Q2 2024 Lam Research Corp Earnings Call

Good afternoon, and welcome to the Lam Research Corporation December 20th twenty-three quarterly earnings 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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Please note this event is being recorded.

Speaker Change: I would now like to turn the conference over to Rob Ganache head of Investor Relations. Please go ahead.

Rob Ganache: Thank you and good afternoon, everyone and welcome to the Lam Research quarterly earnings Conference call with me today are Tim Archer, President and CEO, and Doug Bettinger Executive VP and Chief Financial Officer. During today's call. We will channel overview on the business environment and will review our.

Doug Bettinger: <unk> for the December 'twenty, two 'twenty three quarter and our outlook for the March 'twenty 'twenty four quarter.

Doug Bettinger: The press release detailing our financial results was distributed a little after one PM Pacific time.

Rob Ganache: The release can also be found on the IR section of the company's that side along with the presentation slides that accompany today's call.

Doug Bettinger: Today's presentation and Q&A include forward looking statements that are subjects subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings.

Doug Bettinger: Please see accompanying slides in the presentation for additional information.

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

Doug Bettinger: Otherwise specify.

Doug Bettinger: A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation.

Doug Bettinger: This call is scheduled to last until three PM Pacific time, a replay of this call will be made available later this afternoon on our website.

And with that I'll hand, the call over to Tim.

Timothy M. Archer: Thank you, Rob and welcome everyone.

Timothy M. Archer: Lam delivered strong performance in the December quarter revenues gross margin operating margin and EPS all above the midpoint of our guided ranges.

Our results for December closeout of calendar year, 2023, and which Lam executed well amid a decline in overall wafer fabrication equipment spending.

Doug Bettinger: Compared to the prior cycle trough in calendar 2019, we achieved a near doubling of EPS.

Doug Bettinger: There are a few reasons why Lam has evolved stronger cycle to cycle first we have improved our positioning in the foundry logic and specialty technologies segments through sustained investments in innovation and new products. As a result, we have grown our total non memory revenue share and we continue to gain momentum and key.

Doug Bettinger: Technology inflections.

Doug Bettinger: Second we have delivered tremendous growth in our customer support business group Lamb ended calendar 2023 was approximately 90000 chambers in the field and installed base almost 50% larger than in the previous cycle.

Doug Bettinger: The SPG revenue has grown by more than 80% from 2019 levels.

Doug Bettinger: And finally, we have further improved our ability to manage costs and drive operational efficiency through cycles.

Doug Bettinger: Operating margins in 2023 that was nearly two five points higher than the prior trough.

Turning to <unk>, we estimate that 2023 spending ended in the low $80 billion range.

Doug Bettinger: Is up slightly from our prior view driven by continued strength in domestic China spending predominantly in equipment segments, where we do not participate.

Doug Bettinger: Overall memory Wip was down nearly 40% year on year led by cuts in NAND spending of more than 75%.

Doug Bettinger: Non memory WP decreased in the mid single digits range with mature node growth in China, partially offsetting declines in leading edge node spending and the rest of the world.

Doug Bettinger: As we enter 2020 for the business environment remains muted. However, we expect a modest recovery in memory spending to drive a stronger exit to the year.

Doug Bettinger: Our early view of WP spending for calendar 'twenty 'twenty four is in the mid to high $80 billion range.

Doug Bettinger: Growth in DRAM will be driven by capacity additions for high bandwidth memory as well as node conversions NAND spending increases will largely come from technology upgrades we.

Doug Bettinger: We see foundry and logic spend growing in 2024 with higher leading edge investment offset in part by declines in mature node investment outside of China.

Doug Bettinger: Overall, we believe domestic China spending will be stable in 2024.

Doug Bettinger: Longer term the setup for WP investment is robust with semiconductors semiconductor revenues widely expected to reach a trillion dollars around the end of the decade and device manufacturing complexity continuing to rise we believe <unk> spending will need to roughly double from today's levels.

Doug Bettinger: Lamb served markets of etch and deposition should outpace growth in Wi Fi overall.

Doug Bettinger: For this reason we have been executing a series of strategic actions to best position. The company for the growth opportunity ahead. Importantly, we have remained committed to these initiatives despite the challenging spending environment over the past several quarters.

Doug Bettinger: First is our commitment to R&D, including planned spending increases in calendar year 2024 to extend our differentiation in products and services targeted at next generation semiconductor device inflections.

Doug Bettinger: This next era in semiconductors will be defined by the broad move towards three D architectures and advanced packaging to solve scaling challenges. We believe this will in turn drive an increase in etch and deposition intensity over the long term.

Doug Bettinger: Our focus is on multiple billion dollar Sam expansion opportunities across memory and foundry logic.

Doug Bettinger: We have profiled our advances and gate all around bauxite power delivery advanced packaging and dry easily be patterning over the past several quarters and our solutions are continuing to gain traction with customers.

Doug Bettinger: In the December quarter, we secured additional advanced packaging wins for high bandwidth memory, which is critical for enabling advanced AI servers.

Rob Ganache: Our <unk>, our sabre <unk> tools best in class plating uniformity, along with our ability to demonstrate an overall cost of ownership advantage made lam the clear choice over a large competitor in.

In 2024, we expect our HBM related DRAM and packaging shipments to more than triple year on year and outpaced <unk> growth in this segment by a significant margin.

Rob Ganache: The specialty technology markets are also yielding a diverse set of new opportunities for Lam.

Rob Ganache: For instance, we have recently delivered pulse laser deposition technology to customers targeting high volume manufacturing of Mems and next generation high frequency devices.

Rob Ganache: We accelerated our entry into this market by integrating technology, we obtained via small acquisition onto our production proven land platform.

Rob Ganache: Compared to competing deposition methods Lam solution enables more highly dope scandium aluminum nitride films, which delivered the piece of electric performance and cost our customers require.

Rob Ganache: The second area of focus for Lam has been our investment in facilities close to our customers.

Rob Ganache: By establishing process development capabilities near our customers R&D Fabs, we are maximizing collaboration and accelerating time to solutions.

Rob Ganache: We have also made progress ramping supply chain and manufacturing operations within our customer ecosystems.

In region capabilities enhance our responsiveness and resilience for customers and create significant economic value for Lam as we leverage the benefits of global flexibility.

Rob Ganache: Our new manufacturing facility in Malaysia is poised to fully scale in the coming Wi Fi upturn.

Rob Ganache: Riding us the capability to nearly triple the percentage revenue contribution from our lower cost manufacturing location versus a few years ago.

Rob Ganache: And finally <unk>.

Doug Bettinger: Lamb is concentrated on reengineering, our business processes and systems to drive operational excellence and greater scale invest.

Doug Bettinger: Investments in digital capabilities like virtual twinning advanced simulation and AI are helping us to accelerate problem solving and we're building equipment intelligence capabilities and in Fab service automation into our most advanced product Roadmaps.

Rob Ganache: As we complete our reengineering efforts. We are also intent on achieving organizational agility. In this regard we are announcing a small workforce reduction predominantly at the executive level to align our resources with our execution priorities and drive efficiency and speed of decision making.

Rob Ganache: In calendar 2023, Lam delivered solid results, while investing to build strong capabilities for the future.

Looking forward I am confident that our strategic global infrastructure and differentiated technology portfolio provide lam with the tools, we need to capitalize on the robust semiconductor growth expected in the years ahead.

Rob Ganache: Thank you and now he is done.

Timothy M. Archer: Great. Thank you Tim good afternoon, everyone and thank you for joining our call today during what I know is a busy earnings season.

Doug Bettinger: We delivered strong financial results in calendar year 'twenty to 'twenty three.

Doug Bettinger: Our revenue came in at $14 $3 billion and diluted earnings per share of $27 and 33.

Doug Bettinger: We're pleased with the company's execution during the year, where the memory WFAN mix reached historic lows.

Doug Bettinger: Most of them the details of our December quarter results.

Doug Bettinger: Revenue for the December quarter was $3 76 billion, which was up 8% from the prior quarter and down 29% from a year ago.

Doug Bettinger: Our deferred revenue balance at the end of the quarter was $193 billion, which was an increase of $238 million from the September quarter.

Doug Bettinger: Which was mainly tied to growth in customer advanced payments.

Doug Bettinger: We continue to have a higher deferred revenue balance versus historic levels, given these customer advance payments.

Doug Bettinger: From a segment perspective December quarter systems revenue and memory was 48%.

Doug Bettinger: Which is an increase from the prior quarter level of 38%.

Doug Bettinger: The growth in the memory segment was led by DRAM.

Doug Bettinger: Which was at record levels on a dollar basis coming in at 31% of systems revenue compared with 23% in the September quarter.

Rob Ganache: DRAM is benefiting from growth in high bandwidth memory capacity and the move to DDR, five which is needed to address AI related workloads and it's also benefiting from shipments to China.

Rob Ganache: As we've noted in prior quarters non volatile memory W. P was at historic lows on a mixed basis in 2023.

For the December quarter. This segment represented 17% of our systems revenue, which was up a little bit from 15% in the prior quarter.

The slight growth was predominantly related to investments in certain technology projects.

Rob Ganache: NAND customers have aggressively reduced capacity throughout the year to bring inventory levels down.

Rob Ganache: Yeah.

Rob Ganache: The foundry segment represented 38% of our systems revenue, a little higher than the percentage concentration in the September quarter of 36%.

Rob Ganache: Growth was driven by new fab shipments in various regions across several process nodes.

Rob Ganache: The logic and other segment was 14% of our systems revenue in the December quarter, which was down from the prior quarter level of 26%.

Rob Ganache: The decline was driven by general mature node softness.

Speaker Change: As well as the timing of customer projects.

Speaker Change: Overall in the foundry logic.

Speaker Change: We've performed well delivering on the share gains that we've previously been discussing with you.

Speaker Change: Now I'll discuss the regional composition of our total revenue the China region came in at 40%, which was down from 48% in the prior quarter.

Speaker Change: Most of our China revenue in the last two quarters was from domestic Chinese customers and.

Speaker Change: And we expect spending from this region to be stable overall in 2024.

Doug Bettinger: China as a percent of our revenue is expected to stay relatively high in the March quarter.

Doug Bettinger: But it likely trends lower as the year progresses.

Doug Bettinger: Our next largest geographic concentration was Korea at 19% of revenue in.

Doug Bettinger: In the December quarter versus 16% in the September quarter.

And finally, Japan, and Taiwan rounded out the remaining our top four regions.

Doug Bettinger: The customer support business group generated revenue in the December quarter of nearly $1 5 billion up 2% from the September quarter, and 16% lower than the December quarter and calendar year 2022.

Doug Bettinger: Overall, the business was steady and we continue to see our memory customers operating the fabs at very low utilization rates.

Doug Bettinger: Given the strength of being installed base units, we have a strong foundation for growth and technology conversions and utilization rates resumed growing.

Doug Bettinger: Spares, followed by the reliant product line continued to be the two largest components of CSB G.

Doug Bettinger: Turning to the gross margin performance for the December quarter came in at 47, 6%, which is above the midpoint of guidance and generally in line with September quarter level, which was 47, 9%.

Doug Bettinger: We've improved elements of our cost structure during the year and delivered on our commitment to improve gross margin from the 2023 March quarter level by approximately one percentage point as we exited the calendar year 2023 for most operational improvements.

Doug Bettinger: December quarter operating expenses were $662 million up from the prior quarter amount of $622 million.

R&D as a percent of spending was higher versus the September quarter coming in at over 69% of total expenses.

Speaker Change: The increased spend reflects our ongoing focus on extending our product and technology differentiation across those critical inflections that Tim mentioned earlier.

Speaker Change: We will continue to grow investments across multiple market segments to support the long term strategic objectives for ongoing company outperformance.

Speaker Change: Operating margin for the current quarter was 30% in line with September quarter level of 31% and above the midpoint of our guidance, primarily because of the stronger gross margin performance.

Speaker Change: Our non-GAAP tax rate for the quarter was 12, 3% generally in line with expectations.

Speaker Change: Looking into calendar 2024, we believe the tax rate will be in the low to mid teens, what's the normal fluctuations quarter by quarter.

Speaker Change: Other income expense for the December quarter came in at $5 million in income compared with $7 million of income in the September quarter.

Speaker Change: The slight fluctuation in Hawaii was mainly due to variations in exchange rates.

Speaker Change: <unk> will continue to be subject to market related fluctuations that could cause some level of volatility each quarter.

Speaker Change: On the capital return side, we allocated approximately $640 million to open market share repurchases and we paid $264 million in dividends in the December quarter.

