bigger smaller market. This is for you guys today.

Alright, Christy I'll take a mental let let's turn that on.

It's a broad set of customers investing when you looked at this the specialty nodes I mean, it's it's across multiple customers. Unlike like leading edge foundry as an example.

Krish Sankar: Yeah, I mean, there's no change from what we've said before. I mean, when is is leader in high aspect ratio edge without a doubt. And, you know, I think that also on the last call, I did point out the fact that while a lot of them made of cryo or these very cold, etching conditions, this is already standard lamb condition. And so to certain extent, many of these we talk about our business and then the impact that you talk about with throughput, those are already already factored into to our commentary.

So I can't really point to any one or another for you and quite frankly, I think we all know theres inventory out there and a lot of these device types, but these are long term investments as well right. This isn't something that comes in one quarter and then it goes away.

Just because of what's happening in the near term marketplace, but it isn't any one segment or another Tricia is just kind of the broad set of customers and just really the only thing I would add is I think this is going to be an area that I think we're going to have to.

Krish Sankar: So it's not something that's new to us. And yeah, I think that in general, you know, our focus in man has been and always will be and memory in general driving productivity at every every technology noted that that goes into our projected growth outlook that we really.

Joe Moore: Thank you.

Sort of accept it will be a little harder to forecast from the standpoint that it's also the part of the market that is impacted by a number of the different chip snack type.

Government support activities around the world and so you may see as certain regions try to build out their capabilities, we may not be able to point in that moment to the the demand being greater than the supply and thats why they are investing as Doug said. This is about long term build out what I think everybody sees a much bigger demand for.

Joe Moore: And our next question today comes from Joe Moore at Morgan Stanley. Please go ahead. Great, thank you. I wonder if you can talk about the DRAM uptick that you saw in the quarter. Can you kind of help us just understand qualitatively how much of that is coming from China? How much of that is from advanced packaging? You know, are you seeing kind of a resumption of technology spending? Does that kind of thing? What are you seeing that's driving that improvement?

Joe Moore: I guess, Joe, what I would point to the metal that came at, yeah, China was a part of it, but it's not all of it. You know, there was an early question about, hey, where have we had with Ivan with memory? Yeah, it's getting pulled in. I mean, customers wanted sooner than we can ship. You've got a transition from DDR4 to DDR5 with these new CPUs that are out there. So that also is a little bit of a bright spot. So I guess I'd point to both of those things as part of what we saw in DRAM.

These types of devices over all of these various types of applications in automotive and Iot and Cmos image sensors et cetera et cetera over time.

Got it appreciate the color and then as my follow up.

One for Doug on the 2024 model you talked about.

<unk>.

Normalizing and you guys potentially experiencing some headwinds in gross margin and you also talked about.

24, potentially being a growth year from an R&D spending perspective.

On gross margin I guess, what's the baseline that we should be working off of Q4 right.

Joe Moore: Yeah, no, I think that's pretty much it. I mean, as we've said before, you know, you also have this transition to higher, higher die sizes, which ultimately will be a driver of wafer outs and therefore equipment demanded, probably starting to see some of the initial phases of that right now as well.

A good starting point or is that still kind of high given where China is.

Unknown Executive: Great. Thank you.

And then from an R&D spending perspective, I guess relative to answer if you can kind of.

Hold our hand, and quantify how low leverage could be in 24 versus history that would be super helpful.

Timothy Archer: And then in your upfront remarks, Tim, I think you talked about trailing edge, but you're a node somewhat weaker outside of China. Can you, you know, is there something there that could be a trend? Or is that just kind of more of a one quarter phenomenon? Well, obviously, since we're not getting future quarters of the night. Yeah, I don't, I think it's just somewhat natural in general. I mean, we've seen in certain segments, you know, very high spend rates as companies have looked to bring on capacity to meet demand and these mature nodes.

Yes.

Alright, Christy I'll give you a couple of <unk>.

Data points, maybe a little bit of color, but I am not going to guide next year.

Yes, we are still at an elevated level of gross margin from customer mix relative to where I think things normalize.

Maybe a good way to think of it as you go back to the June quarter, which was before we saw lots of this China favorable mix thats not an unreasonable baseline to start from for gross margin.

So anyway I don't know if that's helpful. And then I guess, what Ive described from an R&D standpoint.

Timothy Archer: And in our industry goes through digestion phases, where those tools have then started up and you get output and you sort of figure out whether demand is there that requires more. And it's what makes our investment cycle somewhat lumpy, and I think that's what we're looking at right now. And if long term demand, which we believe long term demand for Senate conductors is is growing, eventually come back and put in more. More capacity into those bags as well.

R&D quite frankly has to follow a cadence independent of the level of revenue sometimes.

Unknown Executive: Great, thank you. Thanks. Thank you.

I don't know what WP next year is going to be I don't know what our top line is going to be quite yet we'll give you. Some color next quarter, but I do know, we see an enormous number of opportunities around these technology inflections that if we don't invest right now three or four years from now we'll look back and say why didn't really right gate all around him talk.

About backside power theirs.

Toshiya Hari: And our next question today comes from to see a hurry with Goldman Sachs. Please go ahead. Hi guys. Thank you so much for taking the question. I had a follow up question to Joe's question on on China trailing edge. And Tim, I apologize if I missed this, but can you point to any end markets or any device types that that's driving the near term weekend. Can you remind us how, you know, big or small of a market. This is for you guys today.

And then there's so many things.

That play to the strength of what we do well. So I think if you look at the December quarter and compared to December Spendings up.

The March quarter independent of the fact that we're going to invest more in R&D is a 14 week quarter.

So you've got to comprehend that and then we're going to grow R&D as we go into next year, maybe a little bit independent of blood revenue turns out to be.

I guess, what I would want you to think about as you know historically when when business grows at Lam, you've seen nice leverage in the model.

Douglas Bettinger: Yeah, I'll take a medal that came that on. You know, it's a broad set of customers investing. When you look at this, the specialty nodes. I mean, it's, it's across multiple customers, unlike like leading edge foundry as an example. And so I can't really point to any one or another for you. And quite frankly, you know, I think we all know there's inventory out there and a lot of these device types, but these are long term investments as well, right.

It's maybe going to flatten out a little bit honestly is how I'm trying to come to you to think about it a little bit and again, that's because we see a lot of opportunities.

That we think play to the strength and Theres going to set us up.

To win in the longer term I don't know if that helps push here.

Douglas Bettinger: This isn't something that comes one quarter and then goes away just because of what's happening in the near term marketplace. But it isn't any one segment or another. She is just kind of the broad set of customers. Yeah, and she had the only thing I would add is I think this is going to be an area that I think we're going to have to sort of accept to be a little harder to forecast from the standpoint that it's also part of the market that is impacted by a number of different chip stack type.

Yes, it makes sense I appreciate the color.

Okay. Thank you Andrew.

And our next question today comes from Vivek Arya with Bank of America Securities. Please go ahead.

Alright, Thanks for taking my question for the first one I'm trying to understand the usual kind of between the recovery in your <unk> business and your memory systems. So how effective of a leading indicator of the CSB G. The company and what are they telling you right now, but conceptually when memory system orders covered.

Douglas Bettinger: Government support activities around the world. And so, you know, you may see as certain regions try to build out their capabilities. We may not be able to point in that moment to the demand being greater than the supply. And that's why they're investing and done said this is about long term build out what I think everybody sees as a much bigger demand for these types of devices over all these various types of applications.

As it did in Q1 Q2 Q3.

So if next year like what has been that desktop historically and what does that getting you right now about when your memory system orders getting together.

Yes.

First I would point out the fact that it's.

Been a long time, if ever that we've seen in fab utilizations quite this low.

Douglas Bettinger: And in automotive and IOT and see much image sensors etc etc over time. I got it. I appreciate the color. And then as my follow up one for Doug on the 2024 model, you talked about, you know, mix normalizing and you guys potentially experiencing pets from headwinds and gross margin. You also talked about 24 potentially being a growthier from an R&D spending perspective. So I guess on gross margin, I guess what's the baseline that we should be working off of is Q4 rate, you know, a good step.

My prior commentary had been that.

Spares generally grows every year because the installed base continues to get bigger.

One piece of that is true as the installed base continues to get a lot bigger.

In fact, we've said it's up more than 40% since the last.

Cyclical downturn so.

The fact that we've seen in spares and upgrades and all of these things sort of be off all at one time is pretty unique.

We are anticipating that establish realization starts back we will see spares.

Spares come back and I think the one thing that that will come back and it's a little hard to predict as certain as the technology upgrades portion of this it's been now a couple of years since any of these tools have been upgraded and that will have to happen in terms of your comment about offset I think will be.

Douglas Bettinger: Starting point, or is that still kind of high, given where China is, and then from an R&D spending perspective, I guess relative to history, if you can kind of, you know, hold her hand and quantify how low leverage could be in 24 versus history, that would be super helpful. Is it, you know, I'll give you a couple of data points, maybe you're a little bit of color, but I'm not going to guide next year.

Typically as customers start to tune the pills back on.

Youll, probably a couple of quarters away from from <unk>.

Further further investments in the technology upgrades and then I think when you're really talking about capacity adds.

Douglas Bettinger: Yeah, we're still at an elevated level of gross margin from customer mix relative to where I think things normalize. Maybe a good way to think of it is go back to the June quarter, which was before we saw lots of this China paper will mix. That's not an unreasonable baseline to start from for gross margin. So anyway, I don't know if that's helpful. And then I guess what I described from an R&D standpoint, you know, the R&D quite frankly has to follow a cadence independent of the level of revenue sometimes.

It's hard to predict what the timeframe is because it really depends on many other factors about.

Our customers use of long term demand. So I think the one thing we are certain is that we're at very low points now, we would anticipate things like utilization and spares and upgrades to start improving next year and beyond that I think.

Until January to give you a better view.

Alright, and for my follow up another China related question.

Part of your second half strength came I believe from clarification of some routes and I was hoping you would quantify how much of that strength you saw in your shipments came from just back.

Douglas Bettinger: I don't know what WFP next year is going to be. I don't know what our top line is going to be quite. We'll give you some color next quarter, but I do know we see an enormous number of opportunities around these technology collections that if we don't invest right now. Three, four years from now, we'll look back and say why didn't we right gate all around can talk about backside power. There's high down with them.

A clarification and does that kind of spill over to early 'twenty, four and I'm just trying to tease apart how much.

Is sort of sustainable China strength versus how much is potentially from one off clarification in.

Or maybe if those were not one off maybe theyre also sustainable so just.

Douglas Bettinger: And then there's so many things that play to the strength of what we do well. So I think if you look at the December quarter and compared September settings up, the March quarter independent of the fact that we're going to invest more in R&D is a 14 week quarter. So you got to comprehend that. And then we're going to grow R&D as we go into next year, maybe a little bit independent of what revenue turns up to be.

If you could give us some way to.

Guide us to how we should think about China conceptually in your first half of next year.

Yes, we're not going to guide next year quite yet, but the clarification on the rules. We described isn't changing sure. Frank So we understood one node that a certain customer was doing was okay to ship to the rules didn't change. We just had to do a little work to understand that collectively as an industry, that's not going to go away.

Douglas Bettinger: I guess what I would want you to think about is, you know, historically when when business grows at lamb, you've seen nice leverage in the model. It's maybe going to flatten out a little bit, honestly, is how I'm trying to like come to you to think about it a little bit. And again, that's because we see a lot of opportunities. That we think played at the strength and and are just going to set us up to win in the longer term. I don't know if that helps push you. Yeah, it makes sense. I appreciate the call of luck.

Having said that also what our commentary on the call. So far has been I don't know if China is up down or sideways next year, but it's not going away.

Unknown Executive: Okay.

When we talk to our customers in China. They all communicate roadmaps that have multi year horizon in front of them nothing new came from the regulations that you saw yesterday, so I see a level of sustainability in China as we go into next year and frankly beyond they have long term objectives.

Unknown Executive: Thank you.

Vibach: And our next question today comes from Vibach, are you with Bank of America securities? Please go ahead. Thanks for taking my question.

Alright. Thank you. Thank you Dan.

Thank you and our next question today comes from Stacy <unk> with <unk>.

Unknown Executive: For the first one, I'm trying to understand the usual delta between the recovery and your CSBG business and your memory systems. So how effective of a leading indicator is CSBG recovery and what is it telling you right now about conceptually when memory system orders recover like is it in Q1, Q2, Q3 of next year, like what has been that delta historically and what is that telling you right now about when your memory system orders, and the other.

Firstly research. Please go ahead.

Hi, guys. Thanks for taking my questions.

So my question first question.

You talked about in your WMC uptick on non Lamb markets driving some of that I Oversimplify are you just talking about with or do you have something else in mind, when we made that statement.

Especially as primarily with its litho and these restricted fabs in China that we didn't have complete visibility into what they were doing and frankly it was those two effects.

Unknown Executive: Yeah, I mean, we've, I'm first by what point out the fact that it's been a long time if ever that we've seen fabulousization quite this low. I mean, I prior commentary had been that, you know, spares generally grows every year because the install base continues to get bigger. One piece of that is true is the install base continues to get a lot bigger. And in fact, we've said it's up more than 40% since the last cyclical downturn.

Got it you have better visibility now.

I think we do that's why we have to add the number.

We never get this exactly right, but we try to tell you. What we think we're now facing some of our visibility comes from the fact that our peer companies are reporting on the business and really their markets. So as the year goes on we try we try to give you a view of the whole market, but obviously were where most accurate on the <unk>.

The land business got it got it but to be clear I think you said there is no change to your forecast for the land business for the year whatever that forecast that's right because we haven't we understand that Wi Fi quite well.

Unknown Executive: And so, you know, the fact that we've seen spares and upgrades and all of these things sort of be off all at one time is pretty unique. We are anticipating that if that utilization starts back, we'll see spares come back. And I think the one thing that we'll come back and it's a little hard to predict that is certain is the technology upgrades portion of this. It's been now a couple of years since any of these tools have been upgraded and that will have to happen.

Got it got it and so for my follow up I wanted to go back to the leverage question for next year. So I understand you are talking about like leverage like maybe flattening out or is that just a statement you just think opex I mean, just to put on the table opex growing with revenue whatever revenue is or given the gross margin compression that we would probably see at least from the current levels like do you think operating margins year over year could actually go.

Unknown Executive: It comes in your comment about offset. I think we'll, you know, typically as customers start to turn the tools back on. You're probably a couple of quarters away from seeing further investments in the technology upgrades. And then I think when you're really talking about capacity as, you know, it's hard to predict with that time frame is because it really depends on many other factors about our customers use of long term demands. So, I think the one thing we're certain is that we're at very low points now. We would anticipate things like utilization and spares and upgrades to start improving next year.

Could decline next calendar year.

Or like how do I, just how do we kind of help us because it can basis.

Stacy you know if you look at what <unk> done over the last I don't know that.

Decade, frankly, we've expanded margin as revenue has grown at this point I'm not sure what revenue is going to be next year, but I know, we're going to invest more in R&D, that's what I'm trying to describe because we see all of these opportunities and yes.

Referred to the fact that we've got pretty favorable customer mix lastly, mitigates somewhat next year and so when you think about those two things.

Unknown Executive: And beyond that, I think we'll wait until January to give you a better view.

Possible to think about kind of margin margin flattening off for a period of time.

Unknown Executive: And so my follow up another China related question part of your second half strength game. I believe from clarification of some rules. And I was hoping you would quantify how much of that strength you saw in your shipments came from just that clarification and does that kind of spill over to early 24. I'm just trying to tease apart how much is sort of sustainable China strength versus how much is potentially from one off clarification in rules or maybe those were not one off, right, maybe they're also sustainable.

