Q3 2024 KLA Corp Earnings Call
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Operator: Good afternoon. My name is Doug, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the KLA Corporation March quarter 2024 earnings conference call and webcast. All participant lines have been placed on a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star and 1 on your telephone keypad.
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Doug: Good afternoon, My name is Doug and I'll be your conference operator today at this time I'd like to welcome everyone to the KLA Corporation March quarter, 2024 earnings conference call and webcast.
Operator: If you wish to remove yourself from the queue, please press star and 2, and please limit yourself to one question and one follow-up. Lastly, if you should need any operator assistance, please press star and zero. Thank you. I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead.
Doug: All participant lines have been placed on a listen only mode to prevent any background noise. After.
Doug: After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question at that time. Please press star and one on your telephone keypad. If you wish to remove yourself from the queue. Please press star and to please limit yourself to one question and one follow up.
Kevin Kessel: Thank you for joining our earnings call to discuss the March 2024 results in the June Quarter Outlook. I am joined by our CEO, Rick Wallace, and our CFO, Bren Higgins.
Kevin Kessel: We will discuss today's results, which will be released after the market close and available on our IR website along with the supplemental materials. Today's discussion and metrics are presented on a non-GAAP financial basis unless otherwise specified. All four-year references are to calendar years.
Doug: Lastly, if you should need any operator assistance, please press star and zero.
Doug: Yes.
I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and market analytics. Please go ahead. Thank.
Kevin Kessel: The earnings materials contain a detailed reconciliation of GAAP and non-GAAP results. KLA's IR website also contains future investor events, presentations, corporate governance information, and links to the SEC filings, including our most recent annual report and quarterly reports on Forms 10-K and 10-Q. Our comments today are subject to risks and uncertainties reflected in the disclosures of risk factors in our SEC filings. Any forward-looking statements, including those we make on the call today, are subject to those risks, and KLA cannot guarantee that those forward-looking statements will come true.
Kevin Kessel: Thank you for joining our earnings call to discuss the March 2024 results mid June quarter outlook I am joined by our CEO, Mike Walsh, our CFO, Brian Hey, guys.
Kevin Kessel: <unk> financial results released after the market close and available on our IR website, along with supplemental materials, today's discussion and metrics presented non-GAAP financial basis, unless otherwise specified.
Kevin Kessel: Full year references are two calendar years.
Kevin Kessel: The earnings materials contain a detailed reconciliation of GAAP to non-GAAP results is IR website also contains future investor events presentations.
Doug: Of our governance information and links to the SEC filings, including our most recent annual report and quarterly reports on Form 10-K and 10-Q.
Kevin Kessel: Our actual results may differ significantly from those projected in our forward-looking statements. Rick will begin the call with some introductory comments, followed by Bren with additional financial highlights, including our outlook. We'll now turn the call over to our CEO, Rick Wallace.
Doug: Comments today are subject to risks and uncertainties reflected in the disclosures of risk factors in our SEC filings.
Doug: Any forward looking statements, including those we make on the call today are subject to those risks and KLA cannot guarantee those forward looking statements will come true.
Doug: Actual results may differ significantly from those projected in our forward looking statements.
Richard Wallace: Frank will begin the call with some introductory comments followed by Brian with additional financial highlights, including our outlook I will now turn the call over to our CEO, Rick Wallace Rick Thank you Kevin.
Richard Wallace: Thank you, Kevin. Today, I will review KLA's March quarter results and highlights and address the new market share reports as well as a broader industry outlook. KLA's revenue of $2.36 billion was above the midpoint of our guidance range. EPS results, both non-GAAP and GAAP, were above the midpoint of the adjusted guidance we provided on March 18th in conjunction with the decision to exit the flat panel business. Market conditions have stabilized, and we expect our business to improve as we progress through the year.
Richard Wallace: Today, I'll review Kla's March quarter results and highlights and address the new market share reports as well as the broader industry outlook Kelly's revenue of $2 $3 6 billion was above the midpoint of our guidance range EPS results, both non-GAAP and GAAP were above the midpoint of the adjusted guidance we provided on <unk>.
Richard Wallace: March 18th.
Richard Wallace: Conjunction with the decision to exit the flat panel business.
Richard Wallace: Market conditions have stabilized and we expect our business to improve as we progress through the year. We're encouraged by the improvement in our customers business across multiple end markets, which is driving discussions with our customers about future opportunities for leading edge capacity investments.