Speaker Change: For the 2023 calendar year, we returned 79% of our free cash flow totaling $3 $8 billion.

Speaker Change: This was largely consistent with our long term capital return plans of 75% to 100%.

Speaker Change: December quarter diluted earnings per share was $7 52.

Speaker Change: The midpoint of our guidance.

Speaker Change: Diluted share count rounded down to 132 million shares on track with our expectations and down from the September quarter.

Speaker Change: During 2023, we repurchased nearly 5 million shares through our share buyback program.

And I would just mentioned we have $2 $1 billion remaining on our board authorized share repurchase plan.

Speaker Change: I'm going to pivot to the balance sheet, our cash and short term investments at the end of the December quarter totaled $5 $6 billion.

Doug Bettinger: Up from $5 $2 billion in the September quarter.

Doug Bettinger: The increase was largely due to collections offset by cash allocated to share repurchases dividend payments and capital expenditures.

Doug Bettinger: Overall 2023 was a record year for cash flows from operations coming in at $5 3 billion.

Days sales outstanding was 66 days in the December quarter, which was a decrease from 73 days in the September quarter.

Doug Bettinger: As a result of our operational focus and execution I'm pleased to report that inventory turns improved to one eight times from the prior quarter level of one five.

We will continue to work on bringing inventory down throughout calendar 2024.

Doug Bettinger: Our noncash expenses for the December quarter included approximately $70 million for equity compensation $78 million for depreciation and $13 million for amortization.

Capital expenditures for the December quarter were $115 million up $38 million from the September quarter.

Spending was primarily centered on product development activities and lab expansions in the United States and Asia supporting our global lab investment strategy.

Doug Bettinger: We ended the.

Doug Bettinger: Excuse me the December quarter with approximately 17200 regular full time employees, which was flat with the prior quarter.

Doug Bettinger: Let's now turn to our non-GAAP guidance for the March 2024 quarter.

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

Gross margin of 48% plus or <unk>, plus or minus one percentage point.

Doug Bettinger: This gross margin guidance is reflected reflective of continued favorable customer mix.

Doug Bettinger: I do expect this favorable mix to mitigate somewhat as the year progresses.

Doug Bettinger: Operating margins of 29, 5% plus or minus one percentage point.

Doug Bettinger: I would again highlight that the March 2024 quarter will have higher spending as it includes an extra week in the quarter.

Doug Bettinger: Which occurs every several years.

Doug Bettinger: Its a 14 week quarter.

Speaker Change: And I will also remind you we will be growing R&D spending this year.

Speaker Change: And finally, we're expecting earnings per share of $7 25.

Speaker Change: Plus or minus 75 based on a share count of approximately 132 million shares.

Speaker Change: We continue to be focused on improving our business operations to optimize efficiency and effectiveness.

Speaker Change: SWF fee growth occurs.

Speaker Change: Our profitability metrics reflect the progress we've made during calendar year 'twenty three.

Speaker Change: Business realignment and transformational activities well underway.

Speaker Change: Well see these activities continue in the first half of calendar year 2024.

Doug Bettinger: Including the cost incurred for these improvement activities and head count reductions that we saw in calendar 2023.

Doug Bettinger: Now expect we'll spend in total $300 million for these actions.

Doug Bettinger: Which will continue to be reported in our non-GAAP adjustments.

Doug Bettinger: I had previously told you we would spend $250 million over 12 months, it's now $50 million higher than six months longer.

So let me conclude over many semiconductor cycles lab has established a proven track record of successfully managing our business.

Doug Bettinger: With the actions we've taken over the course of the last several quarters, we expect to strengthen our operations and technology leadership and further enhance our profitability profile.

Doug Bettinger: When revenue scales into the next upturn Lam will be stronger better positioned and more efficient.

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

Doug Bettinger: We will now begin the question and answer session to.

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

Doug Bettinger: If youre using a speakerphone please pick up your handset before pressing the keys to.

Doug Bettinger: To withdraw your question. Please press Star then two.

Doug Bettinger: Our first question today is from Tim Arcuri from UBS. Please go ahead.

Timothy Michael Arcuri: Thanks, a lot I guess my first question for you Tim is.

Timothy Michael Arcuri: I wondered if you could sort of translate obviously you heard.

Timothy Michael Arcuri: Your big Litho peer that reported today that had these huge orders and it looks like a couple of billion dollars.

Timothy Michael Arcuri:

Timothy Michael Arcuri: <unk> orders for DRAM, so that sort of translates to an extra $9 billion to $10 billion something like that.

Doug Bettinger: It seems mostly for shipments toward the end of this year and even into next year for them. So like maybe you haven't seen that yet but can you talk about what that tells you about the future of of that segment in <unk>.

Doug Bettinger: So you think it's going to be up but it seems like it could be up a lot.

Doug Bettinger: And maybe any change in the planting outlook or the or the.

Speaker Change: The discussions that youre, having with your DRAM customers.

Sure, Thanks, Tim and obviously.

<unk> is a tricky thing to forecast because generally we have a very good view of certain segments of the market.

Doug Bettinger: We tried to give an overall view of WSI and <unk>.

Doug Bettinger: We do that based on listening to peers talking to customers and making our own assessments.

Doug Bettinger: And as we get it wrong and I guess, we're always in a period of.

Doug Bettinger: Adjusting that.

Doug Bettinger: I think though I didnt I don't think Theres anything out there that is completely inconsistent with what we've said we've said <unk> is up this year modestly recovering because of memory.

Doug Bettinger: We see a stronger exit to the year.

Yes, I think to the magnitude I think we were.

Doug Bettinger: We're just going to keep watching it and having those conversations customers in this period lead times of equipment and the framework in which certain pieces of equipment need to be ordered and bought into fabs can differ.

Supplied equipment supplier, maybe theres something at play there.

Doug Bettinger: But I think it.

Doug Bettinger: Probably further reinforces our bullishness that memory has been at a historically low mix.

Doug Bettinger: WMC.

Doug Bettinger: We said that memory spending across both DRAM and NAND. We felt was at unsustainable levels, we sit down pretty much every call last year.

Doug Bettinger: So I think that it's not a surprise that that eventually corrects itself.

Doug Bettinger: What I would point out is that we don't spend a tremendous amount of time trying to get the tiny inaccurate exactly right.

Doug Bettinger: My script, I talked a lot about strategic actions, which.

Doug Bettinger: Play out over years and in fact to catch the DRAM inflections that are coming now.

Doug Bettinger: The strength, we have in high bandwidth memory the positions we have in applications in <unk> and beyond.

Doug Bettinger: Yes, those were established by us seeing DRAM opportunities years ago, and I think we're continuing to report more and more growth in that segment and I think we'll just continue to do that so we.

Doug Bettinger: We checked tend to take a long term view of technology and spending patterns.

Jamie: Jamie start I'll, just remind you something that I know you know very well.

Jamie: Litho lead times are generally much longer than ours are in etch and deposition and you never buy litho without eventually by the process equipment that goes along with it so if they're seeing something we will see it too.

Doug Bettinger: Totally yeah for sure. So I guess I guess for you Doug Super quick so there's kind of a lot of moving parts I know going on in gross margin I know that the mix is helping you and I know, you're probably getting some tailwind from some cost relief and things like that so what's the right normalized margin I know, maybe 48 is not the right normalized number but is it.

Doug Bettinger: Like is the mix, helping you by 50 basis points and that's what sort of goes away can you sort of help us there. Thanks.

Doug Bettinger: Yes, Tim I'll remind you of what I said last quarter still kind of the same thing.

Doug Bettinger: Customer mix is benefiting us again in the March quarter guide, maybe even a little bit more than it did last quarter.

Doug Bettinger: I took you back to that June quarter of last year before we had such a favorable geographic mix and that largely is what's driving the customer mix.

We were around 46% gross margin 45, seven I think if I remember the June quarter specifically.

Doug Bettinger: It's not a bad place to kind of start when when mixed normalizes back to maybe.

Doug Bettinger: More normal levels.

Doug Bettinger: So think about it that with somewhere in between there.

Doug Bettinger: And where we are here these operational improvements so that we've been talking about are real things and as growth resumes and we know growth will resume at some juncture.

Doug Bettinger: We should benefit from like repositioning the company to these lower cost locations. So that's still on the come line.

Doug Bettinger: But it will require some level of growth in the business.

Doug Bettinger: Thank you Doug.

Doug Bettinger: Thanks, Tim.

Doug Bettinger: The next question is from Harlan sur with Jpmorgan. Please go ahead.

Harlan Sur: Good afternoon. Thanks for taking my question again going back to your large litho peers that reported this morning, they called out seen an increasing customer utilization of litho tools, both in memory and foundry and logic.

Harlan Sur: Appearing that this is the early signal of a positive turning cyclical dynamics I know you guys also tracking real time utilization activity rates of your customers I know theyre at very low levels, but are you guys starting to see some pickup in utilization rates across your customers and is that also may be giving you further confidence and you are modest growth.

The outlook for WSI does here.

Doug Bettinger: Yes, we've said in the past that we obviously, we track that pretty closely.

Doug Bettinger: You've heard our customers talk to us to talk about increasing utilization, we've certainly seen and heard from our customers.

Doug Bettinger: Talk of strengthening in pricing in those markets.

Doug Bettinger: We said it would affect us I mean, even markets like NAND, We said, we would with so much utilization taken offline.

We would see some uptick in our spares business, we would see that start to flow through upgrades and as I mentioned in my script.

Doug Bettinger: We anticipate that a big portion of the uptick in memory spending this year will be coming through technology upgrades.

Doug Bettinger: The installed base is lam equipment, and therefore, the b the benefit a lot of the benefit of that WP spending will float lamb as we as we do those technology upgrades. The other element of the spending will be coming from the additional equipment that needs to get added to enable things like high bandwidth memory and we've talked about the fact.

Doug Bettinger: In high bandwidth memory and over 100% market share of the critical technologies needed for stacking the DRAM. So.

Doug Bettinger: I'll, let our customers speak to what their utilizations are but what I'd say is that all.

Doug Bettinger: All signs are pointing to the memory market beginning to come out of it.

Doug Bettinger: Yes.

Doug Bettinger: Pretty pretty darn near historic downturn over the last couple of years and so that's that's what we're looking at for this year.

Doug Bettinger: That's very helpful. And then you mentioned this in your <unk> business has grown at a 17% CAGR since 2019, right that significantly faster and then I think it was a 10% to 11% CAGR target that you guys put out at your last analyst day, I know that's been weak over the past few quarters, just given some of the supply side discipline of your customer.

Harlan Sur: Those lower utilizations flowing tech migrations, but assuming that you will see the pickup in activity sometime this year you combine that with the strong continued growth in the installed base business number of chambers continues to grow at a low double digit growth rate like how should we think about the growth profile puts and takes of CSP gene.

Harlan Sur: Year end going forward.

Doug Bettinger: Yes, I don't know that were going to put a number on the growth rate for <unk> at this point, but clearly that business has been heavily impacted by the utilization cuts that occurred within our customer fabs and we saw that both in spares as well as.

Doug Bettinger: A curtailment of many of the technology upgrades that typically with just occur year in year out and so.

That did have an impact on <unk> revenues.

Doug Bettinger: Think that going forward I talked about how much larger the installed base is now that's a much larger installed base that.

Doug Bettinger: Because of the delay in technology upgrades, there's pent up demand there I mean, those tools need to be upgraded to be operating at the latest and most efficient and most competitive technology nodes for our customers and so.

I don't know the exact timing, but I do know that installed base will be upgraded and we'll actually generate quite a lot of revenue going forward.

Doug Bettinger: Okay.

Maybe just to let you remind remind you there's four components UCSB spare surface upgrades, which will benefit from what Tim was describing you also have the reliant product line in there, which is just an amazing in the last year.

Doug Bettinger: That will ebb and flow to a certain extent with more mature nodes specialty no Wi Fi so don't lose sight of that one there might be a slightly different dynamic.

Doug Bettinger: Relying on product line.

Perfect. Thank you very much.

Arlinda: Thanks Arlinda.

The next question is from <unk> Malik with Citi. Please go ahead.

Arlinda: Hi, Thank you for taking my question first one Tim.

Arlinda: Historically, you guys have benefited disproportionately and when.

Arlinda: When demand spending.

Happens.

Arlinda: If you were to think about your position competitively and when demand spending recovers I understand this year is more technology upgrades.

Arlinda: How should we think about you have position coming out of this man and downturn competitively, particularly on.