Our long term profit objectives are unchanged.

I do want to reiterate that point as well.

Got it that's helpful. Thank you guys.

Thanks Jessica.

Thank you and our next question.

Our next question comes from showing in for Jeremy with Raymond James. Please go ahead.

Thank you I have a couple of longer term questions Tim.

I guess, if I look at the last five years your logic and foundry business has been growing almost at a 30% rate and historically.

Unknown Executive: So just, you know, if it could give us some way to, you know, guide us to how we should think about China conceptually in your first half of next year. Yeah, we're not going to guide you next year quite yet, but the clarification rules we described isn't changing. So we understood one note that a certain customer was doing was okay to shift to the rules didn't change. We just had to do a little work to understand that collectively some industry.

Memory was close to 60% and now I think we are at the bottom kind of moving from 27 to 38 or so this quarter I'm. Just curious how do you think about the mix longer term I guess when things normalize for you and what is I think in your view what do you think is the ideal mix for you and what implications if any that might have.

On your topline growth going forward.

Yes.

<unk>.

Unknown Executive: That's not going to go away. You know, having said that also what our commentary on the call so far has been, you know, I don't know if China's up down our sideways next year, but it's not going away. It's when we talk to our customers in China, they all communicate road maps that have multi horizons in front of them. Nothing new came from the regulations that you saw yesterday. So I see a level of sustainability in China as we go into next year and frankly beyond, they have long term objectives.

It's a good question, it's a hard question to answer because the actual our view is we want more of everything.

Unknown Executive: Thank you.

We're not looking to reduce our position in memory just to make the mix looked better. So we're trying hard every day, we have a fantastic position in memory and we think there is still more more to come there is as.

Over the next decade in the NAND is going to scale customers to enter 1000 layers and that's a tremendous opportunity for Lam.

DRAM go into <unk> around the end of the decade tremendous opportunity for Lam. So I'm afraid the memory side will keep growing simply because it's so well suited to our strengths, but you have heard us talk a lot about the fact that we see huge opportunity in the foundry logic side as well and when Doug just talked about spending I mean.

Stacy Raskin: And our next question today comes from Stacy Raskin with Bernstein Research. Please go ahead. Hi guys. Thanks for taking my questions. This question, you know, you talked about in your WC uptick on non-LAM markets driving some of that. Am I always simplifying? Are you just talking about Litho or do you have something else in mind when you make that? Statement. It's with all and these restricted paths in China that we didn't have complete visibility into what they were doing.

I've tried to lay out for you in the last several quarters.

The breadth of opportunities that are ahead of the company many of which not all but many of which are on the foundry logic side I mean, just to kind of recap some of those I mean, the the dry <unk> photoresist and develop when we said that's a $1 billion of half dollar opportunity over five years and when you get towards the tail end of that five years I mean, that's a <unk>.

Stacy Raskin: Frankly, it was those two facts. Got it. You have better visibility now? I think we do. That's why we have to add the number. We never get physically right, but we try to tell you what what we think we know. Well, Stacy, some of our visibility comes from the fact that our our peer companies are reporting on the business and really their markets. So as the year goes on, we try we try to give you the whole market, but obviously we're we're we're most accurate on the the lamb business.

Revenue, that's growing with the number of expanding <unk> layers at every technology node after that that's primarily a foundry logic.

You're talking about gate all around.

About $1 billion incremental opportunity for Lam introduces opportunities to win new tools, and selective etch and <unk> and so that Sam expansion for us in foundry logic and opportunity to grow we've talked about advanced packaging.

Stacy Raskin: Got it, got it. But to be clear, I think you said there's no change to your your forecast for the lamb business for the year, whatever that forecast. That's right, because we understand that that WFE quite well. Got it, got it.

Already seen what's happened with with not only the HBM side of AI, but also the entire formation of these big AI systems using inter Poseurs plans invested now in panel processing.

Stacy Raskin: And so for my follow up, I want to go back to the leverage question for next year.

Stacy Raskin: So I understand. You're talking about like leverage like maybe flattening out.

As a way to ultimately bring down the costs of some of this triplet.

Stacy Raskin: Was that just a statement? You just think on OPEX, I mean, just put on table, OPEX growing with revenue, whatever revenue is, or given the gross margin compression that we're probably see at least from the current levels, like, do you think operating margins year over year could actually go could decline next challenge. You know, or like, how do I just how do we think about those those big pieces? Stacy, you know, if you look at what lambs done over the less, I don't know decade, frankly, we've expanded margin is revenue is grown at this point. I'm not sure what revenues can be next year, but I know we're going to invest more in R&D.

These took with applications and then finally today I just talked about backside power distribution as a new way of.

Being very creative about how to use that the backside of the wafer is additional real estate and it opens up a lot of new opportunities for us and Thats, primarily a foundry logic applications as well so really what we're talking about is Lam has a long way to go to expand our Sam, especially on the foundry logic side, that's where we're investing for and each of these.

Douglas Bettinger: That's when I'm trying. To describe because we see all of these opportunities, and yet I I'm referred to the fact that we've got pretty favorable customer mix that likely mitigates somewhat next year. And so when you think about those two things, it's possible to think about kind of margin margin planning on for a period of time.

Is $1 billion plus opportunity for Lam over the next several years and so.

We're pretty excited about that but we're not giving up we're not given up on our strong memory positions.

Thank you I appreciate that answer and then my quick follow up on the HBM.

I guess technology itself.

Stacy Raskin: Our long term profit objectives are unchanged. I do want to reiterate that one as well. That's helpful. Thank you guys. Thanks, Stacy.

Questions have been asked already just on the capital intensity of HBM, Tim I mean, I know you said the die size is larger and I guess cycle times are longer et cetera, but is there a way to think about.

Unknown Executive: Thank you.

Unknown Executive: And our next question today. Excuse me.

Capital intensity per wafer or per bit.

Shrinni Pajuri: Our next question comes from Shrinni Pajuri with Raymond James. Please go ahead. Thank you.

How we should think about HBM versus traditional DDR.

Shrinni Pajuri: I have a couple of longer term questions to him. I guess if I look at the last five years, your logic and foundry business has been growing almost at a 30% rate. And you know, historically, you know, your memory was close to 60% and now I think we are we're at the bottom kind of, you know, moving from 27 to 38. Or so this quarter, I'm just curious, you know, how do you think about the mix longer term?

Well I think it is.

Don't know that we've quantified that number but it's.

It obviously has a much higher performance guide there.

Device and it does it is bigger than in <unk>.

Takes more capital.

And so therefore.

Yes.

It is a performance driven.

Application from our perspective, though what really is that is interesting is that many of the new tools that get added to enable HBM are lam tools or tools that are in our market things like silicon etch and copper plating for the TSV formation and so that's that's what really makes it.

Shrinni Pajuri: I guess when things normalize for you? And what is I think, you know, in your view, what do you think is the ideal mix for you? And what implications, if any, that might have on your top line growth going forward? Yeah, it's it's a good question. It's a hard question answer because the actual our view is we want more of everything. You know, we're not looking to reduce our position in memory just to make the mix look better.

And even better transition.

The company like land.

Got it thanks, Dan.

Yes, Thanks Ryan.

And our next question today comes from Brian Chin with Stifel. Please go ahead.

Shrinni Pajuri: So, you know, we try hard every day. We have a fantastic position in memory. And we think there's still more more to come there as as you know, the next decade in the NAND is going to scale customers. And to a thousand layers and that's a tremendous opportunity for land. DRAM going to 3D around the end of the decade tremendous opportunity for land. So, yeah, I'm afraid the memory side will keep growing simply because it's so well suited to our strengths.

Hi, good afternoon, thanks for letting us ask a few questions.

So about a week ago.

Relax its licensing requirements for some foreign companies that operate.

More advanced Fabs in China, I know, it's fairly recent but have you seen a positive impact.

Yet from this change in the licensing policy I did note that in talking about China remaining a good concentration in the December quarter. It sounds like maybe there could be some some shifting there between local and maybe foreign domiciled companies.

Shrinni Pajuri: But you have heard us talk a lot about the fact that we see huge opportunity in the country logic side as well. And you know, when Doug just talked about spending, I mean, you know, I tried to lay out for you in the last several quarters. The the breadth of opportunities that are ahead of the company, many of which, not all, but many of which are on the on the logic side.

Yes, it's pretty and note that come into its pretty recent but I think.

Relative to multinationals wherever they operate whether China, where.

Certainty of being able to make the investment in and benefit from that long term is very important so.

Shrinni Pajuri: I mean, just to kind of recap, some of those, the dry EUV folder resistance developed when we said that's a billion and a half dollar opportunity over five years. And when you get towards the tail end of that five years, I mean, that's a revenue that's growing with the number of expanding EUV layers at every technology node after that. That's primarily a zombie logic business. We talked about gate all around about a billion dollar incremental opportunity for land introduces opportunities to win new tools and selective etch and ALB.

Honestly in the last couple of weeks, we haven't seen.

Any movement that we had talked about.

I think long term it allows people it allows our customers don't make the right decisions for them about where to invest and that is especially true. When you think about our installed base and the upgrades to the installed base and our customers willingness to sort of move forward with those upgrades are certainties.

Shrinni Pajuri: And so that's some extension for us and finally logic and opportunity to grow. We talked about advanced packaging. I mean, you've everybody seen what's happened with with not only the HBM side of AI, but also the entire formation of these big AI systems using interposers, lands invested now in panel processing. Now, as a way to ultimately bring down the cost of some of this chip looked up. He's tickled applications. And then finally today, I just talked about backside power distribution as a new way of, you know, being very creative about how to use that, that backside of the wait for is additional real estate.

Got it that's helpful.

And then.

A lot of questions have been asked about sort of service spares.

And utilization improvements but.

Just curious if memory companies are kind of talking us they'll realize some of that utilization improvement not just through increasing wafer starts but also through some reduction in wafer start capacity as they emphasize newer nodes or capital efficiency. So some wafer wafer lost there.

How are you thinking about how that impacts maybe the trajectory of your service and spares revenue growth and counter 'twenty four.

Okay.

Well I think that we have to see and we as we said about the it's difficult to predict the pace of the recovery, but what happens. There is we're just trading off one part of our business that CFPB business for another upgrades happened before spares youre right. It brings utilization down but there is also something that we've said, which is as technology moves forward.

Shrinni Pajuri: And it opens up a lot of new opportunities for us. And that's primarily a Foundry logic application as well. And so, you know, really what we're talking about is lamb has a long way to go to expand our Sam, especially on the Foundry logic side. That's what we're investing for. And each of these is is a billion dollar plus opportunity. For lamb over the next several years. And so, you know, we're pretty excited about that. But we're not giving up on our strong memory positions.

Timothy Archer: Thank you. Appreciate that answer.

Any of those applications become more spares intensive because the processes are longer and more demanding and so I would just say that.

We're going to see a rise in both parts of our business as as fab operations recover and customers start to fully utilize the equipment in those things.

Timothy Archer: And then my quick follow up on the HBM, I guess, you know, technology itself, a lot of, a lot of questions have been asked already just on the capital intensity of HBM. Tim, I mean, I know you said, you know, the size is larger. And I guess cycle times are longer, et cetera. But is there a way to think about, you know, capital intensity per wafer or per bit, you know, how we should think about HBM versus traditional DDR.

Okay. Thank you.

Thank you and our next question today comes from Mehdi Hassani Hussaini with <unk>. Please.

Please go ahead.

Yes, thanks for taking my question.

Timothy Archer: I think it's a, I don't know that we've quantified that that number, but it's, it obviously is a much higher performance guide that our device. And it does, it is bigger and takes more capital. And so therefore, you know, it's a, it's a performance driven. Application from our perspective, though, what really is is interesting is that many of the new tools that get added to enable HBM are lamb tools or tools that are in our market. Things like a silicon etch and complicating for the TSV formation. And so that's, that's what really makes it an even better transition for a net company like land. Got it. Thanks, Tim.

Two quick follow ups.

Pushing things with it but so.

However, you should I think of what should I think about it more of the three nanometer or extension of three nanometer.

Are those opportunities materializing, when we migrate to two nanometer when I have a follow up.

Unknown Executive: Yeah, thank you.

Yes.

I think that it's still a little bit out in the future. I mean, you could you could go look at our customers' Roadmaps and what they've said publicly and I think thats, probably the best way to put timing on it I think what we're trying to highlight is the fact that.

Or if you think about the challenges across almost every device.

We're becoming more and more convinced that the technology solutions to those challenges involve vertical scaling the move to <unk> and youre seeing that backside power advanced packaging gate all around.

These are.

It is something that is playing extremely well to our strengths in etch and deposition and so.

Brian Chen: And our next question today comes from Brian Shen with Steve hole, please go ahead. A good afternoon. Thanks for laying us ask a few questions. So about a week ago, the US relaxed its licensing requirements for some foreign companies that operate more advanced ads in China. I know it's fairly recent, but have you seen a positive impact yet from this change in the licensing policy? I did note that in talking about China remaining a good concentration in the December quarter, it's not like maybe there could be some shifting there between local and maybe foreign domestic companies.

Timing.

It's hard to predict but certainly relative certainty of those changes happening is quite high.

Got it and a quick follow up for Doug, What's what should we think of a normalized or normal deferred revenue level.

Yes, maybe in the past in the past I've suggested maybe something around $1 billion is a normalized level and were somewhat elevated from that although longer remained we remain elevated maybe the normalized level picks up a little bit but.

That statement.

What I said, maybe roughly $1 billion.

Okay. Thank you.

Brian Chen: Yeah, it's pretty. That comment is pretty recent, but I think relative to multinationals, wherever they operate, whether China where certainty of being able to make the investment and benefit from that long term is very important. So, you know, obviously in the last couple of weeks, we haven't seen any any equipment that we would talk about. You know, I think long term, it allows people, it allows our customers to ultimately make the right decisions for them about work and invest.

Okay.

Thank you and our next question today comes from Chris Caso with off research. Please go ahead.

Yes. Thank you good evening.

Question is about.

Where your lead times delivery times are now and generally your ability to react.

When when demand ultimately returns you made some comments before that your customers do you think would need to see some significant improvement before they started spending does this mean they have some.

Brian Chen: And that is especially true when you think about our install base and the upgrades to the install base and a customer willing to sort of move forward with those upgrades for certain things. Got it. That's helpful. And then, you know, a lot of questions have been asked about sort of service spares and utilization improvements but I'm curious if memory companies are kind of talking as if they'll realize some of that utilization improvement not just through increasing wafer starts but also through summer's reduction in wafer start capacity as they emphasize newer nodes or capital efficiencies and some wafer wafer loss there.

A little bit of luxury of time to see things get a bit better before they start calling you and increasing orders.

Yes, I think that if we.

Were to go back and talk about lead times compared to pre Covid I would say that generally still extended but four four.

For a variety of reasons I mean, I talked about the investments we've made in our supply chain and our manufacturing facilities.

Lot of that has to be more responsive but.

I think we will be able to respond when realistically when demand starts to come back now in certain areas, it's a little tighter than others and I think that's where again, we still continue to work very close with our customers to make sure. We have good forecast as we talked about high bandwidth memory has been an area that I think has been.

Brian Chen: How are you thinking about how that impacts maybe the trajectory of your service and spares revenue growth in counter 24? Well, I think we have to see and we as we said about the it's difficult to predict the pace of the recovery but what happens there is we're just trading off one part of our business that CSBG business for another upgrade happened before spares you're right it brings utilization down but you know there's also something we've said which is as technology moves forward many of those applications become more spares intensive because the processes are longer and more demanding and so.