Richard Wallace: We're encouraged by the improvement in our customers' business across multiple end markets, which is driving discussions with our customers about future opportunities for leading-edge capacity investment. At the start of each year, new global market share reports are published by third parties that provide additional insights into the state of our industry. These reports show consistent, long-term KLA market leadership and process control and demonstrate the strength of our diverse portfolio, which offers our customers unique capabilities to address their technology challenges while meeting their productivity demands.
Richard Wallace: At the start of each year, new global market share reports published by third parties that provide additional insights into the state of our industry.
Richard Wallace: These reports show consistent long term KLA <unk> market leadership and process control and demonstrate the strength of our diverse portfolio that offers our customers unique capabilities to address their technology challenges while meeting their productivity demands. This year following significant gain in 2022, <unk> 2023 market share decline.
Richard Wallace: This year, following a significant gain in 2022, KLA's 2023 market share declined by nearly one percent, driven primarily by a loss in access to approximately 10 percent of the Chinese market as a result of U.S. government export controls.
Richard Wallace: By nearly 1% driven primarily by a loss in access to approximately 10% of the China market. As a result of U S. Government export controls that said kla's consistent market leadership and process control and some of the most critical markets in WMC reflect the success of our customer focused strategies in the <unk>.
Richard Wallace: That said, KLA's consistent market leadership and process control and some of the most critical markets in WFE reflect the success of our customer-focused strategies and the power of our portfolio. We're confident that KLA's quarterly revenues bottomed in the March quarter, as expressed in our prior earnings call. In Foundry logic, simultaneous investments across multiple nodes and slowly rising capital intensity continue to be a long-term tailwinds. Additionally, the increasing complexity of advanced packaging applications for AI and other advanced technologies drive demand for both our process tool and process control products. Overall demand growth, along with increasing technological requirements, will drive the need for more capability from inspection and metrology systems.
Richard Wallace: Power of our portfolio.
Richard Wallace: We're confident that <unk> quarterly revenues bottomed in the March quarter as expressed in our prior earnings call.
Richard Wallace: In foundry logic simultaneous investments across multiple nodes and slowly rising capital intensity continue to be a long term tailwind. Additionally, the increasing complexity and advanced packaging applications for AI and other advanced technologies drive demand for both our process tool and process control products.
Richard Wallace: Overall demand growth along with increasing technology requirements will drive the need for more capability from inspection and metrology systems, our advanced packaging business will generate approximately $400 million and run rate in 2024, and we expect this business to achieve growth rates meaningfully above the growth rate of <unk> going forward.
Richard Wallace: Our advanced packaging business will generate approximately $400 million in run rate in 2024, and we expect this business to achieve growth rates meaningfully above the growth rate of WFE going forward. In services, our business grew to $590 million in the quarter, up 4% sequentially and 12% year over year. Quarterly free cash flow was $838 million, and the last 12-month free cash flow was $3.1 billion, with a free cash flow margin of 32% over the period.
Richard Wallace: And services, our business grew to $590 million in the quarter up 4% sequentially and 12% year over year.
Richard Wallace: Orderly free cash flow was $838 million in the last 12 months free cash flow was $3 1 billion for.
Richard Wallace: So the free cash flow margin of 32% over the period.
Richard Wallace: KLA's quarterly results continue to demonstrate our sustained process control leadership and the success of our broad portfolio and product strategies. Customers continue to prioritize and invest in leading-edge technology transitions, and this aligns with KLA's highest-value product offering. In this industry environment, KLA will continue to focus on supporting customer requirements, executing on product roadmaps, and preparing for growth at the leading edge. Bren will now discuss the financials and our outlook further. Thank you, Rick.
Richard Wallace: Kla's quarterly results continue to demonstrate our sustained process control leadership and the success of our broad portfolio and product strategies customers continue to prioritize and invest in leading edge technology transition and this aligns with KLA is highest value product offerings.
Richard Wallace: In this industry environment KLA will continue to focus on supporting customer requirements executing on product roadmaps and preparing for growth at the leading edge.
Richard Wallace: Brent will now discuss the financials and our outlook further thank.
Brent: Thank you Rick dailies quarterly results demonstrated a consistent execution of our global team.