Arlinda: More layers in the hole etch that profit.

Arlinda: Yes, I think that.

Arlinda: It's a good question and that was what I pointed out I mean, I think what we're looking at in the near term in those first stages of recovery is customers are very cost sensitive and the best way to achieve that next technology nodes by upgrading the equipment that you have in place and so Lam, we spend a tremendous amount of time investing in tech.

Arlinda: <unk> that enable the upgrade and extension of our equipment and that's really high value to our customers I think that will actually go on for quite a long time, we have about 6500.

Arlinda: Chambers of high aspect ratio etch for instance in demand marketplace.

Arlinda: That creates a lot of next generation technology to those upgrades and beyond that the learning you get from Dow running those upgraded chambers at that next technology node.

Arlinda: Tends to cede all of the ideas and understanding of the challenges that need to be solved at the next node and I think that's why the installed base positions and incumbent positions.

Arlinda: And two to be very difficult to break in this industry and we've tried to break many others break into others and so we know that very well what Lam has done extremely well.

Arlinda: To collaborate closely with our customers I talked about our close to customer strategy, putting R&D labs.

Harlan Sur: In very close proximity to our customers and again, that's just the way in which we ensure that we're adequately meeting both their technology and cost needs going forward.

Doug Bettinger: Great and then a quick clarification, Doug on the Opex, you said R&D will be up year over year wasn't sure. If that implies total opex is also up our SG&A is down to offset the increase in R&D.

Doug Bettinger: Total opex was probably going to be up.

Doug Bettinger: Turf R&D will be up more than 69% of total spending in R&D in the last quarter Thats a high watermark.

Doug Bettinger: But we're purposefully growing R&D.

Doug Bettinger: Primarily because of all of those inflections that we've been talking about.

Doug Bettinger: I think the maybe the easiest way to think about it is the lead time for us to develop new products that we need to drive growth.

Doug Bettinger: As unfortunately little bit longer.

Doug Bettinger: Lead time for our four spending revenue so.

Doug Bettinger: With an outlook that growth is coming and that we are entering this next upturn where there are tremendous opportunities for the company, we feel very confident to invest.

Head of that revenue showing up and that's I think what we signaled through this year, but with the confidence that we are going to see that growth in new products and technology investment from our customers.

Doug Bettinger: Thanks Joseph.

Doug Bettinger: The next question is from Toshi Hari with Goldman Sachs. Please go ahead.

Doug Bettinger: Hi, guys. Thank you so much for taking the question.

Doug Bettinger: First one on WMC Doug.

Toshiya Hari: I forget if you mentioned this but is there a first half second half sort of bias that youre willing to share as we think about.

Toshiya Hari: The trajectory of Adobe a few this year and more importantly.

Toshiya Hari: Curious, how we should be thinking about your rate of outperformance vis vis the market you guys have talked about.

Toshiya Hari: Obviously, dep and etch intensity growing.

Speaker Change: Cross the memory space.

You talked about advanced packaging and HBM.

Speaker Change: M.

Speaker Change: And things like drivers, so so assuming youre acura.

Speaker Change: Accurate with your AWP assumption and the market's up call it mid to high singles.

Speaker Change: What sort of outperformance can we can you sort of expect from you guys in calendar 'twenty four.

Speaker Change: <unk> I guess the first.

I think it's a little bit second half weighted year. This year I think it's going to be sort of a slow start to the year. Maybe we just got a just essentially flat revenues quarter on quarter. So thats part of what Youre, saying.

Speaker Change: But we would expect it'll be somewhat stronger in the second half and then overall you know we're not going to give you the individual components between NAND DRAM foundry and logic what grows more I think everything probably grows to a certain extent.

Speaker Change: When we look at all these inflection so in all aspects of those.

End markets, we see etch and deposition intensity stepping up as you walk from node to node to node so that is unchanged.

Speaker Change: Got it. Thank you and then as my follow up on China, Doug You mentioned, China as a percentage of your systems revenue to stay elevated in the March quarter.

Doug Bettinger: And then you went on to say that that number should decline as you progress through the year is that just purely a function of.

Doug Bettinger: Your other businesses other regions.

Doug Bettinger: Improving throughout the year or are you sort of sensing.

Absolute decline in your China business and if so what are some of the areas of device types of applications Youre seeing a slowdown thanks.

Doug Bettinger: We are not seeing China slowdown, it's purely just timing of when spending is occurring.

Doug Bettinger: Honestly.

Doug Bettinger: Okay. Thank you.

Doug Bettinger: Yeah tissue, we purposely been using the word and I think you heard it in both Tim and my comments stable.

Doug Bettinger: Brian So that's a consistent description that we have.

Doug Bettinger: <unk> been sand per well.

Doug Bettinger: Thank you.

Doug Bettinger: Yes. Thank you.

Speaker Change: The next question is from C. J Muse with Cantor. Please go ahead.

Speaker Change: Yes. Good afternoon. Thanks for taking the question I guess was hoping you could speak to kind of your vision for what a recovery might look like for NAND, and where we might get to on a normalized basis, perhaps into 2025, and if you reflect on perhaps a lower normalized number and think about some of the new areas that you're investing in.

Whether it's memory or advanced packaging or changes and backside power gate all around.

Speaker Change: Is there enough kind of juice, there to get you to where.

Speaker Change: You can overall drive that rich WSB intensity and get us back to kind of those peak levels. When <unk> NAND was first adopted.

Speaker Change: Sure C. J I think I think the simple answer is yes, we do believe that I mean, we've.

Speaker Change: Let me, let me address the NAND question first which.

Speaker Change: As I mentioned this year customers are primarily focusing on technology upgrades and what makes sense.

Doug Bettinger: <unk> to drive that type of bit growth that we think we see longer term obviously there is some.

Doug Bettinger: Additions that need to be made but we're not we're not forecasting that this year.

Doug Bettinger: With each of those technology evolutions, etch and dep intensity rises simply because of the increase in number of layers and in a technology upgrade we've talked about the fact that Lam captures a much higher percentage of the fee because of the role that etch and deposition play in the technology upgrades. So.

Doug Bettinger: As we see NAND growing recovering and growing at a certain percentage rate Lam will actually significantly outperformed net rate because of the fact that most of that is coming from upgrades now longer term I think we have turned our attention and strategically we've said we want to build resilience into our business by really capturing a lot of the opportunity.

Doug Bettinger: That exists of course, <unk>, NAND, where we're very strong but really outside of NAND in some of these other markets that are becoming more etch and dep intensity and we've talked about those whether it's gate all around or backside power advanced packaging.

Doug Bettinger: <unk> patterning and each of those we've characterized as a billion dollar plus opportunity when fully scaled.

Doug Bettinger: For Lam and so and those are Sam expansion in that they are incremental to where land has been before so I think when you play those out and obviously we have to be successful in execution. It's why we keep talking about we're gaining traction but there is still there's still a ways to go before these inflections and all decisions are made.

Doug Bettinger: We think those those can certainly drive lam to to new highs in terms of revenue and obviously profitability as well.

Doug Bettinger: Tim I guess, a quick follow up Doug.

No you are hesitant to guide Opex for the full year, but perhaps you could help us understand maybe the impact of the extra week on the March quarter end.

Tim: How youre thinking about driving that R&D growth through the calendar year.

Yes C J I mean, it's.

C J: 14 weeks versus 13, that's the right way to kind of think about it you can just ratio led to understand kind of it's a longer quarter. So thats. The piece from that and then any delta to get to the 29 five op margin is part of that beginning to step up R&D.

C J: As we go through the year, though.

C J: We will purpose, we'd be growing the investment in R&D. So that you might not see the historic leverage that we've delivered.

What I described a quarter ago, and Thats still very much how you should be thinking about it.

C J: Thank you.

C J: Yeah. Thanks C J welcome back.

The next question is from screening for jewelry with Raymond James. Please go ahead.

C J: Thank you Tim you talked about your trough EPS, doubling essentially which is a tremendous achievement and execution.

C J:

Tim: Think part of the reason was your services business did.

Tim: Increase as a percent of the mix I think that helped for sure.

Tim: Stabilizing the cyclicality a bit so.

Tim: As we go through the next I guess.

Tim: Look out for the next couple of years as business recovers I'm just curious as to how you think about the mix shaking out between systems and services and how what sort of implications that might have on your top line and also your margin profile and I guess the next peak EPS. If you want to talk about that.

Tim: Thank you Sir.

Tim: Well, here's why it's always a little difficult to answer. This question is because we're certainly investing to grow our serve our systems business tremendously as well and so we.

We don't look at it as one trading off versus the other and so in fact, one kind of begets. The other the better our systems business does the faster our installed base grows and thats.

Tim: That's really the story from 2019.

Tim: Until now when we talk about how much the installed base has grown.

Tim: We shipped a lot of new systems that grew that installed base by nearly 50%.

Tim: Going forward I think that we anticipate.

Tim: The ratio of <unk> revenue to overall revenue staying kind of in the historical range that it's been in and that's just going to be driven by kind of equivalent on success in bulk parts, but the <unk> revenue the installed base business not only gives us stability, but it also opens new channels for growth for the company.

I've talked about this on previous calls which is we.

Doug Bettinger: I think that when we think about how Lam leverages things like artificial intelligence and data.

Doug Bettinger: It's in the installed base services business on the last call I talked about even cobalts.

The use of collaborative robots to start to do some of the service that today is done by skilled engineers our customers in this industry have to find ways to be able to innovate faster and also provide manufacturing services at a lower cost and I think that we can do that by innovating around the installed base in <unk>.

C J: <unk> new <unk>.

C J: Products and service offerings that help us grow at a faster pace than the installed base itself is growing.

C J: Got it.

Doug Bettinger: And then Doug one clarification on the deferred revenue I think it went up about $238 million. This quarter you talked about prepayments just curious are customers still prepaying because of any supply constraints or is this an ongoing I guess trend that youre seeing just if you can talk about how we should think about the different revenue going forward.

Doug Bettinger: Would be helpful. Thank you.

Yes.

Doug Bettinger: I guess, what I would describe you should think about the advance payment is when we have a new customer that were just kind of.

Doug Bettinger: Understanding what their balance sheet looks like especially if they're private customer that we can't see the balance sheet, it's not publicly reported.

Doug Bettinger: And the credit worthiness might be sort of questionable we required cash upfront before we begin manufacturing of tool and thats whats going on there.

Doug Bettinger: That's all it is.

Doug Bettinger: Got it thank you.

Doug Bettinger: Thanks Brent.

Doug Bettinger: The next question is from Stacy <unk> with Bernstein Research. Please go ahead.

Stacy Aaron Rasgon: Hi, guys. Thanks for taking my questions. The first one around the China <unk> stable in calendar 'twenty four you see all market segments being stable or do you see some like being stronger and some being weaker.

Like how do you how do you see that that into play.

Stacy Aaron Rasgon: Stacy I don't really see a big change year on year relative to end market.

I'll remind you in China DRAM was second half weighted last year, it's probably a little bit first half weighted in China, maybe more than a little bit here.

Stacy Aaron Rasgon: But year over year, I don't think I really think of a significant change in contribution for the entire year.

Stacy Aaron Rasgon: Got it that's helpful and I guess to follow up on the China question, but maybe maybe it's a follow up on one of the earlier questions that.

Stacy Aaron Rasgon: It does sound to me like you are suggesting China mix should come down through the year and maybe you can clarify that because I've got overall stable.

C J: China revenues like how does your China mix come down materially it doesn't look like you're looking for overall like non China WP to grow a ton.

C J: And some of that.

C J: Other areas so.

C J: Let me remind you in 2023, China was a more modest amount of Wi Fi and it grew in the second half of the year.

C J:

C J: And so the comments were making our year over year, it's relatively stable kind of the half on half stuff probably looks different in 'twenty four than it did in 'twenty three in China specifically.

C J: That's helpful. Then so then exiting the year, you think youre back to that sort of normalized gross margin range. As a result of that is China falls off in the second half.

C J: Yes, the customer mix stuff.

C J: I think mitigate somewhat as we go through the year and it continues to be quite strong in the March quarter guidance.

Got it that's helpful. Thank you guys.

C J: Thanks Joseph.

The next question is from Vivek Arya from Bank of America Securities. Please go ahead.

C J: Thank you for taking my question for my first one I'm curious, what's your assessment of NAND supply demand as it exists today.

Vivek Arya: I think in your OWS view, you are assuming that non growth, but more because of technology upgrades, but what are your customers, telling you as to when they want to start adding.