In tighter supply and the good thing about the investments we've made in our global operations as that.

Certain cases, we're able to respond to local market and the customers have urgent needs.

Got it. Thank you as a follow up if you give a little more clarity on the extra week Youre expecting I think it's in the March quarter.

Brian Chen: So, you know, I would just say that, you know, we're going to see a rise in both parts of our business as as that operations recover and customer start to fully utilize the equipment in those steps. Thank you.

Both on it do you expect the revenue impact from that extra week and what do you expect the cost impact to me.

Usually you don't really see much of a revenue impact frankly, you kind of manage that based on what customer wants win but I know for sure with an extra week 14 weeks. Instead of 13, you got more salary expense you got more time to use project materials and whatnot.

Brian Chen: And the next question today comes from Medi Hussani Hussani with FIG, please go ahead. Yes, thanks for taking my question, just two quick follow-ups opportunities in the back. So, how are we should I think about, should I think about more of a three nanometer or extension of three nanometer or do the opportunities materializing when we migrate to two nanometer and I have a follow-up. Yeah, I think that it is still a little bit out in the future.

I don't know I Didnt give you a specific number but I think it's pretty well chronicled out there when people have the quarter coming in like this how much spending growth just because of it.

I'm not going to put a number on it but.

We just think about 14 versus 13.

Got it we can do the math thank you.

Thanks, Chris Operator, we have time for one more question. Please yes, ma'am. Your final question will be from Sidney Ho with Deutsche Bank. Please go ahead.

Brian Chen: I mean, you could you could go look at our customers road maps and what they've said publicly and I think that's probably the best way to put timing on it. I think what we're trying to highlight is the fact that, you know, if you think about the challenges across almost every device, we're becoming more and more convinced that the technology solutions to those challenges involve vertical scaling, the move to 3D, and you're seeing that backside power, advanced packaging, gate all around. It is something that is playing extremely well to our strengths in etching deposition. And so timing, you know, it's hard to predict that the certainty of those changes happening is quite high. Got it.

Hey, Thanks for squeezing me in.

In the past you guys talk about that would be spending probably will go in several cases, increasing utilization to pick up pace and that capital capacity expansion.

One of your memory customers talk about.

Inverting somewhat excess capacity you could draw for new Das nodes are you seeing that dynamic happening across other memory suppliers and how does that change your view in terms of the timing capacity expansion.

Are you assuming that you were breaking up a little bit I think you were asking about the cadence of when utilization comes back what we think will happen I think that was your question.

Brian Chen: And a quick follow-up for Doug, what should we think of a normalized or normal, different revenue level? You know, I mean, in the past I suggested you know, maybe something around a billion dollars is a normalized level and we're somewhat elevated from that. Although the one that remains, we remain elevated, maybe the normalized level picks up a little bit, but I'll leave that statement what I said maybe roughly a billion dollars. Okay. Thank you.

I think what I would tell you first spares comes back.

Second you'll see upgrades and upgrades will have to happen because honestly some of the customer basis taken some things offline. So there is a spend that needs to occur to get that back online and up to speed and then eventually move equipment gets purchased that Hasnt changed.

Okay.

My question was more about some of your customers actually trying to convert some of the excess capacity.

Dressed advance notice, meaning that it seems like that.

Chris Caso: And our next question today comes from Chris Keso with Wolf Research. Please go ahead. Yes, thank you.

Timeline as contract you're seeing all the memory supply chain.

Uh huh.

Unknown Executive: Good evening. Good question is about where your lead times, delivery times are now and generally your ability to react. Thank you. You know, when, when demand ultimately returns, you, you made some comments before that your customers, you think would need to see some significant improvement before they started spending, you know, does this mean they have some, a little bit of luxury of time to, you know, see things get a bit better before they, they start calling you and increasing orders.

Unknown Executive: Yeah, I think that, you know, if we were to go back and talk about these times, compared to pre-COVID, I would say that, you know, generally still extended, but for, for a variety of reasons, I mean, I talked about the investments we've made in our supply chain and our manufacturing facilities, you know, a lot of that has to be more responsive, but, you know, I think we, we will be able to respond when, you know, realistically, when, when demand starts to come back. Now, in certain areas, it's a little tighter than others, and I think that's where, again, we still continue to work very close with our customers to make sure we have good forecasts.

We don't talk about any one customer or another but that'll show up in that upgrades commentary that I was talking about the stuff that gets taken offline and eventually needs to get upgraded the upgrade spend in <unk> P. J.

Okay.

Maybe last question for you given your position in <unk>.

Astro timeline changed at all in terms of when do you expect to see gate all around us.

As compared to three months ago, maybe just remind us when that is going to happen and what other leading indicators you're watching to gauge that timeline.

Thanks.

Well, yes.

I don't know that our timing on gate all around has changed much from three months ago I think that is.

Again, it's.

As a means of scaling device performance and device performance. Some of it is important to our customers and their end applications. So.

We're just we're just engaged with customers to make sure our tools get.

Qualified into those those new nodes and and when they decided to ramp them move together as well.

Okay. Thank you thanks, Jamie Yeah.

Thank you.

Thank you operator question and answer session I would like to turn it back over to the management team for closing remarks.

Unknown Executive: We talked about high bandwidth memory has been married that I think has been in tighter supply, and, and the good thing about the investments we've made in our global operations is that, you know, in certain cases, we're able to respond a little bit more quickly than customer subvergements.

Thank you Peter and we appreciate everyone for joining thank you for your time today.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation.

You may now disconnect your lines and have a wonderful day.

Unknown Executive: Yeah, thank you. As a follow-up, if you give a little more clarity on the extra week, you're expecting, I think it's in the March quarter, you know, both on it, do you expect a revenue impact from that extra week? And, and what do you expect the cost impact to be? Yeah, usually you don't really see much of a revenue impact, frankly, you kind of manage that based on what customer wants when, but I know for sure, with the next year week, you know, 14 weeks instead of 13, you got more salary expense, you got more time to use project materials and whatnot.

Okay.

Yes.

Unknown Executive: I don't know, I didn't give you a specific number, but I think it's pretty well chronicled out there when people have the quarter coming in like this how much spending grows just because of it. I'm not going to put a number on it, but you just think about 14 versus 13. Got it. We could do the math. Thank you.

Unknown Executive: Operator, we have time for one more question, please. Yes, ma'am, our final question will be from Sydney Hill with Deutsche Bank. Please go ahead. Thanks for hosting me in. In the past, you guys talk about memory spending recovery will go in several spaces from increasing the realization to tech upgrades and then capital capacity extension. One of the memory customers talk about converting some of this success capacity to address these games. No, are you seeing that dynamics happening across other memory suppliers?

Unknown Executive: And how does that change a view in terms of the timing that capacity expansion? You know, Sydney, you were breaking up a little bit. I think you were asking about the cadence of when utilization comes back what we think will happen. I think that was your question. And I think what I would tell you first, there's come back. Second, you'll see upgrades and upgrades will have to happen because honestly, some of the customer base is taking some things offline.

Unknown Executive: So there's a stand that needs to occur to get that back online and up the speed. And then eventually new equipment gets purchased. That hasn't changed. Okay. So my question was more about some of the customers actually trying to convert some of the excess capacity to address the advanced notes. I think that that timeline is compressed. Are you seeing all the memory supply? Srinivas Pajjuri What are the leading indicators you're watching to gauge that timeline? And when they decide to grant them, move together as well.

[music].

And welcome to the Lam Research September 2023 financial conference call.

All participants will be in listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star can you followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad.

The charter question. Please press Star then two.

Please note today's event is being recorded.

I would now like to turn the conference over to Tina Correia, Corporate Vice President Chief Accounting Officer, and Investor Relations. Please go ahead.

Thank you and good afternoon, everyone and 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 today's call, we will share our overview on the business environment and will review our financial results for the September 2023 quarter and our outlook for the December 2023 quarter.

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

<unk> can also be found on the Investor Relations section of the Companys website, along with the presentation slides that accompany today's call today's presentation and Q&A include 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, unless 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.

It will be made available later this afternoon on our website and with that I'll hand, the call over to Tim.

Thanks, Tina and welcome everyone.

<unk> produced solid results for the September quarter revenues came in above the midpoint of our guidance for the second quarter in a row, our gross margin operating margin and earnings per share all exceeded the high end of the guidance range.

Our revenue and earnings per share are expected to improve further in the December quarter, demonstrating our continued strong execution in a cyclically soft calendar year 2023.

Turning to the wafer fabrication equipment environment, we see spending for calendar year, 2023, and the $80 billion range.

The adjustment in <unk> from our prior view of mid 70 billion.

Based on updated checks on non lamb related markets as well as restricted fab spending in China. It.

It does not change our assumptions on land revenues for the year.

On the device segment side NAND weakness continued in the quarter as customers adjusted spending levels down and further lowered utilization to drive a faster path to supply demand balance.

While <unk> is down significantly in 2023 supply actions are starting to have a positive impact customers have recently indicated the pricing trends have stabilized and NAND bit demand has increased from high single digits percent year over year growth to high teens and certain consumer markets are demonstrating.

Greater demand elasticity in per unit content.

DRAM spending is modestly up relative to our prior view driven by better trends in the high bandwidth memory related demand as well as further upside from domestic China customers.

Sydney Hill: Thank you.

Unknown Executive: Good day, and welcome to the Lam Research September 2023 financial conference call. All participants will be in listen only mode. Should you need assistance, please signify conference specialist by pressing the star key followed by zero.

Meanwhile, the foundry logic segment is down slightly versus our prior baseline due to weakness in both leading edge and non China based mature node investments.

Unknown Executive: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star than one on your telephone keypad. To withdraw your question, please press star than two.

Looking forward it remains hard to call the timing and pace of <unk>.

Recovery, but.

So we believe Lam is in a good position to benefit from both cyclical and structural drivers of demand when.

Unknown Executive: Please note today's event is being recorded.

Christina Correia: I would now like to turn the conference over to Tina Correa, Corporate Vice President, Chief Accounting Officer, and Investor Relations. Please go ahead.

When memory investments begin to recover from current cyclical lows, we expect to see early benefits in our installed base business and fab utilization improves driving increased demand for spares and services and equipment upgrades.

Timothy Archer: Thank you and good afternoon everyone. Welcome to the Lam Research QuarterLearnings conference call. With me today are Tim Archer, President and Chief Executive Officer, and Doug Betinger, Executive Vice President and Chief Financial Officer. During today's call we will share our overview on the business environment, and we'll review our financial results for the September 2023 quarter, and our outlook for the December 2023 quarter. The press release detailing our financial results was distributed a little after 1 o'clock p.m, specific time this afternoon.

Timothy Archer: 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 include 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-gap financial basis and less otherwise specified. A detailed reconciliation between gap and non-gap results can be found in the accompanying slides in the presentation. This call scheduled to last until 3 o'clock p.m, specific time.

Longer term Lamb's growth story is strong and is underpinned by the fact that etch and deposition are fundamental enablers of higher performance more scalable semiconductor device architectures.

To address emerging technical challenges customers continued to identify new innovative use cases for vertical scaling.

Backside power delivery is a good example, as it is an emerging device architecture being developed to address the scaling limitations of traditional back end of line integration schemes.

<unk> deposition play a critical role in enabling this transition and backside power delivery is expected to add close to $1 billion of incremental Sam opportunity for Lam per 100000 monthly wafer starts today.

Today power Interconnects increasingly compete for space in the complex complex back end of line wiring.

We'll also taking up considerable area that's transistor level <unk>.

Additionally, managing power loss between external source and the transistors is increasingly challenging due to resistance.

Backside power delivery architecture enables the separation of the signal and power delivery paths to free up valuable way for real estate and minimize power loss.

Timothy Archer: 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 Kim.

Furthermore, customers are implementing changes, including the use of thicker metal layers in order to efficiently integrate backside power with their advanced packaging schemes.

Timothy Archer: Thanks, Tina and welcome everyone. Lamb produced solid results for the September quarter. Revenue came in above the midpoint of our guidance, and for the second quarter in a row our gross margin, operating margin, and earnings per share all exceeded the high end of the guidance range.

New etch and deposition capabilities are needed and the trends are favorable for Lam.

Due to our existing strength in back end processes, we have been able to quickly extend the capabilities of our copper electroplating and.

Timothy Archer: Our revenue and earnings per share are expected to improve further in the December quarter, demonstrating our continued strong execution in a cyclically soft calendar year 2023. Turning to the wafer fabrication equipment environment, we see spending for calendar year 2023 in the $80 billion range. The adjustment in WFE from our prior view of mid-70 billion dollars is based on updated checks on non-lamb related markets, as well as restricted fab spending in China.

<unk> CVD deposition products to address the throughput and productivity requirements backside power applications.

We now have tool of record positions at a leading foundry logic customer and expect these positions to continue to grow.

As we approach the end of the year our installed base is closing in on 90000 chambers.

Semiconductor manufacturing is becoming increasingly complex our customer support business group, you're seeing more opportunities to deliver innovation productivity and yield enhancement.

Timothy Archer: It does not change our assumptions on lamb revenues for the year. On the device segment side, mandal weakness continued in the quarter as customers adjusted spending levels down and further lowered utilization to drive a faster path to supply demand balance. Williams. While M.W.F.E, is down significantly in 2023, supply actions are starting to have a positive impact. Customers have recently indicated that pricing trends have stabilized, and M.Vit demand is increased from high single digits percent Eurovere growth to high teens, and certain consumer markets are demonstrating greater demand elasticity in per unit content.

In the September quarter, we expanded our equipment intelligence offerings at multiple customers to include the first big data application of high resolution optical emission spectroscopy or oes.

The equipment intelligence capabilities, we are delivering with oes are highly differentiated due to the complexity of collecting in interpreting plasma spectra in manufacturing over time and across a large fleet of tools.

Our solution allows customers to resolve performances issues that would otherwise remained undetected.

Timothy Archer: DRAM spending is modestly up relative to our prior view, driven by better trends in high bandwidth memory related demand, as well as further upside domestic China customers. Meanwhile, the Foundry Logic segment is down slightly versus our prior baseline due to weakness in both leading edge and non-China based mature node investments.

Recently, our <unk> team also put the industry's first collaborative maintenance robot or co bought into a production fab at a leading customer.

Cobalt has helped execute complex maintenance tasks with precision and reliability, leading to improved tool the tool performance matching and higher equipment availability.

Also we believe cobalt as a new service offering can play an important role in addressing anticipated skilled labor shortages as semiconductor manufacturing expands and becomes more regionalized.

Timothy Archer: Looking forward, it remains hard to call the timing and pace of W.A.F.E, recovery, but we believe LAM is in a good position to benefit from both cyclical and structural drivers of demand. When memory investments begin to recover from current cyclical lows, we expect to see early benefits in our install-based business, as fabulousization improves, driving increased demand for spares, services, and equipment upgrades. Longer term, LAM's growth story is strong, and it's underpinned by the fact that etch and deposition are fundamental enablers of higher performance, more scalable, cynic-inductive device architectures.

Overall, we see tremendous vectors of growth ahead for the semiconductor industry and for Lam scaling.

Scaling and complexity challenges are driving multiple inflections for <unk> architectures, and in turn greater etch and deposition intensity land.

<unk> has a strong track record of execution and we are committed to making the strategic investments needed to position the company to outperform as the industry and our markets growth.