Bren Higgins: KLA's quarterly results demonstrated the consistent execution of our global team. Despite the challenges and complexity of the current industry environment, KLA continues to show resourcefulness and the ability to adapt to meeting customers' changing requirements. Quarterly revenue was $2.36 billion, above the guidance midpoint of $2.3 billion. Non-GAF diluted EPS was $5.26, above the guidance midpoint of $4.83. The absolute EPS was $4.43, above the guidance midpoint of $4.06. In the March quarter, both non-GAAP and GAAP-diluted EPS were negatively impacted by a $62 million charge for excess and obsolete inventory related to the company's strategic decision to exit the flat panel display business, announced on March 18. This charge had a 40 cent impact on EPS.
Richard Wallace: Spike the challenges and complexity of the current industry environment KLA continues to show resourcefulness and the ability to adapt to meeting customers changing requirements.
Richard Wallace: Quarterly revenue was $2 $3 6 billion above the guidance midpoint of $2 3 billion.
Richard Wallace: non-GAAP diluted EPS was $5 26.
Richard Wallace: Above the guidance midpoint of $4 83.
Richard Wallace: GAAP diluted EPS was $4 43.
Richard Wallace: Above the guidance midpoint of $4 six.
Richard Wallace: In the March quarter, both non-GAAP and GAAP diluted EPS were negatively negatively impacted by a $62 million charge for excess and obsolete inventory related to the company's strategic decision to exit the flat panel display business announced on March 18.
Richard Wallace: This charge had a <unk> 40 impact on EPS. Excluding this item diluted non-GAAP EPS would have been $5 66.
Bren Higgins: Excluding this item, diluted non-GAP EPS would have been $5.66. Non-gap gross margin was 59.8%, above the top end of the revised guidance range. Excluding the FPD charge, non-GAAP gross margin would have been 62.4% and roughly flat sequentially. Non-GAAP operating expenses were flat sequentially at $544 million, comprised of $320 million in R&D and $224 million in SG&A. Non-GAAP EPS at the 13.5% guided tax rate would have been $0.04 higher or $5.30. Non-GAAP operating margin was 36.8%, non-GAAP other income and expense net was a $34 million expense, and the quarterly non-GAAP effective tax rate was 14.2%.
Richard Wallace: non-GAAP gross margin was 59, 8% above the top end of the revised guidance range.
Richard Wallace: <unk> the PD charge non-GAAP gross margin would have been 62, 4% and roughly flat sequentially non.
Richard Wallace: non-GAAP operating expenses were flat sequentially at $544 million comprised of $320 million in R&D and $224 million in SG&A non.
Richard Wallace: non-GAAP EPS at the 13, 5% guided tax rate would have been <unk> <unk> higher or $5 30.
Richard Wallace: non-GAAP operating margin was 36, 8% non-GAAP other income and expense net was $34 million expense in the quarterly non-GAAP effective tax rate was 14, 2%.
Bren Higgins: Quarterly non-GAAP net income was $715 million, GAAP net income was $602 million, cash flow from operations was $910 million, and free cash flow was $838 million. The breakdown of revenue by reportable segments and markets and major products and regions can be found in the shareholder letter and slides.
Richard Wallace: Accordingly, non-GAAP net income was 715 million GAAP net income of $602 million cash flow from operations was $910 million and free cash flow was $838 million.
Richard Wallace: The breakdown of revenue by reportable segments and markets and major products and regions can be found within the shareholder letter and slides.
Bren Higgins: Turning to the balance sheet, KLA ended the quarter with $4.3 billion in total cash, cash equivalent to marketable securities, debt of $6.7 billion, and a flexible and attractive bond maturity profile, supported by strong investment grade ratings from all three agencies. On February 1st, KLA issued $500 million of 4.7% senior notes due in 2034 and $250 million of 4.95% senior notes due in 2052. The company expects to use the net proceeds from the notes offered for general corporate purposes, including the repayment of outstanding indebtedness at or prior to maturity.
Richard Wallace: Turning to the balance sheet KLA ended the quarter with $4 $3 billion in total cash cash equivalents in marketable securities debt of $6 7 billion and a flexible and attractive bond maturity profile supported by strong investment grade ratings from all three agencies on.
Richard Wallace: On February 1st KLA issued $500 million of four 7% senior notes due in 2034 and $250 million of 495% senior notes due in 2052.