Vivek Arya: More tools and whats.

Vivek Arya: Am's opportunity to grow.

Vivek Arya: Land at a measured pace in the second half of the year.

Vivek Arya: Yes, I think that.

Vivek Arya: First of all I wouldn't necessarily talk about what we are discussing with our customers on that standpoint, but things that are out there. We do know and I think we know that the utilization cuts were pretty severe in NAND last year, and so there's a tremendous amount of of <unk>.

Capacity that is.

Vivek Arya: It has been offline and we said in the past that needs to be brought back online and I think the question in the discussions we're having is at what technology node should that capacity be restarted and in many cases there is a very.

Doug Bettinger: A very high likelihood that the technology upgrade cycle will occur as that equipment is brought back into service and so in that case, we would actually begin to see a restart of some of the utilization driven revenue that we get some things like spares and services as well as at the same time, a restart of technology.

Grid revenues and that's why I think that from a NAND perspective. This year, we think that will effectively.

Doug Bettinger: Represent the majority of the spend that occurs in this segment.

Doug Bettinger: Okay, and then Tim as you know.

Doug Bettinger: Many of the DRAM customers are saying that they plan to shift more towards HBM from from DDR does that have any positive or negative influence on your <unk> in the Spanish business.

Doug Bettinger: Hmm.

Doug Bettinger: No.

Doug Bettinger: I don't I cant quite make that connection right now I'm off to give us some thought but clearly clearly we see an impact on our systems business as I mentioned, where we're having to add the specific HBM related, especially advanced packaging steps related to the stacking of HBM itself.

Doug Bettinger: We're seeing significant growth in that area.

Doug Bettinger: And so with that given where shipping additional systems there is some incremental.

Doug Bettinger: Spares business and services business that goes along with that.

Doug Bettinger: I think the systems portion of that kind of a waste from a dollars perspective.

Doug Bettinger: I guess, maybe just to clarify does you'll see the business start to grow consistent with the growth in newer tools.

Doug Bettinger: <unk> business overall or do you think there is going to be a lag factor because it's slow down later or does it start to re grow later also.

Doug Bettinger: It depends on the rate of growth in Wi Fi to be perfectly Frank direct coming.

She is the spare service upgrades to chug, along and we think thats going to benefit as utilization and whatnot begins to come back.

C J: And then really answer your question you Gotta go figure out what you think the pace of the Wip growth is I'm not going to put numbers on that right now, we're going to kind of wait and see.

C J: Thank you.

Vivek Arya: Thanks Vivek.

Vivek Arya: The next question is from Krish Shankar with CDT Cowen. Please go ahead.

Krish Sankar: Yeah, Hi, Thanks, Mary My question first of all for Bob Walsh, Doug.

I think that would gain mentioned above are gradually recovering publicly before.

Krish Sankar: More back half weighted.

Doug Bettinger: And Doug I'm not looking for guidance.

I'm just wondering what.

Doug Bettinger: Lan.

Doug Bettinger: Revenues in the calendar second Apple Paul.

Doug Bettinger: Yeah.

Doug Bettinger: My first question and then a follow up.

Doug Bettinger: You are a little bit muffled, Chris, but I think you were asking about our performance along with Wi Fi and frankly, I think we will mirror whatever the trajectory of <unk> looks like.

Doug Bettinger: With an expectation that etch and dep out grows to a certain extent I think I answered. Your question, although you were a little bit muffled there.

Doug Bettinger: I'm sorry for that.

Doug Bettinger: Just starting to wonder if the second half 'twenty four.

Doug Bettinger: Revenue for lilac kind of be better than the wholesale.

Okay.

Doug Bettinger: Yes, I think it will be.

Doug Bettinger: Chris I'm not going to put numbers on it yet, but we will mirror what goes on with Wi Fi.

Doug Bettinger: Got it got it Okay and then my follow up Doug.

Doug Bettinger: Doug.

Doug Bettinger: You spoke about SDN and <unk>.

Doug Bettinger: AI and all that good stuff.

Doug Bettinger: King.

Doug Bettinger: <unk> bye.

Doug Bettinger: Tool sets for different banks.

Doug Bettinger: For.

Doug Bettinger: On legacy.

Doug Bettinger: Or is it.

Doug Bettinger: More like I think we will from a margin standpoint.

Doug Bettinger: Yeah.

Doug Bettinger: Is it neutral.

Doug Bettinger: I guess, what I'd say, Chris from a margin standpoint, you didn't you shouldnt think about any differential.

Doug Bettinger: Margin necessarily the incremental piece first.

Doug Bettinger: That goes into high bandwidth memory is a bigger dive you know that.

Doug Bettinger: The die itself buildings duty, our five values largely the same equipment.

C J: Builds DDR.

<unk> that doesn't go into HBM be incremental stuff comes when you go into the advanced packaging stuff, the symbion deep silicon etch and the electroplating or areas where were extraordinarily strong in addition to some other things.

C J: That is clearly incremental equipment.

C J: Yeah, and I think from a from a.

At June Dep intensity perspective in General I think you mentioned DDR find the DD DD on <unk>, Yes, I think in general.

C J: With each technology node evolution, whether it's DRAM NAND and foundry logic, we've sent etch and dep intensity rises with technology advancement and so I think you can imagine that there is more equipment being needed and that's in addition to the fact that larger die sizes drive.

C J: Greater equipment for bid out so there's a lot of factors that every time, we move forward.

Doug Bettinger: There is more equipment and more land and equipment required with this technology nodes.

Paul: Thanks, Paul.

Paul: Yes, Thanks, Craig.

Paul: The next question is from Joe Moore with Morgan Stanley. Please go ahead.

Paul: Great. Thank you.

Joe L. Moore: If I could ask about your DRAM.

Joe L. Moore: Systems revenues in the December quarter never kind of back to the highest in a couple of years ago, but I know you had some China in there.

Joe L. Moore: I think there is some of the advanced packaging can you can you just give us a sense for what's kind of core DRAM within that and then you are pretty constructive on where that's going can you give us a sense of the dynamics of China going forward versus other regions in other parts of DRAM.

Joe L. Moore: I guess, Joe just take you back to what I had in my script two things are driving the strength in DRAM in the December quarter.

Joe: And you mentioned both of them and frankly, it's a high bandwidth memory and DDR. Five in addition to the fact that we've got our China customer in DRAM in the second half of the year that include September and December that wasn't in the first half so each of those things contribute to the strength you saw in December.

Joe: Okay, and then looking forward it seemed like you had more than <unk>.

Joe: Six months of demand from that China customer in the.

Joe: Second half going forward does that come down, but core DRAM comes up in HBM comes up.

Joe: Probably.

Okay, great. Thank you.

Joe: Thanks, Joe.

Joe: The next question is from Brian Chin with Stifel. Please go ahead.

Joe: Hi, good afternoon, thanks for letting us ask a few questions maybe going back to Nan.

The best ever quarter for NAND spending was was probably higher than the total level of NAND spending maybe for all of last year and so even if it's off a low base isn't it pretty logical that NAND WSI should exhibit the largest or highest rate of improvement in 'twenty four.

Joe: Yeah.

Doug Bettinger: I wouldn't necessarily draw that conclusion, Brian I think Oh, we're going to tell you that I think every segment wip grows this year NAND DRAM foundry logic, it's all up to a certain extent I'm not going to get into the business of quantifying each individual one because frankly at the end of the day, we will get it wrong.

Doug Bettinger: But I think everything will grow to a certain extent.

Brian: Okay fair enough.

Brian: And then just to kind of level set and DRAM and then also looking forward.

Brian: How much did DRAM industry spending actually decline in 'twenty three it seems to be better than was initially thought based on HBM et cetera.

Brian: And also can you give us a sense of the number of wafer starts or percent of the DRAM installed base that could be converted to more advanced one alpha one beta like process nodes this year.

I guess Brian.

Brian: Tim I think had this in his script memory overall was down roughly 40% NAND.

Brian: NAND was down north of 70%.

Brian: The differential to get to the numbers as DRAM you can do that.

Brian: And yes, I think the second part of your question.

Brian: HBM and DDR five has been a big part of the strength in DRAM.

Brian: Okay that was actually the second part was kind of more towards.

Brian: What is the potential number of wafer starts or the percentage of the installed base that sort of.

Brian: Game for those conversions to one alpha one beta like nodes.

Brian: You know for the most part in memory everything gets upgraded to the next all of them.

Brian: That's always been the case, that's not a new phenomenon.

Brian: Okay. Thanks.

Brian: Thanks, Brian.

Brian: The next question is from Chris Caso with Wolfe Research. Please go ahead.

Yes. Thank you good evening.

Brian: Question is on delivery times, and you had mentioned.

Brian: Obviously your delivery times may be different than some others in the industry, where do they sit right now and as a consequence of how much visibility do your customers need to give you and with that when we start to see some some stronger perhaps memory spending how quickly will you be able to react to that and turn that for revenue.

Brian: Yes, so we don't obviously publicly seller.

Telegraph, our lead times, but we had talked about the fact that during during the Covid pandemic, our lead times due to supply chain shortages in stretch film quite long and those have now come back to a much more normalized level, although they still are.

Brian: Are such that.

Brian: For us to make shipments within this year, we would have to know about those orders and thats forecast pretty pretty quickly. The one thing thats helped as I talked about our investments in.

Brian: New manufacturing and supply chain operations within our customer ecosystems, so thats, putting as much closer it's diversifying our supplier base and I think is going to this next upturn make us much more responsive to customer needs. So really we worry less about lead time and more about our ability to respond.

Brian: And the timeframe, which our customers need to place orders to meet their ramps.

We tend not to be the best.

Brian: We tend not to be the bottleneck, let's put it that way in terms of a lead time perspective planning in their fab.

Brian: Fair enough.

Brian: As a follow up question I wanted to ask about back side power and last quarter you made some disclosures about.

Brian: The revenue impact to Lam.

Brian: As it happened could you give a little more color on that and specifically we know that different customers are having different implementations of backside power.

Brian: At what point does that start to become a meaningful driver for Lam.

Brian: So I think given the important role that both etch and deposition play in that and our strong position.

Brian: In parts of the backside power process like copper plating, where some of those.

Brian: Layers of becoming.

Brian: <expletive> can influence of processes become longer.

Brian: I would say going to very rapidly become quite meaningful for the company and again, it's just a.

Brian: A further demonstration of how.

Brian: Going three D.

Doug Bettinger: Essentially using those using etch and depth to create more complex architectures allows you to reduce power and <unk>.

Doug Bettinger: <unk> performance is and also reduce costs.

We talked about it in that sense <unk> power are you seeing the same thing with.

Chip stacking and each HBM and <unk> integration and that's why I said I think the next era of semiconductors characterized by all of these more unique <unk> architectures. They are all good for the types of products, we sell thanks, Chris operator, yes, we have.

Doug Bettinger: Time for one more question.

Speaker Change: And that question comes from Thomas O'malley with Barclays. Please go ahead.

Thomas Robert Diffely: Hey, guys. Thanks for taking my question I was curious if you guys had a view on the HBM market clearly with the accelerator market growing as quickly or something.

Thomas Robert Diffely: Concerns that the HVAC market may actually be shipping about peak in 'twenty four 'twenty five do you guys have a view internally on.

Thomas Robert Diffely: Just how fast <unk> is growing as a market segment and just could you just give us a perspective.

Thomas Robert Diffely: When you look at it the acceleration of a tool roadmap with the customer on HBM.

Thomas Robert Diffely: How much of that have pulled in in the last six months, what you would typically see from a DRAM customer when theyre looking for a tool. Thank you very much.

C J: I think that as a real key supplier into the HBM market as I mentioned the strong position in.

C J: In the in the processes required for the snacking. This is an area where we're seeing.

C J: Very very strong demand.

C J: I think that whether whether or not at some point its shipping above peak.

C J: I think that this AI market is is continuing to evolve in a very very fast rate and we're focused on right. Now is ensuring we are building out our own capacity and capabilities and ensuring that we maintain that technology leadership, that's allowing us to hold 100% market share of the TSV formation in HBM and so really that's that's.

C J: That's our focus is hold the position and let the market grow as fast as the market grows.

C J: Helpful. And then just one on the makeup of inventory you guys have talked about working down inventory throughout the year is there any color you can give us on the makeup of that inventory is it more memory related or foundry logic related I know you don't want give specifics, but just where do you see that inventory coming down through the first half of the calendar year. Thank you very much.

C J: Yes.