Timothy Archer: To address emerging technical challenges, customers continue to identify new, innovative use cases for vertical scaling. Backside power delivery is a good example, as it is an emerging device architecture being developed to address the scaling limitations of traditional back end of line integration schemes. Etch and deposition play a critical role in enabling this transition, and backside power delivery is expected to add close to $1 billion of incremental Sam opportunity for LAM per 100,000 monthly rate preserves.

Over the last two years, we've been laying the groundwork for greater scale and efficiency with the expansion of our manufacturing supply chain and warehousing capabilities in Asia in order to better serve our customers in that region.

We are also increasing our R&D efforts to extend our technology differentiation and expand our product portfolio to capture new inflection driven applications.

While the current business environment remains challenging secular industry trends play extremely well to lend strengths.

And we are excited by the breadth of opportunities we see ahead for the company.

Timothy Archer: Today, power interconnects increasingly compete for space in the complex back end of line wiring, while also taking up considerable area at the transistor level. Additionally, managing power loss between external source and the transistors is increasingly challenging due to resistance. A backside power delivery architecture enables the separation of the signal and power delivery paths to free up valuable way for real estate and minimize power loss. Furthermore, customers are implementing changes including the use of thicker metal layers in order to efficiently integrate backside power with their advanced packaging schemes.

Thank you and I'll now turn it over to Doug excellent. Thank you Tim.

Good afternoon, everyone and thank you for joining the call today.

We delivered strong results in the September 2023 quarter.

Our revenue came in above the midpoint of our guided range and gross margin operating income and earnings per share all exceeded the high end of guidance.

We're pleased with the company's execution during the year, where memory Wip investment has declined by unprecedented amounts.

Let's look at the details of our September quarter financial results.

Revenue for the September quarter was $3 $48 million, which was up 9% from the prior quarter.

Timothy Archer: New etch and deposition capabilities are needed, and the trends are favorable for LAM. Due to our existing strength in back end processes, we have been able to quickly extend the capabilities of our copper electroplating and PDD deposition products to address the throughput and productivity requirements of backside power applications. We now have tool of record positions at a leading founder logic customer and expect these positions to continue to grow. As we approach the end of the year, our installed base is closing in on 90,000 chambers.

And down more than 30% from a year ago.

Our deferred revenue balance at quarter end was $169 billion, which was a decrease of approximately $150 million from the June quarter.

Mainly related to revenue recognized tied to customer advance payments.

We continue to have a higher deferred revenue balance versus historic levels, given these advanced payments.

We expect to recognize revenue in the December quarter for a portion of these deposits, which is comprehended in our guidance.

Within calendar year 2024, I believe the deferred revenue balance will trend to more normalized levels.

Timothy Archer: As semiconductor manufacturing is becoming increasingly complex, our customer support business group is seeing more opportunities to deliver innovation, productivity, and yield enhancement. In the September quarter, we expanded our equipment intelligence offering and multiple customers to include the first big data application of high resolution optical emissions spectroscopy or OES. The equipment intelligence capabilities we are delivering with OES are highly differentiated due to the complexity of collecting and interpreting plasma spectra in manufacturing over time and across a large fleet of tools.

Let's now look at the segments from a segment perspective September quarter systems revenue and memory was 38%, which is an increase from the prior quarter level of 27%.

The growth in the memory segment was driven by DRAM, which increased sequentially coming in at 23% of systems revenue compared with 9% that we saw in the June quarter.

As we've noted in prior quarters non volatile memory spending is at historic lows in 2023.

And for the September quarter. This segment represented 15% of system revenue, which was down from the 18% that we saw last quarter.

Timothy Archer: Our solution allows customers to resolve performance issues that would otherwise remain undetected. Recently, our CSBG team also put the industry's first collaborative maintenance robot, or a co-bot, into a production fab at a leading customer. Co-bots help execute complex maintenance tasks with precision and reliability, meaning to improve tool-to-all performance matching and higher equipment availability. Also, we believe co-bots as a new service offering can play an important role in addressing anticipated skilled labor shortages as semiconductor manufacturing expands and becomes more regionalized.

The spending levels in NAND.

Solid levels, we have not seen planar NAND was the predominant technology.

Hey.

The foundry segment represented 36% of our systems revenue.

Slower than the percentage concentration in the June quarter, a 47%.

The decrease is related to timing of leading edge investments within calendar year 2023.

We performed well in this segment during the year, but this quarter spending coming mainly from mature node customers.

Timothy Archer: Overall, we see tremendous vectors of growth ahead for the semiconductor industry and for Lam. Scaling and complexity challenges are driving multiple inflections for 3D architectures and in turn, greater etching deposition intensity. Lam has a strong track record of execution, and we are committed to making the strategic investments needed to position the company to outperform as the industry and our markets grow. Over the last two years, we've been laying the groundwork for greater scale and efficiency with the expansion of our manufacturing, supply chain, and warehousing capabilities in Asia in order to better serve our customers in that region. We're also increasing our R&D efforts to extend our technology differentiation and expand our product portfolio to capture new inflection-driven applications.

And finally, the logic and other segment was 26% of our systems revenue in the September quarter, which was flat with the prior quarter level.

Investments in this segment were heavily focused in the specialty device areas, including sensors analog.

And power devices.

I will now discuss the regional composition of our total revenue.

The China region came in at a high watermark of 48%.

Up from 26% in the prior quarter.

The majority of the China revenue this quarter was from domestic Chinese customers and we currently expect we will have another strong China geographic concentration profile in the December quarter as well.

Our next largest geographic region concentration was Korea at 16% of revenue in the September quarter and that compares with the 24% that we saw in June .

Timothy Archer: While the current business environment remains challenging, secular industry trends play extremely well to land strengths, and we are excited by the breadth of opportunities we see ahead for the company.

Our customer support business group generated revenue in the September quarter totaling approximately $1 4 billion.

Which was down 5% from the June quarter, and 25% lower than the September quarter and calendar year 2022.

Timothy Archer: Thank you, and I'll now come over to that.

Douglas Bettinger: Excellent. Thank you, Tim.

Douglas Bettinger: Good afternoon, everyone, and thank you for joining me call today. We deliver strong results in the September 2023 quarter. Our revenue came in above the midpoint of our guided range and gross margin, operating income, and earnings per share of all exceeded the high end of guidance. We're pleased with the company's execution during the year where memory WFE investment has declined by unprecedented amounts.

Memory customers continue to operate their fabs at very low utilization rates and.

And customers are holding off on upgrading tools until there's more digestion of the outstanding inventory.

In the industry.

The specialty technology market has been a bright spot this year.

Douglas Bettinger: Let's look at the details of our September quarter financial results. Revenue for the September quarter was $3.48 billion, which was up 9% from the prior quarter, and down more than 30% from a year ago. Our deferred revenue balance at quarter-end was $1.69 billion, which was a decrease of approximately $150 million from the June quarter. Porter, mainly related to revenue recognized tied to customer advance payments. We continue to have a higher deferred revenue balance versus historic levels given these advance payments. We expect to recognize revenue in the December quarter for a portion of these deposits, which is completely in our guidance. Within calendar year 2024, I believe the deferred revenue balance will trend to more normalized levels.

And we see that part of our business up year over year as we closed calendar year 2023.

Spares in the reliant product line continues to be the two largest components of CSB Jay.

I will turn to the gross margin performance.

September quarter came in at 47, 9%.

Above our guided range and higher than the June quarter level of 45, 7%.

Our strong gross margin performance compared to the prior quarter was driven primarily by favorable customer mix.

We've improved elements of our cost structure during the year and are on track with our plan to improve gross margin from the March quarter level by approximately one percentage point as we exit calendar year 2023.

Yes.

September quarter operating expenses came in at $622 million up from the prior quarter amount of $590 million.

Douglas Bettinger: Let's now look at the segments. From a segment perspective, September quarter systems revenue and memory was 38%, which is an increase in the prior quarter level of 27%. The growth in the memory segment was driven by DRAM, which increased sequentially coming in at 23% of systems revenue compared with 9% that we saw in June quarter.

R&D as a percentage of spending.

Somewhat higher versus the June quarter coming in at over 68% of our spending.

The increased investment was focused on key technology inflections and development engagements with our customers.

We will continue to invest in programs across multiple market segments to support our long term strategic objectives for continued company outperformance.

Douglas Bettinger: As we noted in prior quarters, non-volatile memory spending did that historic lows in 2023, and for the September quarter, the segment represented 15% of system revenue, which was done from the 18% that we saw last quarter. These spending levels in NAND are around dollar levels. We have not seen since Plainer NAND was the predominant technology.

Operating margin for the current quarter was 31% higher than the June quarter level of 27, 3% and more than 100 basis points over the high end of our guidance because of that strong gross margin performance.

The non-GAAP non-GAAP tax rate for the quarter was 13, 4% in line with our expectations.

Douglas Bettinger: The following segment represented 36% of our systems revenue, lower than the percentage concentration in June quarter of 47%. The decrease is related to timing of leading edge investments within calendar year 2023. We performed well in the segment during the year with this quarter spending coming mainly from mature node customers. Finally, the logic in other segment was 26% of our systems revenue in the September quarter, which was flat with the prior quarter level. Investments in the segment were heavily focused in the specialty device areas, including sensors, analog, and power devices.

Our estimate for the December 2023 quarter as well as for calendar year 2024, just for the tax rate to be in the low to mid teens range.

Other income and expense for the September quarter came in at $7 million in income compared with $7 million in expense in the June quarter.

The favorable fluctuation and aligning was due to a variety of factors, including rising interest rates generating income on our cash balance.

<unk> will continue to be subject to market related fluctuations that will cause some level of volatility quarter by quarter.

Okay.

Let me now pivot to the capital return side of things.

Douglas Bettinger: I'll now discuss the regional composition of our total revenue. The China region came in at a high water mark of 48% up from 26% in the prior quarter. The majority of the China revenue this quarter was from domestic Chinese customers and we currently expect we will have another strong China geographic concentration profile in the December quarter as well.

We allocated approximately $830 million to open market share repurchases.

$230 million in dividends in the September quarter.

I'll highlight that in September we announced a 16%.

Growth in our dividend in line with our plan to deliver disciplined annual dividend growth.

Okay.

Since paying our first dividend in 2014, we have now raised the dividend amount nine times.

Douglas Bettinger: Our next largest geographic region concentration was 3% had 16% of revenue in the September quarter and that compares with the 24% that we saw in June.

We returned over 120% of free cash flow in the quarter and we have $2 $7 billion remaining on our board authorized share repurchase plan.

Douglas Bettinger: Our customer support business group generated revenue in the September quarter, totaling approximately $1.4 billion, which was down 5% from the June quarter and 25% lower than the September quarter in calendar year 2022. Memory customers continued to operate their fabs at very low utilization rates and customers are holding off on upgrading tools and tell us more digestion of the outstanding inventory that is in the industry.

Calendar year to date, we've returned 83% of our free cash flow to shareholders.

September quarter diluted earnings per share was $6 85.

Over the high end of our guided range.

Diluted share count was 133 million shares on track with our expectations.

And down from the June quarter.

Let me pivot to the balance sheet, our cash and short term investments at the end of the September quarter totaled $5 2 billion down from $5 $6 billion in the June quarter.

Douglas Bettinger: The specialty technology market has been a bright spot this year and we see that part of our business up year over year as we close calendar year 2023. Spears and the Reliance Product Line continues to be the two largest components of CSBJ.

Yeah.

The main driver of the cash decrease was obviously our capital return activity.

I just mentioned, we also purchased buildings at our company headquarters as well as our Bay area of California factory for approximately $250 million retiring the leases that were on the balance sheet.

Douglas Bettinger: Let me now turn to the gross margin performance. The September quarter came in at 47.9% above our guided range and higher than the June quarter level of 45.7%. Our strong gross margin performance compared to the prior quarter was driven primarily by favorable customer mix. We've improved elements of our cost rupture during the year and are on track with our plan to improve gross margin from the market quarter level by approximately 1 percentage point as we exit calendar year 2023.

This cash was somewhat offset by improvement in day sales outstanding which were 73 days in the September quarter down from the 80 days that we saw in the June quarter.

Inventory turns were flat with the prior quarter level at one five times.

We continue to work to bring our inventory down but as we've noted in prior quarter.

We expect this to occur at a slower pace.

Douglas Bettinger: September quarter operating expenses came in at $622 million, up from the prior quarter amount of $590 million. Our end use of percentage spending was somewhat higher versus the June quarter coming in at over 68% of our spending. The increased investment was focused on key technology inflections and development engagements with our customers. We will continue to invest in programs across multiple market segments to support our long-term strategic objectives for continued company outperformance.

Then we have done in the past.

Our non cash expenses for the September quarter included approximately $67 million for equity compensation.

96 million and depreciation and $14 million and amortization.

Capital expenditures for the September quarter came in at $77 million, which was flat with the June quarter.

Spending in September was primarily centered on product development activities and lab expansions in the United States and Asia.

We ended the September quarter with approximately 17200 regular full time employees, which was a decrease of 200 people from the prior quarter.

Douglas Bettinger: Operating margin for the current quarter was 30.1%, higher than the June quarter level of 27.3%, and with a 100 basis points over the high end of our guidance because of that strong gross margin performance. The non-gap tax rate for the quarter was 13.4% in line with our expectations. Our estimate for the December 2023 quarter as well as for calendar year 2024 is for the tax rate to be in the low-to-mean-teens range.

Most of this decrease is related to the restructuring actions. We took earlier in the calendar year with the timing of the head count reduction occurring in the September quarter.

Now I'll turn to our non-GAAP guidance for the December 2023 quarter.

We're expecting revenue of $3 7 billion.

Plus or minus $300 million.

Gross margin of 47% plus or minus one percentage point.

Douglas Bettinger: Other income and expense for the September quarter came in at $7 million in income compared with $7 million in expense in the June quarter. The favorable fluctuation in aligning was due to a variety of factors including rising interest rates generating income on our cash balance. All Y&E will continue to be subject to market-related fluctuations that will cause some level of volatility quarter by quarter.

This level of gross margin reflects a continued favorable customer mix.

Albeit not quite as favorable as we saw in September .

Operating margin of 29, 5% plus or minus one percentage point.

The operating expenses embedded in this guidance increase from the September level due to growth in R&D.

I would also just mention that the June 2024 quarter.

Douglas Bettinger: Let me now pivot to the capital return side of things. We allocated approximately $830 million to open market share purchases and paid $230 million dividends in the September quarter. I'll highlight that in September we announced a 16% growth in our dividend in line with our plans to deliver disciplined annual dividend growth. Since paying our first dividend in 2014, we have now raised the dividend amount nine times. We returned over 120% of free cash flow in the quarter and we have $2.7 billion remaining on our board authorized share repurchase plan.

It will be higher as it includes an extra week in the fiscal third quarter, which occurs every six years.

It's going to be a 14 week quarter in March.

And finally earnings per share of $7, plus or minus 75 based on a share count of approximately 132 million shares.

With our December quarter guidance, we see solid performance in both revenue and profitability.

Lamb is delivering strong financial results and technology leadership to our customers as we deliver developed solutions for the next industry inflections.

And before I wrap up I'd, just like I mentioned, two things as you think about modeling our business into 2024.

The first is that we're currently experiencing favorable customer mix.

Douglas Bettinger: Calendar year today we returned 83% of our free cash flow to shareholders. September quarter deleter earnings per share was $6.85 over the high end of regarded range. DeRuda Share Count was 133 million shares on track of their expectations and down from the June quarter. When we pivoted the balance sheet, our cash and short-term investments at the end of the September quarter told $5.2 billion down from $5.6 billion in the June quarter.

That may not continue at the same level going into next year.