Richard Wallace: The company expects to use the net proceeds from the notes offering for general corporate purposes, including the repayment of outstanding indebtedness at or prior to maturity.
Bren Higgins: Moving to our outlook, we remain encouraged by constructive customer discussions around their future investment plans, which are further supported by recent reports of an improving end market demand environment and customer profitability. Consistent with these industry trends, as we indicated last quarter, we believe our business bottomed from a revenue perspective in the March quarter, and looking ahead through the balance of calendar 24, growth is resuming in the June quarter, and we expect business levels to improve as we progress through the year. For calendar 2024, our high-level outlook remains unchanged.
Richard Wallace: Moving to our outlook, we remain encouraged by constructive customer discussions around their future investment plans, which are further supported by recent reports of an improving end market demand environment and customer profitability.
Richard Wallace: Consistent with these industry trends as we indicated last quarter, we believe our business bottomed from a revenue perspective in the March quarter, and looking ahead through the balance of calendar 'twenty for growth is resuming in the June quarter, and we expect business levels to improve as we progress through the year.
Richard Wallace: For calendar 2020 for our high level outlook remains unchanged, we still expect <unk> demand to be roughly flat to modestly up from 2023 and that the second half of the calendar year will be stronger than the first half.
Bren Higgins: We still expect WFE demand to be roughly flat to modestly up from 2023 and that the second half of the calendar year will be stronger than the first half. KLA's June quarter guidance is as follows. Revenue of $2.5 billion, plus or minus $125 million. FoundryLogic revenue from semiconductor customers is forecasted to be approximately 82%, and memory is expected to be 18% of semi-processed control systems revenue. Within memory, DRAM is expected to be about 78% of the segment mix, and the remaining 22%.
Richard Wallace: KLA June quarter guidance is as follows.
Richard Wallace: Revenue of $2 5 billion, plus or minus a $125 million.
Richard Wallace: Foundry logic revenue from semiconductor customers is forecasted to be approximately 82% and memory is expected to be 18% of semi process control systems revenue.
Richard Wallace: Within memory DRAM is expected to be about 78% of the segment mix in NAND the remaining 22%.
Bren Higgins: Non-gap gross margin is forecasted to be in a range of 61.5%, plus or minus one percentage point based on product mix expectation. For calendar 2024, based on current industry outlook, top line growth expectations, higher forecasted growth in services, and expected systems product mix, we are modeling non-gap gross margins to be relatively stable around the mid-61% range. Variability quarter to quarter is typically driven by product mix fluctuations. Non-GAAP operating expenses are forecasted in the June quarter to be approximately $550 million, as our merit adjustment process occurred in the March quarter.
Richard Wallace: non-GAAP gross margin is forecasted to be in the range of 61, 5% plus or minus one percentage point based on product mix expectations.
Richard Wallace: Our calendar 2024 based on current industry outlook topline growth expectations higher forecasted growth in services.
Richard Wallace: Unexpected systems product mix, we are modeling non-GAAP gross margins to be relatively stable around the mid 61% range.
Richard Wallace: Variability quarter to quarter is typically driven by product mix fluctuations.
Richard Wallace: non-GAAP operating expenses are forecasted in the June quarter to be approximately $550 million as our merit adjustment process occurred in the March quarter looking.
Bren Higgins: Looking ahead, we continue to expect $5 to $10 million of incremental growth in quarterly operating expenses for the remainder of calendar 2024, supported by expected revenue growth. Other model assumptions for the June quarter include non-GAAP other income and expense net of approximately $38 million. Gap diluted EPS is expected to be $5.66, plus or minus $0.60, and non-GAP diluted EPS of $6.07, plus or minus $0.60. EPS guidance is based on a fully diluted share count of approximately 135.4 million shares.
Richard Wallace: Looking ahead, we continue to expect $5 million to $10 million incremental growth in quarterly operating expenses for the remainder of calendar 2024 supported by expected revenue growth.
Richard Wallace: Other model assumptions for the June quarter include non-GAAP other income and expense net.
Richard Wallace: Approximately $38 million expense GAAP diluted EPS is expected to be $5 66, plus or minus 60.
Richard Wallace: And non-GAAP diluted EPS of $6 seven.
Richard Wallace: Plus or minus 60.
Richard Wallace: EPS guidance is based on a fully diluted share count of approximately $135 4 million shares.