C J: It's the rate of decline in memory as we went into 'twenty three was pretty dramatic and we ended up taking more inventory than we needed.

C J: Pacifically for memory. So there is.

A bigger component of the targeted net memorandums memory recovers inventory will come down.

C J: Thank you thanks for the question.

This concludes our question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.

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C J: Good afternoon, and welcome to the Lam Research Corporation December 2023 quarterly earnings Conference call.

C J: All participants will be in listen only mode.

C J: Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

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

C J: To ask a question you May press Star then one on your telephone keypad to.

C J: To withdraw your question. Please press Star then two please.

C J: Please note this event is being recorded.

I would now like to turn the conference over to Rob <unk> head of Investor Relations. Please go ahead.

Rob Ganache: Thank you and good afternoon, everyone and welcome to the Lam Research quarterly earnings Conference call with me today are Tim Archer, President and CEO, and Doug Bettinger Executive VP and Chief Financial Officer during.

Doug Bettinger: During today's call, we will share our overview on the business environment and will review our financial results for the December 2023 quarter and our outlook for the March 2024 quarter.

Doug Bettinger: The press release detailing our financial results was distributed a little after one PM Pacific time.

Doug Bettinger: The release can also be found on the IR section of the Companys website, along with the presentation slides that accompany today's call.

Doug Bettinger: Today's presentation and Q&A include forward looking statements that are subject subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings.

Doug Bettinger: Please see accompanying slides in the presentation for additional information.

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

Doug Bettinger: A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation.

Doug Bettinger: This call is scheduled to last until <unk> PM Pacific time, a replay of this call will be made available later this afternoon on our website and with that I'll hand, the call over to Tim. Thank.

Tim: Thank you, Rob and welcome everyone.

Tim: <unk> delivered strong performance in the December quarter revenues gross margin operating margin and EPS all above the midpoint of our guided ranges.

Tim: Our results for December closeout of calendar year, 2023, and which Lam executed well amid a decline in overall wafer fabrication equipment spending.

Tim: Compared to the prior cycle trough in calendar 2019, we achieved a near doubling of EPS.

Doug Bettinger: There are a few reasons why Lam has evolved stronger cycle. The cycle first we have improved our positioning in the foundry logic and specialty technologies segments through sustained investments in innovation and new products. As a result, we have grown our total non memory revenue share and we continue to gain momentum and key.

Doug Bettinger: Technology inflections.

Doug Bettinger: Second we have delivered.

This growth in our customer support business group Lamb ended calendar 2023, with approximately 90000 chambers in the field and installed base almost 50% larger than in the previous cycle see SPG revenue has grown by more than 80% from 2019 levels.

Doug Bettinger: And finally, we have further improved our ability to manage costs and drive operational efficiency through cycles.

Doug Bettinger: Operating margins in 2023, there were nearly two five points higher than the prior trough.

Doug Bettinger: Turning to <unk>, we estimate that 2023 spending ended in the low $80 billion range. This is up slightly from our prior view driven by continued strength in domestic China spending predominantly in equipment segments, where we do not participate.

Harlan Sur: Overall memory Wip was down nearly 40% year on year led by cuts in NAND spending of more than 75%.

Harlan Sur: Non memory WP decreased in the mid single digits range with mature node growth in China, partially offsetting declines in leading edge node spending in the rest of the world.

As we enter 2020 for the business environment remains muted. However, we expect a modest recovery in memory spending to drive a stronger exit to the year.

Harlan Sur: Our early view of WP spending for calendar 'twenty 'twenty four is in the mid to high $80 billion range.

Harlan Sur: Growth in DRAM will be driven by capacity additions for high bandwidth memory as well as node conversions NAND spending increases will largely come from technology upgrades we.

Harlan Sur: We see foundry logic spend growing in 2024 with higher leading edge investment offset in part by declines in mature node investment outside of China.

Harlan Sur: Overall, we believe domestic China spending will be stable in 2024.

Harlan Sur: Longer term the setup for WP investment is robust with semiconductors semiconductor revenues widely expected to reach a trillion dollars around the end of the decade and device manufacturing complexity continuing to rise we believe <unk> spending will need to roughly double from today's levels.

Harlan Sur: Lamb served markets of etch and deposition should outpace growth in <unk> overall.

For this reason we have been executing a series of strategic actions to best position. The company for the growth opportunity ahead. Importantly, we have remained committed to these initiatives despite the challenging spending environment over the past several quarters.

Harlan Sur: First is our commitment to R&D, including planned spending increases in calendar year 2024 to extend our differentiation in products and services targeted at next generation semiconductor device inflections.

Harlan Sur: This next era in semiconductors will be defined by the broad move towards <unk> architectures and advanced packaging to solve scaling challenges. We believe this will in turn drive an increase in etch and deposition intensity over the long term.

Harlan Sur: Our focus is on multiple billion dollars, Sam expansion opportunities across memory and foundry logic.

Doug Bettinger: We have profiled our advances and gate all around backside power delivery advanced packaging and dry E. B patterning over the past several quarters and our solutions are continuing to gain traction with customers.

In the December quarter, we secured additional advanced packaging wins for high bandwidth memory, which is critical for enabling advanced AI servers.

Doug Bettinger: Our <unk>, our sabre <unk> tools best in class played and uniformity along with our ability to demonstrate the overall cost of ownership advantage made lamb that clear choice over a large competitor in.

In 2024, we expect our HBM related DRAM and packaging shipments to more than triple year on year and outpaced <unk> growth in this segment by a significant margin.

The specialty technology markets are also yielding a diverse set of new opportunities for Lam.

Doug Bettinger: For instance, we have recently delivered pulse laser deposition technology to customers targeting high volume manufacturing of Mems and next generation high frequency devices.

Doug Bettinger: We accelerated our entry into this market by integrating technology, we obtained via small acquisition onto our production proven land platform.

Doug Bettinger: Compared to competing deposition method Lam solution enables more highly doke scandium aluminum nitride films, which delivered the piece of electric performance and cost our customers require.

Doug Bettinger: The second area of focus for Lam has been our investment in facilities close to our customers.

Doug Bettinger: By establishing process development capabilities near our customers R&D Fabs, we are maximizing collaboration and accelerating time to solutions.

We have also made progress ramping supply chain and manufacturing operations within our customer ecosystems.

Doug Bettinger: In region capabilities enhance our responsiveness and resilience for customers and create significant economic value for Lam as we leverage the benefits of global flexibility.

Doug Bettinger: Our new manufacturing facility in Malaysia is poised to fully scale in the coming <unk> upturn, providing us the capability to nearly triple the percentage revenue contribution from our lower cost manufacturing location versus a few years ago.

Doug Bettinger: And finally <unk>.

Doug Bettinger: <unk> concentrated on reengineering, our business processes and systems to drive operational excellence greater scale.

Doug Bettinger: Investments in digital capabilities like virtual twinning advanced simulation and AI are helping us to accelerate problem solving and we're building equipment intelligence capabilities and in Fab service automation into our most advanced product Roadmaps.

Doug Bettinger: As we complete our reengineering efforts. We are also intent on achieving organizational agility. In this regard we are announcing a small workforce reduction predominantly at the executive level to align our resources with our execution priorities and drive efficiency and speed of decision making.

In calendar 2023, Lam delivered solid results, while investing to build strong capabilities for the future looking forward I am confident that our strategic global infrastructure and differentiated technology portfolio provide lam with the tools, we need to capitalize on the robust semiconductor growth.

Doug Bettinger: <unk> in the years ahead.

Doug Bettinger: Thank you and now here is done.

Tim: Great. Thank you Tim good afternoon, everyone and thank you for joining our call today during what I know is a busy earnings season.

We delivered strong financial results in calendar year 2023.

Tim: Our revenue came in at $14 3 billion and diluted earnings per share at $27 and 33.

Tim: Yeah.

Tim: We're pleased with the company's execution during the year, where the memory WFAN mix reached historic lows.

Tim: Let's look at the details of our December quarter results.

Tim: Revenue for the December quarter was $3 $76 billion.

Tim: Which was up 8% from the prior quarter and down 29% from a year ago.

Tim: Our deferred revenue balance at the end of the quarter was $193 billion, which was an increase of $238 million from the September quarter.

Which was mainly tied to growth in customer advanced payments.

Tim: We continue to have a higher deferred revenue balance versus historic levels, given these customer advance payments.

Tim: From a segment perspective December quarter systems revenue and memory was 48%.

Tim: Which is an increase from the prior quarter level of 38%.

Tim: The growth in the memory segment was led by DRAM.

Tim: Which was at record levels on a dollar basis coming in at 31% of systems revenue compared with 23% in the September quarter.

Tim: DRAM is benefiting from growth in high bandwidth memory capacity and the move to DDR, five which is needed to address AI related workloads and it's also benefiting from shipments to China.

Tim: As we've noted in prior quarters non volatile memory Wip was at historic lows on a mixed basis in 2023.

Doug Bettinger: For the December quarter. This segment represented 17% of our systems revenue, which was up a little bit from 15% in the prior quarter.

Doug Bettinger: The slight growth was predominantly related to investments in certain technology projects.

Doug Bettinger: And customers have aggressively reduced capacity throughout the year to bring inventory levels down.

Doug Bettinger: Yeah.

Doug Bettinger: The foundry segment represented 38% of our systems revenue, a little higher than the percentage concentration in the September quarter of 36%.

Doug Bettinger: Growth was driven by new fab shipments in various regions across several process nodes.

Doug Bettinger: The logic and other segment was 14% of our systems revenue in the December quarter, which was down from the prior quarter level of 26%.

Doug Bettinger: The decline was driven by general mature node softness.

Doug Bettinger: As well as the timing of customer projects.

Doug Bettinger: Overall in the foundry.

Doug Bettinger: Logic segment performed well delivering on the share gains that we've previously been discussing with you.

Doug Bettinger: Now I'll discuss the regional composition of our total revenue the China region came in at 40%, which was down from 48% in the prior quarter.

Doug Bettinger: Most of our China revenue in the last two quarters was from domestic Chinese customers and we expect spending from this region to be stable overall in 2024.

Doug Bettinger: China as a percent of our revenue is expected to stay relatively high in the March quarter.

Doug Bettinger: Returns lower as the year progresses.

Doug Bettinger: Our next largest geographic concentration was Korea, that's 19% of revenue.

Doug Bettinger: The December quarter versus 16% in the September quarter.

Doug Bettinger: Finally, Japan, and Taiwan rounded out the remaining our top four regions.

Doug Bettinger: The customer support business group generated revenue in the December quarter of nearly $1 $5 billion up 2% from the September quarter, and 16% lower than the December quarter and calendar year 2022.

Overall, the business was steady and we continue to see our memory customers operating the fabs at very low utilization rates.

Doug Bettinger: Given the strength of being installed base units, we have a strong foundation for growth when technology conversions and utilization rates resumed growing.

Doug Bettinger: Spares, followed by the reliant product line continued to be the two largest components of CSP G.

Doug Bettinger: Turning to the gross margin performance for the December quarter came in at 47, 6%, which is above the midpoint of guidance and generally in line with September quarter level, which was 47, 9%.

Doug Bettinger: We've improved elements of our cost structure during the year and delivered on our commitment to improve gross margin from the 2023 March quarter level by approximately one percentage point as we exited the calendar year 2023 for most operational improvements.

Doug Bettinger: December quarter operating expenses were $662 million up from the prior quarter amount of $622 million.

Doug Bettinger: R&D as a percent of spending was higher versus the September quarter coming in at over 69% of total expenses.

Doug Bettinger: The increased spend reflects our ongoing focus on extending our product and technology differentiation across those critical inflections that Tim mentioned earlier.

Doug Bettinger: We will continue to grow investments across multiple market segments to support the long term strategic objectives for ongoing company outperformance.

Doug Bettinger: Operating margin for the current quarter was 30% in line with September quarter level of 31% and above the midpoint of our guidance, primarily because of the stronger gross margin performance.

Doug Bettinger: Our non-GAAP tax rate for the quarter was 12, 3% generally in line with expectations.

Doug Bettinger: Looking into calendar 2024, we believe the tax rate will be in the low to mid teens.

Doug Bettinger: What's the normal fluctuations quarter by quarter.

Other income expense for the December quarter came in at $5 million in income compared with $7 million of income in the September quarter.

Doug Bettinger: The slight fluctuation in <unk> was mainly due to variations in exchange rates.

Doug Bettinger: <unk> will continue to be subject to market related fluctuations that could cause some level of volatility each quarter.