This may create near term headwinds for gross margin.

Second given all the opportunities we see in long term technology inflections like data all around dry resist advanced packaging changing metallization schemes and continuing the evolution of other <unk> structures like DRAM.

2024.

Maybe in R&D spending growth year to take advantage of these future opportunities that we see.

As a result, it's possible the historic leverage we've delivered takes a temporary pause.

Douglas Bettinger: The main driver of the cash decrease was obviously our capital return activity. I just mentioned we also purchased buildings at our company headquarters as well as our Bay Area California factory for approximately $250 million, retiring the leases that run the balance sheet. The decision to cash was somewhat offset by improvement in this sales outstanding, which were 73 days in the September quarter, down from the 80 days that we saw in the June quarter.

We will obviously continue to aggressively drive the operational efficiencies that we always have.

And our longer term profitability objectives remain unchanged.

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

Thank you I'd like to ask a question. Please find a stove and one on your telephone keypad.

Youre using a speakerphone please pick up your handset before pressing the keys.

Douglas Bettinger: Inventory returns were flat with the prior quarter level at 1.5 times. We continued to work to bring our inventory down, but as we've noted in the prior quarter, we expect this to occur at a slower pace than we've done in the past. Our non-cash expenses for the September quarter included approximately $67 million for equity compensation, $76 million in appreciation and $14 million in amortization. Capital expenditures for the September quarter came in at $77 million, which was flat with the June quarter.

If at any time <unk> question has been addressed I would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

And today's first question comes from Timothy Arcuri with UBS. Please go ahead.

Thanks, a lot.

I had a question on China. So obviously, you've had a huge second half in China.

Doug It sounds like you think it's going to remain pretty strong in December it sounds like maybe it's going to remain close to 50% of the mix, but it sounds like Youre, a little worried about it sorry, now not worried but sure.

Do you think that it could actually come off a bit during the first half of 2004 can you talk about that what are the puts and takes.

Douglas Bettinger: Stunning in September was primarily centered on product development activities and lab expansions in the United States and Asia. We ended the September quarter with approximately 17,200 regular full-time employees, which was a decrease of 200 people from the prior quarter. Most of this decrease is related to the restructuring actions we took earlier in the calendar year with the timing of the head count production occurring in the summer quarter.

I asked because if you sort of back into where they're running in terms of wip theyre running probably in the high Twenty's. If I just take the back half of the year. So I'm wondering if that could sustain.

Yes, Yes, Tim let me, let me start on that and I'll, let Doug add.

When we think about China investment clearly it has been strong as we've messaged part of the mixed story and why it's such a high percentage of our mix right. Now also is we do expect that other customers cannot.

Douglas Bettinger: Let me now turn to our non-get guidance for the December 2023 quarter. We're expecting revenue of $3.7 billion plus or minus $300 million. Gross margin of 47 percent plus or minus 1 percent is point. This level of gross margin reflects a continued favorable customer mix, albeit not quite as favorable as we saw in September. Operating margin of 29.5 percent plus or minus 1 percent is point. The operating expenses, embedding this guidance, increase from the September level to growth in R&D.

He is not spending and we all know that memory and then in particular is it.

Extreme lows.

As we look into next year, and it's a bit too early for us to give 2020 for WPZ. So we're not going to do that.

We think about longer term, China and this overall move towards regionalization.

You see people investing for long term demand in mature nodes and so we're not going to comment on whether we think it's sustainable in the first half of the second half of next year, but long term. We do believe that there is growing demand in mature nodes will drive to an investment in a rather sustainable manner for the next.

Several years.

Douglas Bettinger: I'd also just mention that the June 2024 quarter will be higher as it includes an extra week in fiscal quarter, which occurs every few years. It's going to be a 14-week quarter in March. And finally earnings per share of $7 plus or minus 75 cents based on a share count of approximately $132 million shares. With our December quarter guidance, we see solid performance in both revenue and profitability. LAM is delivering strong financial results and technology leadership to our customers as we deliver developed solutions for the next industry James.

And Tim just to parts of my comments a little bit.

I said, we believe China will continue to be strong, but I also said, albeit not quite as strong perhaps as we saw in September .

And as Tim alluded to the China investment cycle underway.

It's up down sideways next year, but it's not going away they are investing for opportunities in the market that they see.

I think we're hopeful the rest of the market begins to recover at some point consider pretty low points.

That will mitigate the China mix to a certain extent.

Thanks, a lot.

That can you just talk also.

Your major.

Douglas Bettinger: And before I wrap up, I'd just like to mention two things as you think about modeling our business into 2024. The first is that we're currently experiencing favorable customer mix that may not continue at the same level going into next year. This may create a near-term headwinds for growth market. Second, given all the opportunities we see in long-term technology and collections, like data all around, dry resist, advanced packaging, changing metalization schemes, and continuing devolution of other 3D structures like VRAMF.

That makes a litho talked this morning about there being a handful of Fabs now with these new.

Restrictions that they can't ship into its predominantly a litho thing, but can you just talk about sort of where we are in terms of restrictions.

And then also.

You are talking about that whats the commonality in the etch and the etch and Dep toolset for let's say 28 nanometer versus let's say seven nanometer because technically you can buy tools for 28 nanometer.

Douglas Bettinger: 2024 may be an R&D spending growth year to take advantage of these future opportunities that we see. As a result, it's possible that historic leverage we've delivered takes temporary pause. We will obviously continue to aggressively drive the operational efficiencies that we always have and our longer-term profitability objectives remain unchanged.

You can use them to pattern seven nanometer from them from a debt point of view, it's not as efficient, but you can do it can you just talk about that thanks.

Yes, Tim I guess, what I'd say is we've reviewed the details of the regulations and our early assessment is we don't see any material impact to our forecasted business now.

Some of that has to do with the fact that we've already we've already been quite restricted view into what we can ship into China relative to technology engagement.

I think your other point about tools being purchased one node is for another I mean, that's something that obviously we are.

Unknown Executive: Operator, that concludes our prepared remarks.

Unknown Executive: Come and I would now like to open up the call for questions. Thank you.

Sure.

We have to follow very strict regulations to adhere to to the U S regulations. So I don't know that thats something that.

Unknown Executive: If you'd like to ask a question, please find a spoiler on the telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, you'd like to enjoy your question.

Might be quite as covenants, what youre, saying, so but it's.

It's something that we make sure that we are.

Unknown Executive: Please press stars and two. At this time, we'll pause momentarily to assemble our roster.

We're fully compliant.

Of course, alright, thanks, so much.

Yes.

Timothy Arcuri: And today's first question comes from Timothy R. Curie with UBS. Please go ahead. Thanks a lot. I had a question on China, so obviously you've had a huge second half in China. Doug, it sounds like you think it's going to remain pretty strong in December. It sounds like maybe it's going to remain close to 50 percent of the mix. But it sounds like you're a little worried about it. I'm sorry, not worry, but you know, you think that it could actually come off a bit during the first F-24.

Thank you and our next question today comes from Harlan sur with Jpmorgan. Please go ahead.

Good afternoon, and thanks for taking my question on <unk> down 8% year over year.

First nine months of the year. It did decline as you mentioned, 5% sequentially I assume the sequential decline was driven by continued utilization declines by your customers.

Specialty.

Your your NAND customers as you pointed out you did talk about improving bit shipments for these customers in the second half of the year pricing stabilization it sort of seems to be reflective of this sort of steadily improving supply demand environment.

Timothy Arcuri: Can you talk about that? What are the puts in the takes? I ask because if you sort of back into where they're running in terms of WFE, they're running probably in the high 20s if I just take the back half of the year. So I'm wondering if that can sustain.

Does the team believes that utilization.

Timothy Archer: Yeah, Tim, let me start on that. I think that when we think about China investment, clearly it has been strong as we've mentioned. Part of the mix story and why it's such a high percentage of our mix right now also has to do with fact that other customers are not spending. And we all know that memory and man in particular is at extreme lows. As we look into next year, and it's a bit too early for us to give 2024 WFE, so we're not going to do that.

The cost of memory and foundry and logic customers have they started to at least stabilize at current levels.

Yes Harlan.

What we said was that those are the comments that obviously our customers are all talking about their business. There is clearly some time lag from when they start to see improvement in bit demand in pricing before they start to I think bring some of that fab utilization back online our <unk> business. As we said is affected by a couple of things one is clearly.

Timothy Archer: You know, we think about longer term China and just overall move towards regionalization, that you see people investing for long-term demand in mature nodes. And so we're not going to comment on whether we think it's sustainable in the first half or the second half of next year. But long-term, we do believe that there's rolling demand in mature nodes that will drive tiny investment in a rather sustainable manner for the next several years.

Fab Utilizations.

<unk>.

At levels that we have we have really haven't seen in terms of how much capacity has been taken offline in the NAND space and that's.

Thats affected spares, but also when you don't need to add bits and you are really trying to conserve your own spending theres been quite a significant.

Significant delay and technology upgrades to the installed base you have that those tools offline youre not really upgrading them at this point so.

Timothy Archer: And yeah, Tim, just to parse my comments a little bit. I said, we believe China will continue to be strong, but I also said, albeit not quite as strong, perhaps as we saw in September. And as Tim alluded to, you know, the China investment is not going away. I don't know if it's up down sideways next year, but it's not going away. They're investing for opportunities in the market that they should. Michael Holt, the rest of the market begins to recover at some point, because that's pretty low points, and that will mitigate the time it makes to a certain extent. Thanks a lot for that.

That has also hit the <unk> business in terms of our upgrades.

On a component yes.

We anticipate that as the.

The memory business starts to improve which is what it seems to be the leading indicators are pointing to we would think spares that start to come back and the technology upgrades will be done because in that next leg of growth customers are going to want to be able to scale on that next technology node for their own efficiency of manufacturing. So we're not seeing that.

Yet but.

Timothy Archer: Can you just talk also, your major, you know, peer that makes Litho talked this morning about, they're being a handful of fabs now with these new restrictions that they can't ship into. It's predominantly a Litho thing, but can you just talk about sort of where we are in terms of restrictions, and then also when you're talking about that, what's the commonality in the etch and the etch and depth tool set for, let's say, 28 nanometer versus, let's say, seven nanometer, because technically you can buy tools for, you know, 28 nanometer, and you can use them to pattern seven nanometer from from a depth etch, you know, point of view, it's not as efficient, but you can do it. Can you just talk about that. Thanks.

The leading signs are that.

It will come.

Okay. Thank you and then.

Talked about this on the last earnings call, but you know you've got a strong position in stacked chip architectures advanced packaging you guys have talked about this segment is being $200 million per year for Lam potentially with a path to $1 billion business on HCM, specifically when you have very strong share rate, which began to HBM two to three to four.

Theres, a doubling of Tse's per chip every new generation of HBM. The DRAM stock height is also growing from like eight to like 'twenty four.

At some point. So this is this all of this sort of a very strong tailwind for the team.

Timothy Archer: Yeah, Tim, I guess what I'd say is we've reviewed the details of the regulations and our early assessment is we don't see any material impact or forecasted business. Now, some of that has to do with the fact that, you know, we've already, we've already been quite restricted into what we can ship into China relative to technology engagement. And I think to your other point about tools being purchased one node used for another, I mean, that's something that obviously, you know, we're, we have to follow very strict regulations to adhere to the US regulations, so I don't know that that's something that might be quite as common as what you're saying. So, but it's something that we make sure that we're fully compliant. Of course, Tim, thanks so much. Yeah.

Guys anticipate strong growth next year for your HDL Slash advanced packaging business.

And some of your DRAM customers are also talking about HCM driving 10% of overall industry DRAM wafer starts is that how you guys are seeing it as well.

We'll let them talk about how much it affects their business but.

What are the effects of ours I mean, everything you just said I think we are generally aligned with which is.

Trying to drive performance generally leads to.

So more equipment needs and more sophisticated equipment needs and so we do see HBM.

What about the uptick in our business that we've already seen from it.

This appears to be an area right now that is still under supplied and we're seeing strong demand and so I.

Harlan Sur: Thank you. And our next question today comes from Harwin sir with JP Morgan, please go ahead. Good afternoon, thanks for taking my question on CSBG down 8% year over year to the first nine months of the year, it did decline, as you mentioned, 5% sequentially. I assume the sequential decline was driven by continued utilization declines by your customers, especially your, your nan customers as you pointed out, you did talk about improving bitch shipments for these customers in second half of the year pricing stabilization, it sort of seems to be reflective of this sort of steadily improving supply demand environment.

I don't anticipate given the interest in AI that you hear so broadly in the industry right now that are HBM business wouldn't grow pretty strongly next year.

To characterize our overall advanced packaging you mentioned a couple of hundred million dollars and we basically said that we.

This could be a market in which our revenues actually exceeded $1 billion over the next sometime in the next couple years and so it is it is a rapidly growing part of our business.

And one in which we have quite high share.

Yes, thanks, Harlan thank you.

Thank you and our next question today comes from <unk> Malik with Citi. Please go ahead.

Harlan Sur: So, does the team believe that utilization to bottom across your memory and found you logic customers have they started to at least stabilize at current levels? Yeah, Harwin, you know, what we only said was that those are the comments that obviously our customers are out talking about their business. There's clearly some time lags from when they start to see improvement in in bit demand and in pricing before they start to I can bring some of that tab utilization back online.

Hi, Thank you for taking my question.

Tim My first question is on the equipment spending I know you guys don't guide Ws detailed January but you had a positive period was talking about maybe a softer first half will then take sticking up into five and curious if you think a similar profile, where first half with more land out like align.

Okay.

And like Atlanta like in Latam.

Harlan Sur: Our CSBG business, as we said, is affected by a couple of things. One is clearly fab utilization. You know, are at levels that we have, we have really haven't seen in terms of how much capacity has been taken offline in the man space. And that's affected spares, but also when you don't need to add this and you're really trying to conserve your own spending. There's been a quite a significant delay in technology upgrades to the install base.

I think that.

It's what we would say and without guiding 2024 at this point I think it is reasonable.

To my prior comments that.

I think spending will come back cautiously.

So even though we may be seeing some of the leading indicators and some of our markets.

I think.

People aren't going to want to see sustainability of that condition before we start to see.

Significant spending so.

If we if we were to think and I believe that the general feeling is that 25 is probably.

Harlan Sur: Yeah, that those tools offline, you're not really upgrading them at this point, and so that is also hit to CSBG business in terms of our upgrades component. You know, we anticipate that as the memory business starts to improve, which is what it seems to be the leading indicators point to. We would think spares would start to come back and the technology upgrades would be done because in that next leg of growth, customers are going to want to be able to scale on that next technology noted for their own efficiency of manufacturing.

I mean lot of Fabs opening a lot of lot of perhaps less demand out in that timeframe.

Harlan Sur: So we're not seeing that yet, but the leading signs are that it will come. Thank you. And then, you talked about this on the last earnings call, but you know, you've got a strong position in stacked chip architectures, events, packaging. You guys have talked about this segment has been a few hundred million per year for Lam, potentially with the past $1 billion business on HBM specifically where you have very strong share right HBM to HBM 2 to 3 to 4.

Not unreasonable to think that you would ramp towards that as you move through 2024.

And Doug on the gross margins are you still guiding to year over year growth, but down sequentially because of the mix that you've talked about can you walk us through.

Earnings RV incomes of the structural gross margin improvement that you guys have been talking about this year.

Yes.

Take yourself back to we were talking about this in the March call.

We're at roughly 44% gross margin and we articulated a view that we would be able to drive a 100 basis point improvement in that from the operational efficiencies that we were undertaking during the year.