Doug Bettinger: On the capital return side, we allocated approximately $640 million to open market share repurchases and we paid $264 million in dividends in the December quarter.

For the 2023 calendar year, we returned 79% of our free cash flow totaling $3 $8 billion, which was largely consistent with our long term capital return plans of 75% to 100%.

Doug Bettinger: December quarter diluted earnings per share was $7 52.

Doug Bettinger: Over the mid point of our guidance.

Doug Bettinger: Diluted share count rounded down to 132 million shares on track with our expectations.

Doug Bettinger: Down from the September quarter.

Doug Bettinger: During 2023, we repurchased nearly 5 million shares through our share buyback program.

Doug Bettinger: And I would just mentioned we have $2 $1 billion remaining on our board authorized share repurchase plan.

Doug Bettinger: I'm going to pivot to the balance sheet, our cash and short term investments at the end of the December quarter totaled $5 $6 billion up from $5 $2 billion in the September quarter.

Doug Bettinger: The increase was largely due to collections offset by cash allocated to share repurchases dividend payments and capital expenditures.

Doug Bettinger: Overall 2023 was a record year for cash flows from operations coming in at $5 3 billion.

Doug Bettinger: Days sales outstanding was 66 days in the December quarter, which was a decrease from 73 days in the September quarter.

Doug Bettinger: As a result of our operational focus and execution I'm pleased to report that inventory turns improved to one eight times from the prior quarter level of one five.

Doug Bettinger: We will continue to work on bringing inventory down throughout calendar 2024.

Doug Bettinger: Our noncash expenses for the December quarter included approximately $70 million for equity compensation $78 million for depreciation and $13 million for amortization.

Doug Bettinger: Capital expenditures for the December quarter were $115 million up $38 million from the September quarter.

Doug Bettinger: Spending was primarily centered on product development activities and lab expansions in the United States and Asia supporting our global lab investment strategy.

We ended the.

Doug Bettinger: Excuse me the December quarter with approximately 17200 regular full time employees, which was flat with the prior quarter.

Doug Bettinger: Let's now turn to our non-GAAP guidance for the March 2024 quarter.

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

Doug Bettinger: Gross margin of 48% plus or <unk>, plus or minus one percentage point.

Doug Bettinger: This gross margin guidance is reflected reflective of continued favorable customer mix.

Doug Bettinger: I do expect this favorable mix to mitigate somewhat as the year progresses.

Doug Bettinger: Operating margins of 29, 5% plus or minus one percentage point.

I would again highlight that the March 2024 quarter will have higher spending as it includes an extra week in the quarter.

Doug Bettinger: Which occurs every several years.

Its a 14 week quarter.

Speaker Change: And I will also remind you we will be growing R&D spending this year.

Speaker Change: And finally, we're expecting earnings per share of $7 25.

Speaker Change: Plus or minus 75 based on a share count of approximately 132 million shares.

Speaker Change: We continue to be focused on improving our business operations to optimize efficiency and effectiveness.

SWF fee growth occurs.

Speaker Change: Our profitability metrics reflect the progress we've made during calendar year 'twenty three.

Speaker Change: Business realignment and transformational activities well underway.

Speaker Change: Well see these activities continue in the first half of calendar year 2024.

Speaker Change: Including the cost incurred for these improvement activities and head count reductions that we saw in calendar 2023.

Speaker Change: Now expect we'll spend in total $300 million for these actions.

Speaker Change: Which will continue to be reported in our non-GAAP adjustments.

Speaker Change: I had previously told you we would spend $250 million over 12 months.

Speaker Change: It's now $50 million higher than six months longer.

Speaker Change: So let me conclude over many semiconductor cycles lab has established a proven track record of successfully managing our business.

Speaker Change: But the actions we've taken over the course of the last several quarters, we expect to strengthen our operations and technology leadership and further enhance our profitability profile.

When revenue scales into the next upturn Lam will be stronger better positioned and more efficient.

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

Speaker Change: We will now begin the question and answer session to.

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

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys to.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Our first question today is from Tim Arcuri from UBS. Please go ahead.

Speaker Change: Thanks, a lot I guess my first question for you Tim is.

Timothy Michael Arcuri: I wondered if you could sort of translate obviously you heard.

Your big Litho peer that reported today that had these huge orders and it looks like a couple of billion dollars.

Timothy Michael Arcuri:

C J: <unk> orders for DRAM, so that sort of translates to an extra $9 billion to $10 billion something like that.

C J: It seems mostly for shipments toward the end of this year and even into next year for them. So like maybe you haven't seen that yet but can you talk about what that tells you about the future of of that segment.

C J: You think it's going to be up but it seems like it could be up a lot.

And maybe any change in the planning outlook or the or the.

C J: The discussions that youre, having with your DRAM customers.

C J: Sure, Thanks, Tim and obviously.

C J: <unk> is a tricky thing to forecast because generally we have a very good view of certain segments of the market.

We tried to give an overall view of WSI and <unk>.

C J: We do that based on listing the peer is talking to customers and making our own assessments.

Doug Bettinger: And as we get it wrong and I guess, we're always in a period of.

Adjusting that.

Doug Bettinger: I think though I didnt I don't think Theres anything out there that is completely inconsistent with what we've said we've said <unk> is up this year modestly recovering because of memory.

Doug Bettinger: We see a stronger exit to the year.

Doug Bettinger: Yes, I think to the magnitude I think we were.

We're just going to keep watching it and having those conversations customers in this period lead times of equipment and the framework in which certain pieces of equipment need to be ordered and brought into fabs can differ.

Doug Bettinger: Supplier, an equipment supplier, maybe theres something at play there, but I think it.

Doug Bettinger: Probably further reinforces our bullishness that memory has been at a historically low mix.

Doug Bettinger: WMC.

We said that memory spending across both DRAM and NAND. We felt was at unsustainable levels, we sit down pretty much every call last year.

Doug Bettinger: So I think that it's not a surprise that that eventually corrects itself.

Doug Bettinger: What I would point out is that we don't spend a tremendous amount of time and trying to get the tiny inaccurate exactly right.

Doug Bettinger: My script, I talked a lot about strategic actions, which.

Doug Bettinger: Play out over years and in fact to catch the DRAM inflections that are coming now.

Doug Bettinger: The strength, we have in high bandwidth memory the positions we have in applications in <unk> and beyond.

Yes, those were established by us seeing DRAM opportunities years ago, and I think we're continuing to report more and more growth in that segment and I think we'll just continue to do that so we.

Take tend to take a long term view of technology and spending patterns and Jamie start I'll, just remind you something that I know you know very well.

Doug Bettinger: Litho lead times are generally much longer than ours are in etch and deposition and you'll never buy litho without eventually by the process equipment that goes along with it so if they're seeing something we will see it too.

Doug Bettinger: Totally yeah for sure. So I guess I guess for you Doug Super quick so theres kind of a lot of moving parts I know going on in gross margin I know that the mix is helping you and I know you are probably getting some tailwind from some cost relief and things like that so what's the right normalized margin I know, maybe 48 is not the right normalized number but is it.

Doug Bettinger: Like is the mix, helping you by 50 basis points and that's what sort of goes away can you sort of help us there. Thanks.

Doug Bettinger: Yes, Tim I'll remind you what I said last quarter is still kind of the same thing the customer mix is benefiting us again in the March quarter guide, maybe even a little bit more than it did last quarter.

Doug Bettinger: I took you back to that June quarter of last year before we had such a favorable geographic mix and that largely is what's driving the customer mix.

Doug Bettinger: We were around 46% gross margin 45, seven I think if I remember the June quarter specifically.

Tim: Not a bad place to kind of start when when mixed normalizes back to maybe.

Tim: More normal levels.

Tim: So think about it that we're somewhere in between there and where we are here. These operational improvements. So that we've been talking about are real things and as growth resumes and we know growth will resume at some juncture, we should benefit from repositioning the company to these lower cost locations. So that's still on the come line.

Tim: But it will require some level of growth in the business.

Doug Bettinger: Thank you Doug.

Thanks, Tim.

Doug Bettinger: The next question is from Harlan sur with Jpmorgan. Please go ahead.

Harlan Sur: Good afternoon. Thanks for taking my question again going back to your large litho peer that reported this morning, right. They called out seen an increasing customer utilization of litho tools both in memory.

Harlan Sur: And in foundry and logic.

Harlan Sur: Appearing that this is the early signal of a positive turn in cyclical dynamics. I know you guys also tracking real time utilization and activity rates of your customers I know theyre at very low levels, but are you guys starting to see some pickup in utilization rates across your customers and is that also may be giving you further confidence and you are modest growth.

Harlan Sur: For WSI this year.

Harlan Sur: Yes.

Harlan Sur: <unk> said in the past that.

We track that pretty closely I think you've heard our customers Trust us to talk about increasing utilization, we've certainly seen and heard from our customers.

Harlan Sur: Talk of strengthening in pricing in those markets.

Doug Bettinger: How we said it would affect us I mean, even markets like NAND, We said, we would with so much utilization taken offline.

We'd see some uptick in our spares business, you'll see that start to flow through upgrades and as I mentioned in my script.

Doug Bettinger: We anticipate that a big portion of the uptick in memory spending this year will be coming through technology upgrades, where the installed base is lam equipment and therefore, the b the benefit a lot of the benefit of that WP spending will float lamb as we as we do those technology upgrades the other element.

Doug Bettinger: Spending will be coming from the additional equipment that needs to get added to enable things like high bandwidth memory and we've talked about the fact that in high bandwidth memory and over 100% market share of the critical technologies needed for stacking the DRAM so ill.

Doug Bettinger: Let our customers speak to what their utilizations are but what I'd say is the.

All signs are pointing to the memory market beginning to come out of it.

Doug Bettinger: No.

Doug Bettinger: Pretty pretty darn near a historic downturn over the last couple of years and so that's that's what we're looking at for this year.

That's very helpful. And then you mentioned this in your <unk> business has grown at a 17% CAGR since 2019, right that significantly faster than I think it was a 10% to 11% CAGR target that you guys put out at your last analyst day, I know that's been weak over the past few quarters, just given some of the supply side discipline of your cut.

Doug Bettinger: Tomorrow's lower utilizations.

Boeing Tech migrations, but assuming that you will see the pickup in activity sometime this year.

Doug Bettinger: That with a strong continued growth in the installed base business number of chambers continues to grow at a low double digit growth rate like how should we think about the growth profile puts and takes of CSP this year and going forward.

Doug Bettinger: Yes, I don't know that were going to put a number on the growth rate for <unk> at this point, but clearly that business has been heavily impacted by the utilization cuts that occurred within our customer fabs and we saw that both in spares as well as.

Doug Bettinger: A curtailment of many of the technology upgrades.

Doug Bettinger: <unk> will just occur year in year out and so.

Doug Bettinger: That did have an impact on <unk> revenues.

But going forward I talked about how much larger the installed base is now at the <unk>.

Doug Bettinger: Much larger installed base that.

Doug Bettinger: Because of the delay in technology upgrades, there's pent up demand there I mean, those tools need to be upgraded to be operating at the latest and most efficient and most competitive technology nodes for our customers and so.

Doug Bettinger: I don't know the exact timing, but I do know that installed base will be upgraded and we'll actually generate quite a lot of them are revenue program going forward.

Okay.

Maybe just to let you remind remind you there's four components of <unk> spare service upgrades, all which will benefit from what Tim was describing you also have the reliant product line in there, which is just an amazing in the last year.

Doug Bettinger: That will ebb and flow to a certain extent with more mature nodes specialty no Wi Fi so don't lose sight of that one there might be a slightly different dynamic.

Doug Bettinger: The aligner product line.

Doug Bettinger: Perfect. Thank you very much.

Doug Bettinger: Thanks Arlinda.

Speaker Change: The next question is from <unk> Malik with Citi. Please go ahead.

Hi, Thank you for taking my question first one Tim.

Historically, you guys have been disproportionately when.

Speaker Change: When demand spending.

Toshiya Hari: Happens in.

Toshiya Hari: If you were to think about your position competitively and when the NAND spending recovers I understand its getting more technology upgrades.

How should we think about the acquisition coming out of <unk>, NAND and downturn competitively, particularly on.

More layers in the hole etch that profit.

Toshiya Hari: Yes, I think that.

Toshiya Hari: It's a good question and that was what I pointed out I mean, I think what we're looking at in the near term in those first stages of recovery is customers are very cost sensitive and the best way to achieve that next technology nodes by upgrading the equipment that you have in place and so Lam, we spend a tremendous amount of time investing in tech.