And I'm Super confident.

That's absolutely already happened frankly, and we will continue to be in a good spot as we exit the year.

Harlan Sur: I think that there's a doubling of TSCs per chip every new generation of HBM. The DRAM stack height is also growing from like 8 to like 24 at some point. So this is all is sort of a very strong kill win for the team. You guys anticipate strong growth next year for your HBM slash events, packaging business and some of your DRAM customers are also talking about HBM driving 10% of overall industry DRAM wait for starts is that how you guys are seeing it as well.

Thanks.

Thank you.

Our next question today comes from Krish Shankar with Cowen. Please go ahead.

Yes, hi, Thanks for taking my question that few of them first one either Doug or Tim I don't know if you guys quantified in the past you've said like the export restriction of the $2 billion of impact on a revenue or is it a way to quantify with the new export restrictions and I noticed that <unk> added to it.

Harlan Sur: We'll let them talk about how much it affects their business, but from what it affects ours, I mean, everything you just said, I think we were generally aligned with, which is trying to drive performance generally leads to some more equipment needs and more sophisticated equipment needs. And so we do see HBM. I talked about the uptick in our business that we've already seen from it. This appears to be the so an area right now that is still under supplied and we're seeing strong demand and so I don't anticipate given the interest in AI that you hear so broadly in the industry right now that our HBM business wouldn't throw pretty strong next year.

To quantify the impact in calendar 'twenty four incremental dollar value and then I had a follow up.

Yes, Chris there really was nothing material incrementally and what was clarified I guess it was yesterday right.

So youre right. When we came into the year, we said two to $2 5 billion number got clarification, we could ship a little bit we took you down to $2 billion, that's still kind of what we see this year.

Nothing incremental really came out yesterday.

And the reason for that Chris is that many of those cases, well specific tools might've been now our technology is now called out they were already the types of tools that were used to produce the technologies that were below the <unk>.

The limits that we're already alone. So we had already recognized in our initial statement.

Got it got it that's very helpful. And then just a follow up.

Harlan Sur: To characterize our overall dense packaging mentioned a couple hundred million. We basically said that we think that this could be a market in which our revenues actually exceeded $1 billion over the next sometime in the next couple of years. So it is a rapidly growing part of our business and one in which we have quite high share.

And Tim I asked this question last time to kind of like.

Harlan Sur: Thank you.

With respect to the whole <unk> dielectric etch, let's just tell him.

Once again some of the product kind of can you give us like an update on where your market share wise.

On the dielectric etch side and the <unk>, having any impact because my understanding is cryo, which does help the throughput, but it's probably a negative from selling number of tool for dielectric etch and NAND applications I'm, just trying to figure out how to handicap that.

Unknown Executive: And our next question today comes from a team with city. Please go ahead. Hi, thank you for taking my question. My first question is on equipment spending. I know you guys don't guide the details January, but your lithography here was talking about maybe a stalker first half and then sticking up into 2025. And curious if you're seeing a similar profile where first half is more in like a lamb and out like a lion. Like a lamb out like a lion.

Yes, there is.

There is no change from what we've said before I mean land is as is.

As a leader in high aspect ratio etch without a doubt.

It also on the last call I did point out the fact that while a lot has been made of cryo are these very cold benching conditions. This is already standard Lam condition, and so to a certain extent many of us when we talk about our business and any impact that you talked about with throughput those are already already factored into our commentary so.

Unknown Executive: You know, I think that it's you know what we would say and without getting 2024 at this point, I think it is reasonable to my prior comments that I think spending will come back cautiously. And so even though we may be seeing some of the leading indicators in some of our markets, I think people are going to want to see sustainability of that condition before we start to see significant spending. So, you know, if we if we were to think and I believe that the general feeling is that 25 is probably, you know, a lot of apps opening a lot of press demand out in that timeframe. It's not unreasonable to think that you would ramp towards that as you move to 2020.

It's not something that's new to us.

Yes, I think that in general.

Our focus in NAND has been and always will be and memory in general driving productivity. At every every technology node that goes into our projected growth outlook that we always talk about.

Thanks Scott.

Thank you and our next question today comes from Joe Moore of Morgan Stanley . Please go ahead.

Great. Thank you I Wonder if you could talk about the DRAM uptick that you saw in the quarter.

Can you kind of help us just understand qualitatively how much of that is coming from China, how much of that is from advanced packaging.

Douglas Bettinger: Thanks, and Doug, on the growth margins, you feel guiding to year via growth but down sequentially because of the mix that you talked about. Can you walk us through, you know, which innings are we in terms of the structural growth margin improvement that you guys have been talking about this year? All right, yeah, if you take yourself back to when we're talking about this in the mark call, you know, we're at roughly 44% growth margin, and we articulated a view that we would be able to drive 100 basis point improvement in that from the operational efficiencies that we were undertaking during the year. And I'm super confident that that's absolutely already happened, frankly, and we'll continue to be in a good spot as we exit the year. Thanks.

Are you seeing kind of a resumption of technology spending does that kind of thing, but what are you seeing thats driving that improvement.

I guess, Joe what I would point to and then I'll, let Tim add yes, China was a part of it but it's not all of it.

Douglas Bettinger: Thank you.

There was an earlier question about where are we able to I'd done with memory, yes.

It's getting pulled in it I mean customers want it sooner. We can ship you have got a transition from DDR forward to DDR five with these new Cpus that are out there. So that also is a little bit of a bright spot. So I guess I'd point to both of those things as part of what we saw in DRAM.

Yes, no I think that's that's.

Majid I mean, as we've said before.

You also have this transition to higher higher die sizes, which ultimately will be.

One driver.

Of wafer outs, and therefore equipment demand probably starting to see some of the initial phases of that right now as well.

Krish Sankar: Our next question today comes from Krish Sankar with TD Cowan, please go ahead. Hi, thanks for the question. I had two of them.

Great. Thank you and then in Europe .

Upfront remarks, Tim I think you had talked about.

Trailing edge mature node.

Krish Sankar: First one, either Doug or Tim, I don't know if you guys quantified in the past, you said, like, you know, the export restriction of the $2 billion impact when you revenue is it a way to quantify with the new export restrictions, and I noticed that ALE was added to it. Way to quantify the impact in calendar 24 or incremental dollar value, and then I follow up. Yeah, Chris, there really was nothing material incrementally in what was clarified, I guess it was yesterday, right?

Weaker outside of China.

Is there something there that could be a trend or is that just kind of more of a one quarter phenomenon.

Well, obviously since we're not guiding future quarters.

I think it's just somewhat natural blend general I mean, we've seen in certain segments very high spend rates.

Companies that look to bring on capacity to meet demand in these mature nodes.

Our industry goes through digestion phases, where those tools have been started up and you get output and you sort of figure out whether demand is is there that requires more and it's what makes our investment cycle somewhat lumpy and I think that's what we're really looking at right now and this is.

Krish Sankar: So you're right, when we came into the air, we said, two and a half billion, now we've got clarification, we could ship a little bit, we took it on to two billion, that's still kind of what we see this year. And nothing incremental really came out yesterday. And the reason for that, Krish is that in many of those cases, while specific tools might have been now or technologies now called out, they were already the types of tools that were used to produce the technologies that were below the limits that were already allowed, so we had already recognized that in our initial statement. Got it, got it.

This long term demand, which we believe long term demand for semiconductors is is growing eventually come back and put in more.

More capacity into those fabs as well.

Great. Thank you. Thanks, Joe Yeah. Thanks, Chuck Thank you and our next question today comes from Toshi Hari with Goldman Sachs. Please go ahead.

Krish Sankar: That's very helpful. And then I just follow up into my as this question last time to kind of like, you know, with respect to the whole cryo edge, a dielectric edge, which is still announcing a similar product, kind of can you give us like an update on where you are market share wise. On the dielectric edge side, and is the cryo edge having any impact, because my understanding is cryo edge does have the throughput, but it's probably a negative from selling number of tools for dielectric ads, nan applications, I'm just trying to figure out how to handicap that.

Hi, guys. Thank you so much for taking the question.

I had a follow up question to Joe's question on China trailing edge.

Tim I apologize if I missed this but can you point to any end markets or any device types, that's driving the near term weakness and can you remind us how.

The bigger smaller market. This is for you guys today.

Alright, Christy I'll take a mental let let's turn that on.

It's a broad set of customers investing when you look at the specialty nodes.

Krish Sankar: Yeah, I mean, there's no change from what we've said before. I mean, when is is leader in high aspect ratio edge without a doubt? And, you know, I think that also on the last call, I did point out the fact that while a lot has been made of cryo or these very cold, etching conditions, this is already standard land condition. And so to some extent, many are as we talk about our business and then the impact that you talk about with throughput, those are already already factored into to our commentary, so it's not something that's new to us.

It's across multiple customers, unlike like leading edge foundry as an example.

So I can't really point to any one or another for you and quite frankly.

I think we all know theres inventory out there and a lot of these device types, but these are long term investments as well right. This isn't something that comes in one quarter and then it goes away.

Just because of what's happening in the near term marketplace, but it isn't any one segment or another tissue is just kind of the broad set of customers and just the only thing I would add is I think this is going to be an area that I think we're going to have to.

Krish Sankar: And yeah, I think that in general, you know, our focus in man has been and always will be and memory in general driving productivity at every every technology noted that that goes into our projected growth outlook that we really Thank you.

Sort of accept it will be a little harder to forecast from the standpoint that it is also the part of the market that is impacted by a number of the different chip snack type.

Government support activities around the world and so you may see as certain regions try to build out their capabilities, we may not be able to point in that moment to the.

Joe Moore: And our next question today comes from Joe Moore at Morgan Stanley. Please go ahead. Great, thank you. I wonder if you could talk about the D-rem uppick that you saw in the quarter. Can you kind of help us just understand qualitatively how much of that is coming from China? How much of that is from advanced packaging? You know, are you seeing kind of a resumption of technology spending, just that kind of thing?

The demand being greater than the supply and Thats why they are investing as Doug said. This is about long term build out what I think everybody sees as a much bigger demand for these types of devices over all these various types of applications in automotive and Iot and Cmos image sensors et cetera et cetera over time.

Joe Moore: What are you seeing that's driving that improvement? I guess Joe, what I would point to the metal that came at. China was a part of it, but it's not all of it. You know, there was an early question about where we have with Ivan with memory. Yeah, it's it's getting pulled in. I mean, customers wanted sooner we can ship. You've got a transition from DDR 4 to DDR 5 with these new CPUs that are out there. So that also is a little bit of a bright spot. So I guess I'd point to both of those things as part of what we saw in D-rem.

Got it appreciate the color and then as my follow up.

One for Doug on the 2024 model you talked about.

<unk>.

Normalizing and you guys potentially experiencing some headwinds in gross margin and you also talked about.

24, potentially being a growth year from an R&D spending perspective.

On gross margins I guess, what's the baseline that we should be working off of Q4.

Joe Moore: Yeah, no, I think that's that's that's pretty much it. I mean, if we've said before, you also have this transition to higher, higher sizes, which ultimately will be a driver of wafer outs and therefore equipment demanded, probably starting to see some of the initial phases of that right now as well.

Right.

A good starting point or is that still kind of high given where China is.

And then from an R&D.

Spending perspective, I guess relative to answer if you can kind of.

Hold our hand, and quantify how low leverage could be in 24 versus history that would be super helpful.

Timothy Archer: Great. Thank you. And then in your upfront remarks, Tim, I think you talked about trailing edge, but you're a node somewhat weaker outside of China. Can you, you know, is there something there that could be a trend? Or is that just kind of more of a one quarter phenomenon? Well, obviously, since we're not getting future quarters of the night. Yeah, I don't I think it's just somewhat natural in general. I mean, we've seen in certain segments, you know, very high spend rates as companies have looked to bring on capacity to meet demand and these mature nodes.

Yes.

Yes.

Alright.

Give you a couple of <unk>.

Data points may be very little bit of color, but I'm not going to guide next year, yes.

Yes, we are still at an elevated level of gross margin from customer mix relative to where I think things normalize.

Maybe a good way to think of it is go back to the June quarter, which was before we saw lots of this China favorable mix thats not an unreasonable baseline to start from for gross margin.

So anyway I don't know if thats helpful. And then I guess, what I would describe from an R&D standpoint.

Timothy Archer: And in our industry goes through digestion phases where those tools have then started up and you get output and you sort of figure out whether demand is is there that requires more. And it's what makes our investment cycle somewhat lumpy. And I think that's what we're really looking at right now. And it's long term demand, which we believe long term demand for Senate conductors is is growing. Eventually, you come back and put in more more capacity into those tabs as well.

R&D quite frankly has to follow a cadence independent of the level of revenue sometimes.

I don't know what Wip next year is going to be.

Timothy Archer: Great. Thank you. Thanks. Thank you.

I don't know what our top line is going to be quite yet we'll give you. Some color next quarter, but I do know, we see an enormous number of opportunities around these technology inflections that if we don't invest right now three or four years from now we'll look back and say why didn't we gate all around Tim talked about backside power there's high bandwidth.

Timothy Archer: And our next question today comes from to see a hurry with Goldman Sachs. Please go ahead. Hi, guys. Thank you so much for taking the question. I had a follow up question to Joe's question on on China trailing edge. And Tim, I apologize if I missed this, but can you point to any end markets or any device types that that's driving the near term we can't find out how, you know, big or small of a market.

And then there's so many things.

That play to the strength of what we do well.

I think if you look at the December quarter, and compared to December spending is up.

The March quarter independent of the fact that we're going to invest more in R&D is a 14 week quarter.

So you've got to comprehend that and then we're going to grow R&D as we go into next year, maybe a little bit independent of blood revenue turns out to be.

Timothy Archer: This is for you guys today. I'll take a note. I'll let Tim add on. You know, it's a broad set of customers investing. When you look at this, the specialty nodes. I mean, it's, it's across multiple customers, unlike like leading edge foundry as an example. And so I can't really point to any one or another for you. And quite frankly, you know, I think we all know there's inventory out there and a lot of these device types, but these are long term investments as well, right.

I guess, what I would want you to think about as you know historically when when business grows at <unk>.

Seen nice leverage in the model.

It's maybe going to flatten out a little bit honestly is how I'm trying to come to you to think about it a little bit and again, that's because we see a lot of opportunities.

That we think play to the strength and Theres going to set us up to win in the longer term I don't know if that helps you.

Timothy Archer: This isn't something that comes one quarter and then goes away just because of what's happening in the near term marketplace, but it isn't any one segment or another. She is just kind of the broad set of customers. The only thing I would add is I think this is going to be an area that I think we're going to have to sort of accept to be a little harder to forecast from standpoint that it's also part of the market that is impacted by a number of the different tips that type government support activities around the world.

Yes, it makes sense I appreciate that color Doug.

Okay. Thank you.

Next question today comes from Vivek Arya with Bank of America Securities. Please go ahead.

Alright, Thanks for taking my question for the first one I'm trying to understand the usual kind of between the recovery in your <unk> business.

And your memory systems, so how effective of a leading indicator of CSB G. A company and what is it telling you right now, but conceptually when memory system orders recovered like as it did in Q1 Q2 Q3 of.

Timothy Archer: And so, you know, you may see as certain regions try to build out their capabilities, we may not be able to point in that moment to the demand being greater than we supply. And that's why they're investing and done said, this is about long term build out what I think everybody sees as a much bigger demand for these types of devices over all these various types of applications and in automotive and IOT and see much interest sensors, etc.

Of next year like what has been that desktop historically and what is that getting you right now about when your memory system orders getting together.

Yes.

First I would point out the fact that it's.

Been a long time, if ever that we've seen in fab utilizations quite this low.

The prior commentary had been that.

Spares generally grows every year because the installed base continues to get bigger.

Timothy Archer: Over time. I got it. I appreciate the color. And then as my follow up one for Doug on the 2024 model, you talked about, you know, Nick's normalizing and you guys potentially experiencing pets from headwinds and gross margin. You also talked about 24 potentially being the growthier from an R&D spending perspective. So I guess on gross margin, I guess what's the baseline that we should be working off of is a Q4 rate, you know, a good starting point or that they'll kind of high, given where China is, and then from an R&D spending perspective, I guess relative to history, if you can kind of, you know, hold our hand and quantify how low leverage could be in 24 versus history.

One piece of that is true as the installed base continues to get a lot bigger.

In fact, we've said it's up more than 40% since the last.

Cyclical downturn so.

The fact that we've seen in spares and upgrades and all of these things sort of be off all at one time is pretty unique.

We are anticipating that is fabulous Asian starts back we will see spares.

Spares come back and I think the one thing that that will come back and it's a little hard to predict as certain as the technology upgrades portion of this it's been now.

A couple of years since any of these tools have been upgraded and that will have to happen in terms of your.

Your comment about offset I think.

Typically as customers are concerned the pills back on.

Timothy Archer: That would be super helpful. Is it, you know, I'll give you a couple of data points. Maybe you're a little bit of color, but I'm not going to guide next year. Yeah, we're still at an elevated level of gross margin from customer mix relative to where I think things normalize. Maybe a good way to think of it is go back to the June quarter, which was before we saw lots of this China favor will mix.

You are probably a couple of quarters away from seeing.

Further further investments in the technology upgrades and then I think when you're really talking about capacity adds.

It is hard to predict what the timeframe is because it really depends on many other factors about.

Our customers use of long term demand. So I think the one thing we are certain is that we're at very low points now, we would anticipate things like utilization and spares and upgrades to start improving next year and beyond that I think we'll wait until January to give you a better better view.

Timothy Archer: That's not an unreasonable baseline to start from for gross margin. So anyway, I don't know if that's helpful. And then I guess what I described from an R&D standpoint, you know, that R&D quite frankly has to follow a cadence independent of the level of revenue sometimes. I don't know what WFP next year is going to be. I don't know what our top line is going to be quite out. We'll give you some color next quarter, but I do know we see an enormous number of opportunities around these technology and collections that if we don't invest right now.

Alright, and so my follow up another China related question.

Part of your second half strength game I believe from clarification of some rules and I was hoping you would quantify how much of that strength you saw in your shipments came from just back.

Clarification, and does that kind of spillover to early 'twenty, four and I'm just trying to tease apart how much is sort of sustainable China strength versus how much is potentially from one of clarification.

Timothy Archer: Three, four years from now, we'll look back and say why didn't we get all around can talk about backside power. There's high bandwidth number. I think there's so many things that play to the strength of what we do well. So I think if you look at the December quarter and compared September settings up, the March quarter independent of the fact that we're going to invest more in R&D is a 14 week quarter.

Or maybe if those were not one off write maybe there also.

So just.

If you could give us some way too.

Guide Us how we should think about China conceptually in your first half of next year.

Yes, we're not going to guide next year quite yet, but the clarification on the rules. We described isn't changing sure. Frank So we understood one know that a certain customer was doing was okay to ship to the rules didn't change. We just had to do a little work to understand that collectively as an industry, that's not going to go away.

Timothy Archer: So you got to comprehend that. And then we're going to grow R&D as we go into next year. Maybe a little bit independent of what revenue turns up to be. I guess what I would want you to think about is, you know, historically when when business grows at lamb, you've seen nice leverage in the model. It's maybe going to flatten out a little bit, honestly, is how I'm trying to like counsel you to think about it a little bit.

Having said that also what our commentary on the call. So far has been I don't know if China is up down or sideways next year, but it's not going away.

When we talk to our customers in China. They all communicate roadmaps have multi year horizon in front of them nothing new came from the regulations that you saw yesterday, so I see a level of sustainability in China as we go into next year and frankly beyond they have long term objectives.

Timothy Archer: And again, that's because we see a lot of opportunities that we think played at the strength and are just going to set us up to win in the longer term. I don't know if that helps. Yeah, it makes sense. I appreciate the college doc.

Timothy Archer: Okay.

Timothy Archer: Thank you.

Alright. Thank you. Thank you Dan.

Vibach: And our next question today comes from Vibach. Are you with Bank of America securities? Please go ahead.

Thank you and our next question today comes from Stacy <unk> with <unk>.

Vibach: Thanks for taking my question. For the first one, I'm trying to understand the usual data between the recovery and your CSBG business and your memory systems. So how effective of a leading indicator is CSBG recovery and what is it telling you right now about conceptually when memory system orders recover like is it in Q1, Q2, Q3 of next year? Like what has been that delta historically and what what is that telling you right now about when your memory system orders?

<unk> research. Please go ahead.

Hey, guys. Thanks for taking my questions.

So my question first question.

You talked about in your WMC uptick non lamb markets driving some of that I oversimplify, you're just talking about with or do you have something else in mind when you made that statement.

So this is primarily litho litho and these restricted fabs in China that we didn't have complete visibility into what they were doing frankly it was those two effects.

Vibach: and Heather. Yeah, I mean, we've, I'm first by what point out the fact that it's been a long time, if ever, that we've seen fabulousizations quite this low. I mean, our prior commentary had been that, you know, spares generally grows every year because the install base continues to get bigger. One piece of that is true is the install base continues to get a lot bigger. And in fact, we've said it's up more than 40 percent since the last cyclical downturn.

Got it you have better visibility now.

I think we do that's why we updated the number.

We never get this exactly right, but we try to tell you. What we think we're now facing some of our visibility comes from the fact that our peer companies are reporting on the business and really their markets. So as the year goes on we try we try to give you a view of the whole market, but obviously were where most accurate on the land business.

Vibach: And so, you know, the fact that we've seen spares and upgrades and all these things sort of be off all at one time is pretty unique. We are anticipating that if that utilization starts back, we'll see spares come back. And I think the one thing that that will come back and it's a little hard to predict that is certain is the technology upgrades portion of this. It's been now a couple of years since any of these tools have been upgraded and that will have to happen.

Got it got it but to be clear I think you said there is no change to your forecast for the land business for the year whatever that forecast that's right because we haven't we understand that <unk> quite well.

Got it got it and so for my follow up I wanted to go back to the leverage question for next year. So I understand you are talking about like leverage like maybe flattening out or is that just a statement you just think opex I mean, just to put on the table opex growing with revenue whatever revenue is or given the gross margin compression that we would probably see at least from the current levels do you think operating margins year over year could actually go.

Vibach: From this year coming about offset, I think we'll, you know, typically as Duster has started to turn the tools back on, you're probably a couple of quarters away from seeing, you know, further investments in the technology upgrades. And then I think when you're really talking about capacity ads, you know, it's hard to predict with that time because it really depends on many other factors about our customers' use of long-term demands. So I think the one thing we're certain is that we're at very low points now. We would anticipate things like utilization and spares and upgrades to start improving next year. And beyond that, I think we'll wait until January to give you a better view.

Could decline next calendar year.

Just how do we kind of help us different basis.

Especially if you look at what Lansdowne over the last decade.

Decade, frankly, we've expanded margin as revenue has grown at this point Im not sure what revenue is going to be next year, but I know, we're going to invest more in R&D.

Trying to describe because we see all of these opportunities and yes.

Referred to the fact that we've got pretty favorable customer mix lastly, mitigates somewhat next year and so when you think about those two things.

Possible to think about kind of margin margin flattening off for a period of time.

Vibach: And for my follow-up, another China related question. Part of your second half strength came, I believe, from clarification of some rules. And I was hoping you would quantify how much of that strength you saw in your shipments came from just that clarification. And does that kind of spill over to early 24? I'm just trying to tease apart how much is sort of sustainable China strength versus how much is potentially from one-off clarification in rules.

Our long term profit objectives are unchanged.

Vibach: Or maybe those were not one-off, right? Maybe they're also sustainable. So just, you know, if it could give us some way to, you know, guide us to how we should think about China conceptually in your first half of next year. Yeah, we're not going to guide you next year quite yet, but the clarification of the rules we described isn't changing. So we understood one note that a certain customer was doing was okay to ship to, the rules didn't change, we just had to do a little work to understand that collectively as an industry, that's not going to go away.

So I do want to reiterate that point as well.

Got it that's helpful. Thank you guys.

Thanks Joseph.

Thank you and our next question is from Heiko.

Our next question comes from showing in for Jeremy with Raymond James. Please go ahead.

Thank you I have a couple of longer term questions Tim.

I guess, if I look at the last five years your logic and foundry business has been growing almost at a 30% rate and historically.

Memory was close to 60% and now I think the bottom kind of moving from 27 to 38 or so this quarter I'm. Just curious how do you think about the mix longer term I guess when things normalize for you and what is I think in your view what do you think is the ideal mix for you and what implications if any that might have.

On your top line growth going forward.

Yes.

<unk>.

It's a good question, it's a hard question to answer because the actual our view is we want more of everything.

Vibach: You know, having said that also, what are commentary on the call so far has been, you know, I don't know if China's up to on our sideways next year, but it's not going away. It's, when we talk to our customers in China, they all communicate road maps that have multi-errorizons in front of them. Nothing new came from the regulations that you saw yesterday. So I see a level of sustainability in China as we go into next year. And frankly, beyond, they have long-term objectives.

We're not looking to reduce our position in memory just to make the mix looked better. So we try hard every day, we have a fantastic position in memory and we think there is still more more to come there.

Vibach: Thank you.

Over the next decade, I mean, NAND is going to scale customer same tier 1000 layers and that's a tremendous opportunity for land.

DRAM go into <unk> around the end of the decade tremendous opportunity for Lam. So I'm afraid the memory side will keep growing simply because it is so well suited to our strengths, but you have heard us talk a lot about the fact that we see huge opportunity in the foundry logic side as well and then Doug just talked about spending I mean ive tried to.

Stacy Raskin: And our next question today comes from Stacy Raskin with Bernstein Research. Please go ahead. Hi guys. Thanks for taking my questions. For my question, this question, you know, you talked about in your WTF tick a non-lamp market driving some of that. Am I always simplifying you?

Lay out for you in the last several quarters.

The breadth of opportunities that are ahead of the company many of which not all but many of which are on the foundry logic side I mean, just to kind of recap some of those I mean, the the derived <unk> photoresist and develop when we said that's a $1 billion five dollar opportunity over five years and when you get towards the tail end of that five years I mean, that's a <unk>.

Stacy Raskin: Are you just talking about Litho or do you have something else in mind when you make that? and Statement. It's with all and these restricted tabs in China that we didn't have complete visibility into what they were doing. Frankly, it was those two facts. Got it. You have better visibility now? I think we do. That's why we have to add the number. We never get to this exactly right, but we try to tell you what we think we know.

Revenue, that's growing with the number of expanding <unk> layers at every technology node. After that that's primarily a foundry logic business you talked about gate all around.

Stacy Raskin: Well, Stacy, some of our visibility comes from the fact that our peer companies are reporting on the business and really their markets. So as the year goes on, we try, we try to give you a view of the whole market, but obviously we're most accurate on the, the lamb business. Got it, got it. But to be clear, I think you said there's no change to your, your forecast for the lamb business for the year, whatever that forecast. That's right, because we understand that that WFE quite well. Got it, got it.

$1 billion incremental opportunity for Lam introduces opportunities to win new tools, and selective etch and <unk> and so that Sam expansion for us in foundry logic and opportunity to grow we've talked about advanced packaging.

Everybody seen what's happened with with not only the HCM side of AI, but also the entire formation of these big.

My systems using inner Poseurs plans invested now in panel processing.

Stacy Raskin: And so for my follow up, I want to go back to the leverage question for next year. So I understand. You're talking about like leverage like maybe flattening out.

As a way to ultimately bring down the costs of some of this triplet.

Stacy Raskin: Was that just a statement? You just think OPEX? I mean, just put on table OPEX going with revenue, whatever revenue is, or given the gross margin compression that we're, we're probably see at least from the current levels, like do you think operating margins year over year could actually go could decline next calendar? Or like how do I just how do we think about those those different pieces? Stacy, you know, if you look at what lambs done over the last decade, frankly, we've expanded margin as revenues grown at this point.

These triplet applications and then finally today I just talked about backside power distribution as a new way of.

Being very creative about how to use that the backside of the wafer is additional real estate and it opens up a lot of new opportunities for us and Thats, primarily a foundry logic applications as well so really what we're talking about is Lam has a long way to go to expand our Sam, especially on the foundry logic side, that's where we're investing for and each of these.

Stacy Raskin: I'm not sure what revenues can be next year, but I know we're going to invest more in R&D. That's what I'm trying to do. I'm trying to describe because we see all of these opportunities. And yet I've referred to the fact that we've got pretty favorable customer mix that likely mitigates somewhat next year. And so when you think about those two things, it's possible to think about kind of margin margin planning on for a period of time, our long term profit objectives are unchanged. So I do want to reiterate that point as well. That's helpful.

Douglas Bettinger: Thank you guys.

<unk> is a $1 billion plus opportunity for Lam over the next several years and so.

Douglas Bettinger: Thanks, Stacy.

Unknown Executive: Thank you.

We're pretty excited about that but we're not giving up we're not given up on our strong memory positions.

Thank you I appreciate that answer and then my quick follow up on the HBM.

The technology itself a lot of questions have been asked already just on the capital intensity of HBM, Tim I mean, I know you said the die size is larger and I guess cycle times are longer et cetera, but is there a way to think about capital intensity per wafer or per bit.

Unknown Executive: And our next question today.

Unknown Executive: Excuse me.

Shrinni Pajuri: Our next question comes from Shrinni Pajari with Raymond James. Please go ahead. Thank you.

How we should think about HBM versus traditional DDR.

Shrinni Pajuri: I have a couple of longer term questions to him. I guess if I look at the last five years, your logic and foundry business has been growing almost at a 30% rate. And you know, historically, you know, your memory was close to 60% and now I think we are aware of the bottom kind of, you know, moving from 27 to 38. Or so this quarter, I'm just curious, you know, how do you think about the mix longer term?

Well I think it is.

Don't know that we've quantified that number but it is.

It obviously has a much higher performance guide there.

Device and it does it is bigger in and takes more capital.

And so therefore.

Yes.

It is a performance driven.

Application from our perspective, though what really is is interesting is that many of the new tools.

Shrinni Pajuri: I guess when things normalize for you? And what is I think, you know, in your view, what do you think is the ideal mix for you and what implications, if any, that might have on your top line growth going forward? Yeah, it's a good question. It's a hard question answer because the actual our view is we want more of everything. And we're not looking to reduce our position in memory just to make the mix look better.

Added to enable HBM are lam tools or tools that are in our market things like silicon etch and contemplating for the TSV formation and so that's that's what really makes it a <unk>.

And even better transition.

The company like land.

Got it thanks, Dan.

Yes, Thanks Ryan.

And our next question today comes from Brian Chin with Stifel. Please go ahead.

Shrinni Pajuri: So, you know, we try hard every day. We have a fantastic position in memory and we think there's still more more to come there as, you know, over the next decade. I mean, NAND is going to scale customers paying to a thousand layers. And that's a tremendous opportunity for LAM. DRAM going to 3D around the end of the decade, tremendous opportunity for LAM. So, yeah, I'm afraid the memory side will keep growing simply because it's so well suited to our strengths.