Toshiya Hari: <unk> that enable the upgrade and extension of our equipment and that's really high value to our customers I think that will actually go on for quite a long time, we have about 6500.

Toshiya Hari: Chambers of high aspect ratio etch for instance, in the managed marketplace.

Doug Bettinger: That creates a lot of next generation technology to those upgrades and beyond that the learning you get from Dow running those upgraded chambers at that next technology node.

Doug Bettinger: Tends to cede all of the ideas and understanding of the challenges that need to be solved at the next node and I think that's why the installed base positions and incumbent positions.

Doug Bettinger: And two to be very difficult to break in this industry and we've tried to break many others break into others and so we know that very well what Lam has done extremely well is to collaborate closely with our customers I talked about our close to customer strategy, putting R&D labs in.

Doug Bettinger: In very close proximity to our customers and again, that's just the way in which we ensure that we're adequately meeting both their technology and cost needs going forward.

Doug Bettinger: Great and then a quick clarification, Doug on the Opex, you said R&D will be up year over year wasn't sure. If that implies total opex is also up our SG&A is down to offset the increase in R&D.

Doug Bettinger: Total opex was probably going to be up.

Doug Bettinger: Turf R&D will be up more than 69% of total spending in R&D in the last quarter Thats a high watermark.

Doug Bettinger: But we are purposefully growing R&D.

Doug Bettinger: Primarily because of all of those inflections that we've been talking about.

Doug Bettinger: I think the maybe the easiest way to think about it is the lead time for us to develop new products that we need to drive growth is.

Doug Bettinger: As unfortunately little bit longer.

Doug Bettinger: Lead time for our four spending revenue so.

Doug Bettinger: With an outlook that growth is coming and that we are entering this next upturn where there are tremendous opportunities for the company, we feel very confident to invest.

Doug Bettinger: Head of that revenue showing up and that's I think what we signaled through this year, but with the confidence that we are going to see that growth in new products and technology investment from our customers.

Doug Bettinger: Thanks Joseph.

The next question is from Toshi Hari with Goldman Sachs. Please go ahead.

Toshiya Hari: Hi, guys. Thank you so much for taking the question.

Toshiya Hari: First one on <unk> Doug.

I forget if you mentioned this but is there a first half second half sort of bias that youre willing to share as we think about.

Toshiya Hari: The trajectory of Adobe a few this year and more importantly.

Toshiya Hari: Curious, how we should be thinking about your rate of outperformance vis vis the market you guys have talked about.

Doug Bettinger: Obviously, dep and etch intensity growing.

Doug Bettinger: Across the memory space.

Doug Bettinger: You talked about advanced packaging and HBM.

Doug Bettinger: M.

Doug Bettinger: And things like drivers so so assuming your acura.

Doug Bettinger: Accurate with your AWP assumption and the market's up call. It mid to high singles, what sort of outperformance can we can you sort of expect from you guys in calendar 'twenty four.

Doug Bettinger: <unk> I guess, the first I think it's a little bit second half weighted year. This year I think it's going to be sort of a slow start to the year. Maybe we just guided just essentially flat revenues quarter on quarter. So thats part of what Youre, saying.

Doug Bettinger: But we would expect it will be somewhat stronger in the second half and then overall you know.

Doug Bettinger: We're not going to give you the individual components between NAND DRAM foundry and logic what grows more I think everything probably grows to a certain extent.

Doug Bettinger: When we look at all these inflection so in all aspects of those end.

Doug Bettinger: End markets, we see etch and deposition intensity stepping up as you walk from node to node to node so that is unchanged.

Doug Bettinger: Got it. Thank you and then as my follow up on China, Doug You mentioned, China as a percentage of your systems revenue to stay elevated in the March quarter.

Doug Bettinger: And then you went on to say that that number should decline as you progressed through the year is that just purely a function of.

Doug Bettinger: Your other businesses other regions.

Doug Bettinger: Improving throughout the year or are you sort of sensing.

Doug Bettinger: Absolute decline in your China business and if so what are some of the areas of device types of applications Youre seeing a slowdown thanks.

We are not seeing China slowdown, it's purely just timing of when spending is occurring.

Hello.

Doug Bettinger: Okay. Thank you.

Doug Bettinger: Yes, so sure we purposely been using the word and I think you heard it in both Tim and my comments stable.

Brian So that's a consistent description that we have.

<unk> been sand per well.

Thank you.

Doug Bettinger: Yes. Thank you.

Speaker Change: The next question is from C. J Muse with Cantor. Please go ahead.

Yes. Good afternoon. Thanks for taking the question I guess was hoping you could speak to kind of your vision for what a recovery might look like for NAND, and where we might get to on a normalized basis, perhaps into 2025, and if you reflect on perhaps a lower normalized number and think about some of the new areas that you're investing in.

Speaker Change: Whether it's memory or advanced packaging or changes and backside power gate all around.

Speaker Change: Is there enough kind of juice there to get you to where you can.

C J: Overall drive that rich WSB intensity and get us back to kind of those peak levels. When <unk> NAND was first adopted.

C J: Sure C. J I think I think the simple answer is yes, we do believe that I mean, we've.

C J: Let me, let me address the NAND question first which.

C J: As I mentioned this year customers are primarily focusing on technology upgrades and what makes sense and eventually to drive that.

Of the bit growth that we think we see longer term obviously there is some.

C J: Additions that need to be made but we're not we're not forecasting that this year with.

C J: With each of those technology evolutions, etch and dep intensity rises simply because of the increase in number of layers and in a technology upgrade we've talked about the fact that Lam captures a much higher percentage of the fee because of the role that etch and deposition play in the technology upgrades. So I think that as we see NAND growing recut.

C J: <unk> and growing at a certain percentage rate Lam will actually significantly outperformed net rate because of the fact that most of that is coming from upgrades now longer term I think we have turned our attention and strategically we've said we want to build resilience into our business by really capturing a lot of the opportunities that exist of course in NAND, where we're very strong but really.

C J: Outside of manned and some of these other markets that are becoming more etch and dep intensity and we've talked about those whether it's gate all around or backside power advanced packaging.

C J: <unk> patterning and each of those we've characterized as a one.

C J: Billion dollar plus opportunity when fully scaled.

For Lam, so and those are Sam expansion in that they are incremental to where land has been before so I think when you play those out and obviously we have to be successful in execution. That's why we keep talking about we're gaining traction but there is still there's still a ways to go before these inflections and all decisions are made but.

C J: We think those those can certainly drive lam to to new highs in terms of revenue and obviously profitability as well.

Doug Bettinger: Very helpful. Tim I guess, a quick follow up Doug.

Doug Bettinger: No you are hesitant to guide Opex for the full year, but perhaps you could help us understand maybe the impact of the extra week on the March quarter end.

Doug Bettinger: How youre thinking about driving that R&D growth through the calendar year.

Doug Bettinger: Yes C. J I mean, it's 14 weeks versus 13, Thats the right way to kind of think about it you can just ratio led to understand kind of it's a longer quarter. So thats. The piece from that and then any delta to get to the 29 five op margin is part of that beginning to step up R&D.

C J: As we go through the year, though.

C J: We will purpose would be growing the investment in R&D. So that you might not see the historic leverage that we've delivered is so it is what I described a quarter ago and Thats still very much how you should be thinking about it.

C J: Thank you.

Yeah, Thanks, Vijay welcome back.

Speaker Change: The next question is from screening for jewelry with Raymond James. Please go ahead.

Speaker Change: Thank you Tim you talked about your trough vps, doubling essentially which is a tremendous achievement and execution.

Speaker Change: I think part of the reason was your services business did.

Increases as a percent of the mix I think that helped for sure.

Speaker Change: Stabilizing the cyclicality a bit so.

Speaker Change: As we go through the next I guess as we kind of look out for the next couple of years as business recovers I'm just curious as to how you think about the mix shaking out between systems and services and how what sort of implications that might have for your topline and also your margin profile and I guess on the neck.

Speaker Change: <unk> peak EPS, if you want to talk about that.

Speaker Change: Sure well, here's here's why it's always a little difficult to answer. This question is because we're certainly investing to grow our serve our systems business tremendously as well and so we don't look at it as one trading off versus the other and so in fact, one kind of begets. The other the better our systems business does the faster our installed base grows.

Speaker Change: And that's that's really the story from 2019.

Speaker Change: Until now when we talk about how much the installed base has grown.

Speaker Change: We shipped a lot of new systems that grew that installed base by nearly 50%. So going forward I think that we anticipate the to the ratio of <unk> revenue to overall revenue staying kind of in the historical range that it's been in and that's that's just going to be driven by kind of equivalent on success in both parts.

Speaker Change: But the <unk> revenue the installed base business not only gives us stability, but it also opens new channels for growth for the company and I've talked about this on previous calls which is.

Doug Bettinger: I think that when we think about how Lam leverages things like artificial intelligence and data.

Doug Bettinger: It's in the installed base services business on the last call I talked about even co bonds.

Doug Bettinger: A collaborative robots to start to do some of the service that today is done by skilled engineers our customers in this industry have to find ways to be able to innovate faster and also provide.

Doug Bettinger: Manufacturing services at a lower cost and I think that we can do that by innovating around the installed base and create new.

Doug Bettinger: Products and service offerings that help us grow at a faster pace than the installed base itself is growing.

Doug Bettinger: Got it.

Doug Bettinger: And then Doug one clarification on the deferred revenue I think it went up about $238 million. This quarter you talked about prepayments just curious are customers still prepaying because of any supply constraints or is this an ongoing I guess trend that youre seeing just if you can talk about how we should think about the different revenue going forward.

Doug Bettinger: It would be helpful. Thank you.

Doug Bettinger: Yes.

Doug Bettinger: I guess, what I would describe you should think about the advance payment is when we have a new customer that were just kind of.

Doug Bettinger: Understanding with our balance sheet looks like especially if they're private customer that we can't see the balance sheet, it's not publicly reported.

Doug Bettinger: And the credit worthiness might be sort of questionable we required cash upfront before we begin manufacturing of tool and thats whats going on there.

Doug Bettinger: That's all it is.

Doug Bettinger: Got it thank you.

Doug Bettinger: Thanks Brent.

Doug Bettinger: The next question is from Stacy <unk> with Bernstein Research. Please go ahead.

Stacy Aaron Rasgon: Hi, guys. Thanks for taking my questions. After the first one around the China <unk> being stable in calendar 'twenty four.

Stacy Aaron Rasgon: All market segments being stable or do you see some like being stronger and some being weaker.

How do you how do you see that that into play.

Stacy Aaron Rasgon: Stacy I don't really see a big change year on year relative to end market.

Stacy Aaron Rasgon: I'll remind you in China DRAM was second half weighted last year, it's probably a little bit first half weighted in China, maybe more than a little bit this year.

Stacy Aaron Rasgon: But year over year, I don't think I really think of a significant change in contribution for the entire year.

Stacy Aaron Rasgon: Yeah.

That's helpful and I guess to follow up on the China question, you, maybe maybe it's a follow up on one of the earlier questions that.

It does sound to me like you are suggesting China mix should come down through the year, maybe you can clarify that because I've got overall stable.

Krish Sankar: <unk> revenues like how does your China mix come down materially it doesn't look like you're looking for overall like non China WP to grow a ton right.

Krish Sankar: And some of that.

Krish Sankar: The other area so.

Krish Sankar: Yes, let me remind you in 2023, China was a more modest amount of Wi Fi and it grew in the second half of the year.

Krish Sankar: And so the comments were making our year over year, it's relatively stable kind of half on half stuff probably looks different in 'twenty four than it did in 'twenty three in China specifically.

That's helpful. And then so then exiting the year, you think youre back to that sort of normalized gross margin range. As a result of that is China falls off in the second half.

Krish Sankar: Yes, the customer mix stuff.

I think mitigate somewhat as we go through the year and it continues to be quite strong in the March quarter guidance.

Krish Sankar: Got it that's helpful. Thank you guys.

Krish Sankar: Thanks Joseph.

Krish Sankar: The next question is from Vivek Arya from Bank of America Securities. Please go ahead.

Vivek Arya: Thank you for taking my question My first one I'm curious, what's your assessment of NAND supply demand as it exists today.

And the OWS view, you are assuming that non growth, but more because of technology upgrades, but what are your customers, telling you as to when they want to start adding.

Vivek Arya: More tools and whats.

Vivek Arya: Our labs opportunity to grow NAND at a measured pace in the second half of the year.

Vivek Arya: Yes, I think that.

First of all I wouldn't necessarily talk about what we are discussing with our customers on that standpoint, but things that are out there. We do know and I think we know that the utilization cuts were pretty severe in NAND last year and so there is a tremendous amount of.

Vivek Arya: The capacity that is.

Vivek Arya: Has been offline and we said in the past that needs to be brought back online and I think the question in the discussions we're having is at what technology node should that capacity be restarted and in many cases, there is a very high likelihood that that technology upgrade cycle will occur as that equipment is brought back into.

Doug Bettinger: In the service and so in that case, we would actually begin to see a restart of some of the utilization driven revenue that we get from things like spares and services as well as at the same time, a restart of technology upgrade revenues and that's why I think that from a NAND perspective. This year, we think that will effectively.

Represent the majority of the spend that occurs in this segment.

Okay, and then Tim as you know.

Tim: Many of the DRAM customers are saying that they plan to shift more towards HBM from from DDR does that have any positive or negative influence on your <unk> in the Spanish business.

Tim:

Tim: Hello.

I don't I cant quite make that connection right now our math to give us some thought but clearly clearly we see an impact on our systems business as I mentioned, where we're having to add the specific HBM related, especially advanced packaging steps related to the stacking of HBM itself.

Tim: We're seeing significant growth in that area.

Tim: And so with that given where shipping additional systems. There is some incremental spares business and services business that goes along with that but.

Tim: I think the systems portion of that kind of a waste from a dollars perspective.

Tim: I guess, maybe just to clarify does you'll see the business start to grow consistent with the growth in newer tools.

Tim: <unk> business overall or do you think there is going to be a lag factor because it's slow down later or does it start to re grow later also.

It depends on the rate of growth in Wi Fi to be perfectly Frank direct come in.

Tim: Since the spare service upgrades to chug, along and we think thats going to benefit as utilization and whatnot begins to come back.

Tim: And then it really answer your question you Gotta go figure out what you think the pace of the Wip growth is I'm not going to put numbers on that right now and we're going to kind of wait and see.

C J: Thank you.

Vivek Arya: Thanks Vivek.

Vivek Arya: The next question is from Krish Shankar with CDT Cowen. Please go ahead.

Krish Sankar: Yeah, Hi, Thanks, Mary My question first of all for Bob Walsh, Doug.

Doug Bettinger: I think that would gain mentioned above are gradually recovering publicly before.

Doug Bettinger: More back half weighted.

Doug Bettinger: And Doug I'm not looking for guidance.

Doug Bettinger: I'm just wondering what you think.

Doug Bettinger: Lan.

Doug Bettinger: Revenues in the calendar second album, one Paul.

Doug Bettinger: Yeah.

Doug Bettinger: My first question and then a follow up.

Doug Bettinger: You are a little bit muffled, Chris, but I think you were asking about our performance along with Wi Fi and frankly, I think we will mirror whatever the trajectory of <unk> looks like.

Doug Bettinger: With an expectation that etch and dep out grows to a certain extent.

Doug Bettinger: I answered your question, although you were a little bit muffled there.

Doug Bettinger: Doug I was just starting to wonder if the second half 'twenty four.

Doug Bettinger: Revenue for <unk> going to be better than calendar wholesale.

Doug Bettinger: Bob.

Doug Bettinger: Yes, I think it will be crucial.

Chris I'm not going to put numbers on it yet, but we will mirror what goes on with Wi Fi.

Doug Bettinger: Got it got it Okay and then my follow up Doug.

Doug Bettinger: Doug.

Doug Bettinger: You spoke about <unk> and AI.

AI and all that good stuff I'm just wondering.

Doug Bettinger: Yeah.

C J: HBM media buy.

C J: Joel Thanks for Dep and edge.

C J: Before giving up on legacy.

C J: Is it more like from a margin standpoint.

C J: Yeah.

C J: Is it like.

C J: Neutral.

I guess, what I'd say, Chris from a margin standpoint, you didn't you shouldnt think about any differential.

Chris: Margin necessarily the incremental piece first.

Chris: That goes into high bandwidth memory is a bigger dive you know that.

The die itself buildings duty, our five values largely the same equipment.

Chris: Builds DVR.

Chris: <unk> that doesn't go into HBM be incremental stuff comes when you go into the advanced packaging stuff, the symbion deep silicon etch and the electroplating or areas where were extraordinarily strong in addition to some other things.

Chris: That is clearly incremental equipment.

Chris: Yeah, and I think from a from a.

Etch and dep intensity perspective in.

Speaker Change: In General I think you mentioned Didi and refine the DD DD on <unk>, Yes, I think in general.

Doug Bettinger: With each technology node evolution, whether it's DRAM NAND and foundry logic, we've sent etch and dep intensity rises with technology advancement and so I think you can imagine that there is more equipment being needed and that's in addition to the fact that larger die sizes drive.

Doug Bettinger: Greater equipment for bid out so there's a lot of factors that every time, we move forward.

There is more equipment and more land and equipment required with this technology nodes.

Thanks, Paul.

Doug Bettinger: Yes, Thanks, Craig.

Doug Bettinger: The next question is from Joe Moore with Morgan Stanley. Please go ahead.

Doug Bettinger: Great. Thank you.

Joe L. Moore: If I could ask about your DRAM assist.

Joe L. Moore: Systems revenues in the December quarter never kind of back to the highest in a couple of years ago, but I know you had some China in there I think there is some of the advanced packaging can you can you just give us a sense for what's kind of core DRAM within that and then you're pretty constructive on where that's going can you give us a sense of the dynamics.

Joe L. Moore: China going forward versus other regions in other parts of DRAM.

Joe: I guess, Joe just take you back to what I had in my script two things are driving the strength in DRAM in the December quarter, and you mentioned both of them and frankly, it's a high bandwidth memory and DDR five in addition to the fact that we've got.

Joe: China customer in DRAM in the second half of the year that include September and December that wasn't in the first half so each of those things contribute to the strength you saw in December.

Joe: Okay, and then looking forward it seemed like you had more than.

Joe: Six months of demand from that China customer in the second half going forward does that come down but core DRAM comes up in HBM comes up.

Joe: Probably.

Joe: Okay, great. Thank you.

Joe: Thanks, Joe.

Speaker Change: The next question is from Brian Chin with Stifel. Please go ahead.

Speaker Change: Hi, good afternoon, thanks for letting us ask a few questions maybe going back to Nan.

The best ever quarter for NAND spending was was probably higher than the total level of NAND spending maybe for all of last year and so even if it's off a low base isn't it pretty logical that NAND WSI should exhibit the largest or highest rate of improvement in 'twenty four.

Yeah.

Speaker Change: Okay.

I wouldn't necessarily draw that conclusion, Brian I think we're going to tell you that I think every segment wip grows this year NAND DRAM foundry logic, it's all up to a certain extent I'm not going to get into the business of quantifying each individual one because frankly at the end of the day, we will get it wrong.

C J: But I think everything will grow to a certain extent.

C J: Okay fair enough.

C J: And then just to kind of level set and DRAM and then also looking forward.

Doug Bettinger: How much did DRAM industry spending actually decline in 'twenty three it seems to be better than was initially thought based on HBM, etc.

Doug Bettinger: And also can you give us a sense of the number of wafer starts or percent of the DRAM installed base that could be converted to more advanced one alpha one beta like process nodes this year.

I guess Brian.

Doug Bettinger: Tim I think had this in his script memory overall was down roughly 40%.

NAND was down north of 70%.

Tim: Differential to get to the numbers is DRAM you can do that.

Speaker Change: And yes, I think the second part of your question.

Speaker Change: DDR five has been a big part of the strength in DRAM.

Speaker Change: Okay that was actually the second part was kind of more towards.

Speaker Change: What is the potential number of wafer starts or the percentage of the installed base that sort of.

Alright.

Speaker Change: <unk> for those conversions to one alpha one beta like nodes.

Speaker Change: For the most part in memory everything gets upgraded to the next all of them.

Speaker Change: That's always been the case, that's not a new phenomenon.

Okay.

Speaker Change: Okay. Thanks.

Speaker Change: Thanks, Brian.

Speaker Change: The next question is from Chris Caso with Wolfe Research. Please go ahead.

Speaker Change: Yes. Thank you good evening.

Speaker Change: <unk> is on delivery times, and you had mentioned.

Chris Caso: Obviously your delivery times may be different than some others in the industry, where do they sit right now and as a consequence of how much visibility do your customers need to give you and with that when we start to see some some stronger perhaps memory spending how quickly will you be able to react to that and turn that for revenue.

Chris Caso: Yes, so we don't obviously publicly.

Chris Caso: Telegraph, our lead times, but we had talked about the fact that during during the Covid pandemic, our lead times due to supply chain shortages in stretch film quite long and those have now.

Chris Caso: Come back to a much more normalized level, although they still.

Chris Caso: Oh.

Chris Caso: Are such that.

For us to make shipments within this year, we would have to know about those orders that's forecast pretty pretty quickly. The one thing thats helped as I talked about our investments in.

New manufacturing and supply chain operations within our customer ecosystems, so thats, putting as much closer it's diversifying our supplier base and I think is going to this next upturn make us much more responsive to customer needs. So really we worry less about lead time and more about our ability to respond.

Chris Caso: And the timeframe, which our customers need to place orders to meet their ramps.

Chris Caso: We tend not to be the best.

Doug Bettinger: We tend not to be the bottleneck, let's put it that way in terms of a lead time perspective planning in their fab.

Fair enough.

Doug Bettinger: As a follow up question I wanted to ask about back side power and last quarter you made some disclosures about.

The revenue impact to Lam.

Doug Bettinger: As it happened could you give a little more color on that and specifically we know that different customers are having different implementations of backside power.

Doug Bettinger: At what point does that start to become a meaningful driver for Lam.

Doug Bettinger: So I think given the important role that both etch and deposition play in that and our strong position.

Doug Bettinger: In parts of the backside power process like copper plating, where some of those.

Doug Bettinger: Layers of becoming.

<expletive> can influence of processes become longer.

Doug Bettinger: I would say going to very rapidly become quite meaningful for the company and again, it's just a.

Doug Bettinger: A further demonstration of how.

Doug Bettinger: Going three D.

Doug Bettinger: Essentially using those using etch and depth to create more complex architectures allows you to reduce power and <unk>.

Doug Bettinger: <unk> performance is and also reduce costs.

Doug Bettinger: We talked about it in the sense <unk> power are you seeing the same thing with.

Chris Caso: Chip stacking and each HBM and <unk> integration and Thats why I said I think the next era of semiconductors characterized by all of these more unique <unk> architectures. They are all good for the types of products. We sell thanks, Chris operator, we have time for one more question.

Chris Caso: And that question comes from Thomas O'malley with Barclays. Please go ahead hey.

Guys. Thanks for taking my question I was curious if you guys had a view on the HBM market clearly with the accelerator market growing as quickly as some think theirs.

Concerns that the HCM market may actually be shipping above peak in 'twenty four 'twenty five do you guys have a view internally on.

Just how fast <unk> is growing as a market segment and just could you just give us a perspective.

When you look at it the acceleration of a tool roadmap with the customer on HBM.

Chris Caso: How much of that has pulled in in the last six months, what you would typically see from a DRAM customer when theyre looking for a tool. Thank you very much.

Chris Caso: Sure.

I think that as a real key supplier into the HCM market as I mentioned the strong position in.

In the in the processes required for the snacking. This is an area where we're seeing.

Chris Caso: Very very strong demand.

I think that whether whether or not at some point its shipping above peak I think that this AI market is is continuing to evolve in a very very fast rate and we're focused on right now.

Chris Caso: Ensuring we are building out our own capacity and capabilities and ensuring that we maintain that technology leadership, that's allowing us to hold 100% market share of the TSV formation in HBM and so really that's that's our that's our focus is hold the position and let the market grow as fast as the market grows.

Chris Caso: Helpful. And then just one on the makeup of inventory you guys have talked about working down inventory throughout the year is there any color you can give us on the makeup of that inventory is it more memory related or foundry logic related I know you don't want give specifics, but just where do you see that inventory coming down through the first half of the calendar year. Thank you very much.

Chris Caso: Yes.

Chris Caso: It's the rate of decline in memory as we went into 'twenty three was pretty dramatic and we ended up taking more inventory than we needed.

Pacifically for memory. So there is.

Chris Caso: A bigger component of the targeted net memorandums memory recovers the inventory will come down.

Chris Caso: Thank you thanks for the question.

Chris Caso: This concludes our question and answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.