Shrinni Pajuri: But you have heard us talk a lot about the fact that we see huge opportunity in the Foundry Logic side as well. And you know, when I just talked about spending, I mean, you know, I tried to lay out for you in the last several quarters. The breadth of opportunities that are ahead of the company, many of which, not all, but many of which are on the Foundry Logic side. I mean, just to kind of recap some of those.

Hi, good afternoon, thanks for letting us ask a few questions.

So about a week ago.

Relax its licensing requirements for some foreign companies that operate.

More advanced Fabs in China, I know, it's fairly recent but have you seen a positive impact.

Yet from this change in the licensing policy I did note that in talking about China remaining a good concentration in the December quarter. It sounds like maybe there could be some some shifting there between local and maybe foreign domiciled companies.

Shrinni Pajuri: I mean, the dry EUV folder resistance developed when we said that's a billion and a half dollar opportunity over five years. When you get towards the tail end of that five years, I mean, that's a revenue that's growing with the number of expanding easy layers at every technology node after that. That's primarily a Foundry Logic business. We talked about gate all around about a billion dollar incremental opportunity for LAM. Because this is opportunities to win new tools and selective etch and ALB.

Yes, it's pretty in the notes that come into is pretty recent but I think.

Relative to multinationals wherever they operate whether China, where.

Certainty of being able to make the investment in and benefit from that long term is very important so.

Honestly in the last couple of weeks, we haven't seen.

Any movement that we've talked about.

I think long term it allows people it allows our customers don't make the right decisions for them about where to invest and that is especially true. When you think about our installed base and the upgrades to the installed base and our customers willingness to sort of move forward with those upgrades are certainties.

Shrinni Pajuri: And so that's some extension for us in Foundry Logic and opportunity to grow. We talked about advanced packaging. I mean, you've everybody seen what's happened with not only the HBM side of AI, but also the entire formation of these big AI systems using interposers. LAMs invested now in panel processing, you know, as a way to ultimately bring down the cost of some of this chip with the. He's tickled applications. And then finally today I just talked about backside power distribution as a new way of you know being very creative about how to use that that backside of the wait for is additional real estate and it opens up a lot of new opportunities for us and that's primarily a founder logic application as well and so you know really what we're talking about is lamb has a long way to go to expand our Sam especially on the founder logic side that's what we're investing for and each of these is is a billion dollar plus opportunity for lamb over the next several years and so you know we're pretty excited about that but we're not giving up on our strong memory positions thank you appreciate that answer and then my quick follow up on the HBM I guess you know technology itself a lot a lot of questions have been asked already just on the capital intensity of HBM Tim I mean I know you said you know the size is larger and I guess cycle times are longer et cetera but is there a way to think about you know capital intensity per wafer or per bit you know how how we should think about HBM versus you know traditional DDR I think it's a I don't know that we've quantified that that number but it's it obviously is a much higher performance guide that our device and it does it is bigger and and and takes more capital and and so therefore you know it's a it's a performance driven application and from our perspective though what really is is interesting is that many of the new tools that get added to enable HBM our lamb tools or tools that are in our market things like silicon etch and copyplating for the TSV formation and so that's that's who really makes it an even better transition for a next-to-debt company like lamb got it thanks then yes thank you and our next question today comes from Brian Chen with Steve hole please go ahead a good afternoon thanks for laying us ask a few questions so about a week ago the US relaxed its licensing requirements for some foreign companies that operate more advanced ads in China I know it's fairly recent but have you seen a positive impact yet from this change in the licensing policy I did note that in talking about China remaining a good concentration in the December quarter it's not like maybe there could be some some shifting there between local and maybe foreign domicile companies yeah it's a it's pretty you know that that comment is pretty recent but I think relative to multi-nationals wherever they operate whether China where certainty of being able to make the investment and and benefit from that long term is very important so you know obviously in the last couple weeks we haven't seen any any movement that we would talk about you know I think long term it allows people it allows our customers to make the right decisions for them about worth of investment and that is especially true when you think about our install base and the upgrades to the install base and then a customer willing is to sort of move forward with those upgrades for certain things okay that helpful And then, you know, a lot of questions have been asked about sort of service spares and utilization improvements, but I'm curious if memory companies are kind of talking as if they'll realize some of that utilization improvement, not just through increasing wafer starts, but also through summer's reduction in wafer start capacity as they emphasize newer nodes or capital efficiencies is some wafer wafer loss there.

Got it that's helpful.

And then.

A lot of questions have been asked about sort of service spares.

And utilization improvements but.

Just curious if memory companies are kind of talking us they'll realize some of that utilization improvement not just through increasing wafer starts but also through some reduction in wafer start capacity as I emphasized the newer nodes or capital efficiencies and some wafer wafer lost there.

How are you thinking about how that impacts maybe the trajectory of your service and spares revenue growth in calendar 'twenty four.

Yeah.

Well I think that we have to see and we as we said about the it's difficult to predict the pace of the recovery, but what happens. There is we are just trading off one part of our business that CFPB business for another upgrade to happen before spares Youre right. It brings utilization down but there is also something that we've said, which is as technology moves forward.

Any of those applications become more spares intensive because the processes are longer and more demanding and so I would just say that.

We're going to see a rise in both parts of our business as as fab operations recover and customers start to fully utilize the equipment in those statements.

Thanks, Brian .

Yes.

Thank you and our next question today comes from Mehdi Hosseini with <unk>. Please go ahead.

Yes, thanks for taking my question.

Just two quick follow ups.

Pushing things with it but so like power.

Calibrates should I think of what should I think about it more of the three nanometer or extension of three nanometer.

<unk> opportunities materializing, when we migrate to two nanometer when I have a follow up.

Yes.

I think that it's still a little bit out in the future. I mean, you could go look at our customers' Roadmaps and what they've said publicly and I think thats, probably the best estimate for timing on it I think what we're trying to highlight is the fact that.

Or if you think about the challenges across almost every device.

We're becoming more and more convinced that the technology solutions to those challenges involve vertical scaling the move to <unk> and youre seeing that backside power advanced packaging gate all around.

These are.

It is something that is playing extremely well to our strengths in etch and deposition and so tiny.

Timing.

It's hard to predict that the certain relative certainty of those teams is happening is quite high.

Got it and a quick follow up for Doug, What's what should we think of a normalized or normal deferred revenue level.

Yes, maybe in the past in the past I've suggested maybe something around $1 billion is a normalized level and were somewhat elevated from that although longer remained we remain elevated maybe the normalized level picks up a little bit but.

I believe that statement.

Maybe roughly $1 billion.

Okay. Thank you.

Okay.

Thank you and our next question today comes from Chris Caso Wells off research. Please go ahead.

Yes. Thank you. Good evening question is about where you are.

Lead times delivery times are now and generally your ability to react.

When when demand ultimately returns.

Some comments before that your customers.

Think would need to see some significant improvement before they started spending does this mean they have some a little bit of a luxury of time to see things get a bit better before they start calling you and increasing orders.

Yes, I think that.

If we were to go back and talk about lead times compared to pre Covid I would say that generally still extended but for.

For a variety of reasons I mean, I talked about the investments we've made in our supply chain and our manufacturing facilities.

All of that has to be more responsive but.

I think we will be able to respond when realistically when demand starts to come back now in certain areas, it's a little tighter than others and I think that's where again, we still continue to work very closely with our customers to make sure. We have good forecast as we talked about high bandwidth memory has been an area that I think has been.

Shrinni Pajuri: How are you thinking about how that impacts maybe the trajectory of your service and spares revenue growth in counter-24? Well, I think we have to see and we as we said about the it's difficult to predict the pace of the recovery, but what happens there is we're just trading off one part of our business that CSBG business for another upgrade happened before spares you're right, it brings utilization down, but you know there's also something we said which is as technology moves forward many of those applications become for spares intensive because the processes are longer and more demanding and so.

In tighter supply and the good thing about the investments we've made in our global operations as that.

Certain cases, we're able to respond a little bit more quickly than the customers have urgent needs.

Got it thank you as a follow up.

You give a little more clarity on the extra week Youre expecting I think it's in the March quarter.

Shrinni Pajuri: So, you know, I would just say that, you know, we're going to see a rise in both parts of our business as as valve operations recover and testers start to fully utilize the equipment in those steps. Thank you.

Both on it do you expect the revenue impact from that extra week and what do you expect the cost impact to me.

Usually you don't really see much of a revenue impact frankly, you kind of manage that based on what customer wants win but I know for sure with an extra week 14 weeks. Instead of 13, you got more salary expense you got more time to use project materials and whatnot.

Timothy Archer: And the next question today comes from Medi Hussani Hussani with SIG, please go ahead. Yes, thanks for taking my question. Just two quick follow-ups opportunities with the back. So, how are we should I think about more of a three nanometer or extension of three nanometer or do the opportunities materializing when we migrate to two nanometers when I have a follow-up? Yeah, I think that it's still a little bit out in the future.

I don't know I Didnt give you a specific number but I think it's pretty well chronicled out there when people have the quarter coming in like this how much spending goes just because of it.

I am not going to put a number on it but.

Can you just think about 14 versus 13.

Got it we can do the math thank you.

Thanks, Chris Operator, we have time for one more question. Please yes, ma'am. Your final question will be from Sidney Ho with Deutsche Bank. Please go ahead.

Timothy Archer: I mean, you could go look at our customer's road maps and what they said publicly and I think that's probably the best way to put timing on it. I think what we're trying to highlight is the fact that, you know, if you think about the challenges across almost every device, would be coming more and more convinced that the technology solutions to those challenges involve vertical scaling, the move to 3D, and you're seeing that backside power, advanced packaging, data all around.

Hey, Thanks for squeezing me in.

In the past you guys talk about spending recovery will go into several faces in treating utilization to tech upgrades and then capital capacity expansion one of your memory customers talk about.

Inverting some excess capacity that drop in the advanced node.

You're seeing that.

<unk> happening across other memory suppliers and how does that change your view in terms of the timing of capacity expansion.

Timothy Archer: And these are it's it is something that is playing extremely well to our strengths in etching deposition. And so timing, you know, it's hard to predict that the certain relative certainty of those changes happening is quite high. Got it.

You were breaking up a little bit I think you were asking about the cadence of when utilization comes back what we think will happen I think that was your question.

Douglas Bettinger: And a quick follow-up for Doug, what what should we think of a normalized or normal different revenue level? You know, maybe in the fact in the past, I suggested you know, maybe something around a billion dollars is a normalized level and we're somewhat elevated from that. The longer we remain we remain elevated, maybe the normalized level picks up a little bit, but I'll leave that statement what I said, maybe roughly a billion dollars. Okay, thank you. Thank you.

I think what I would tell you first spares comes back.

Youll see upgrades and upgrades will have to happen because honestly some of the customer base has taken some things offline. So there is a spend that needs to occur to get that back online and up to speed and then eventually new equipment gets purchased that Hasnt changed.

Okay.

My question was more about some of your customers actually trying to convert some of the excess capacity.

Brian Chen: And our next question today comes from Chris Keso with Wolf Research. Please go ahead. Yes, thank you. Good evening. Good question is about where your lead times, delivery times are now and generally your ability to react. You know, when, when demand ultimately returns, you, you made some comments before that your customers, you think would need to see some significant improvement before they started spending, you know, does this mean they have some, a little bit of luxury of time to, you know, see things, get a bit better before they, they start calling you in increasing orders.

Dressed advance notice, meaning that it seems like that alright.

That timeline as contract you're seeing all the memory supply chain.

We don't talk about any one customer or another but that will show up in that upgrades commentary that I was talking about the stuff that gets taken offline and eventually needs to get upgraded the upgrade spend and CSB Jake.

Brian Chen: Yeah, I think that, you know, if we were to go back and talk about these times, compared to pre-COVID, I would say that, you know, generally still extended, but for, for a variety of reasons, I mean, I talked about the investments we've made in our supply chain, in our manufacturing facilities, you know, a lot of that has to be more responsive, but, you know, I think we, we will be able to respond when, you know, realistically, when demand starts to come back. Now, in certain areas, it's a little tighter than others, and I think that's where, again, we still continue to work there, closer to our customers and make sure we have, good forecasts, as we talked about, high bandwidth memory has been married, that I think has been in tighter supply, and, and the good thing about the investments we've made in our global operations is that, you know, in certain cases, we're able to respond a little bit more quickly than customer subverting.

Okay.

Maybe last question for you given your position in <unk>.

<unk> timeline changed at all in terms of when do you expect to see gate all around the west compared to three months ago, maybe just remind us when that is going to happen and what are the leading indicators you're watching to gauge that timeline.

Thanks.

Yes.

I don't know that our timing on gate all around has changed much from three months ago I think that again it's.

It's a means of scaling device performance and device performance some of them, it's important for our customers and their end applications. So.

We're just we're just engaged with customers to make sure our tools get.

Qualified into those those new nodes.

And when they decide to ramp them with VW as well.

Okay. Thank you. Thanks Yep. Thank you.

Thank you operator question and answer session I would like to turn it back over to the management team for closing remarks.

Thank you operator, and we appreciate everyone for joining thank you for your time today.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Brian Chen: Yeah, thank you. As a follow-up, if you give a little more clarity on the extra week you're expecting, I think it's in the March quarter, you know, both on, it do expect a revenue impact, from that extra week, and, and what do you expect the cost impact to be? Yeah, usually you don't really see much of a revenue impact, frankly. You, you kind of manage that based on what customer wants when, but I know for sure, with an extra week, you know, 14 weeks instead of 13, you got more salary expense, you got more time to use project materials and whatnot.

Brian Chen: I don't know, I didn't give you a specific number, but I think it's, it's pretty well chronicled out there when people have the quarter coming in like this how much spending grows just because of it. I'm not going to put a number on it, but you just think about 14 versus 13. Got it. We could do the math.

Brian Chen: Thank you.

Sydney Hill: Operator, we have time for one more question, please. Yes, ma'am, our final question will be from Sydney. Hello, we're doing tonight. Please go ahead. Thanks for speaking again. In the past, you guys talk about memory spending recovery will go in several cases from increasing the realization to tech upgrades and capital capacity expansion. One of the memory customers talk about converting some of this success capacity to developing games notes.

Sydney Hill: Are you seeing that dynamics happening across other memory suppliers, and how does that change of view in terms of the timing that capacity expansion? You know, Sydney, you were breaking up a little bit. I think you were asking about the cadence of when utilization comes back what we think will happen. I think that was your question, and I think what I would tell you first, bears come back. Second, you'll see upgrades and upgrades will have to happen because honestly, some of the customer base is taking some things offline. So there's a stand that needs to occur to get that back online and up the speed and then eventually new equipment gets purchased. That hasn't changed.

Timothy Archer: Okay, so my question was more about some of the customers actually trying to convert some of the excess capacity to address the advanced notes, meaning that that timeline is compressed. Are you seeing all the memory supply? Srinivas Pajjuri What are the leading indicators you're watching to gauge that timeline? Yeah, I don't know that our timing on gait all around has changed much from three months ago. I think that again, it's the means of scaling device performance and the device performance is important to our customers in their applications. So, we're just engaged with customers and make sure our tools get qualified individuals, those new knowns, and when they decide to grant them, they'll be ready as well.

Timothy Archer: Okay, thank you.

Unknown Executive: Thank you.

Unknown Executive: I'd like to turn it back over to the management team for closing remarks. Thank you all. Later and we appreciate everyone for joining. Thank you for your time today. Thank you.

Unknown Executive: This includes today's conference call.

Unknown Executive: We thank you all for attending today's presentation.