Bren Higgins: In conclusion, as we articulated 12 weeks ago, we are encouraged by the indicators of improvement ranging from our customers' conversations to public reports over the past few months. KLA remains focused on delivering a differentiated product portfolio that anticipates customers' technology roadmap requirements and drives their longer-term growth expectations. KLA continues to implement strategic objectives, which are geared to drive out performance. With a focus on customer success, delivering innovative and differentiated solutions, and operational excellence, KLA is able to deliver industry-leading financial and free cash flow performance and return capital consistently.
Richard Wallace: In conclusion as we articulated 12 weeks ago, we are encouraged with the indicators and improvement ranging from our customers' conversations to the public reports over the past few months.
Richard Wallace: KLA remains focused on delivering a differentiated product portfolio, then anticipates customer's technology roadmap requirements and drives our longer term growth expectations.
Richard Wallace: The KLA operating model guiding best in class execution, KLA continues to implement strategic objectives, which are geared to drive outperformance.
Richard Wallace: With a focus on customer success, delivering innovative and differentiated solutions and operational.
Richard Wallace: <unk> excellence KLA is able to deliver industry, leading financial and free cash flow performance and return capital consistently.
Bren Higgins: The past few years have solidified our confidence in the increasing importance of process control in enabling technology advancements and optimizing yield across a high semiconductor device design mix volume production environment. This bodes well for KLA's long-term growth outlook, as near-term industry demand trends are continuing to improve. In alignment with this, KLA's business is improving, and the long-term secular trends driving semiconductor industry demand and investments in WFE remain intact in both legacy and leading-edge markets.
Richard Wallace: The past few years have solidified our confidence in the increasing importance of process control and enabling technology advancements and optimizing yield across our high semiconductor device design mix volume production environment.
Richard Wallace: This bodes well for <unk> long term growth outlook as near term industry demand trends are continuing to improve.
Richard Wallace: Alignment with this kla's business is improving and the long term secular trends driving semiconductor industry demand and investments in WMC remain intact in both legacy and leading edge markets that.
Kevin Kessel: That concludes the prepared remarks. Kevin, let's begin the Q&A. Thank you, Brian. Operator, can you please provide instructions for me?
Richard Wallace: That concludes the prepared remarks, Kevin let's begin the Q&A.
Kevin Kessel: Thank you, Brian operator can provide and sparkman bore.
Kevin Kessel: <unk>.
Operator: Absolutely. At this time, if you'd like to ask a question, please press star and one on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star and two. We remind you to please make sure you've unmuted yourself when you're introduced, and if possible, to pick up your handset for optimal sound quality. In the interest of time, we also ask that you please limit yourself to one question and one follow-up. We'll now take our first question from...
Brian: Absolutely at this time, if you'd like to ask a question. Please press star and one on your telephone keypad. If you wish to remove yourself from the queue. You may do so by pressing star and two.
Brian: We remind you to please make sure you have and muted yourself. When you are introduced and if possible to pick up your handset for optimal sound quality.
Brian: In the interest of time, we also ask that you. Please limit yourself to one question and one follow up.
Harlan Sur: We'll now take our first question from Harlan sur with Jpmorgan. Please go ahead. Your line is open.
Harlan Sur: Good afternoon. Thanks for taking my question. You know, last year and the first half of this year were more mature, no bias spending, maybe more infrastructure.
Harlan Sur: Good afternoon. Thanks for taking my question I know last year in first half of this year with more mature node by spending mobile infrastructure focused as well as new stuff into the second half of this year. It does feel like advanced node momentum is starting to accelerate both foundry and logic.
Harlan Sur: He's starting to accelerate right now.
Harlan Sur: Accelerate, right? Both foundry and logic and memory, and it appears to be reflected in your confidence in the improving spending outlook for this calendar year. Given your relatively longer lead times, your critical role in enabling these advanced technology migrations, like how are customer discussions and initial forecast visibility and outlook for calendar 25 shaping up for the team? I mean, I assume it's a more advanced technology-driven profile next year, which should be good for the team, but wanted to get your views. Great job, Harlan.
Harlan Sur: In memory and appears to be reflected in your confidence on improving spending outlook for this calendar year given your relatively longer lead times are critical role in enabling these advanced technology migrations like how our customer discussions and initial forecast visibility and outlook for calendar 'twenty five shaping.
Harlan Sur: For the team.
Harlan Sur: Assume it's a more advanced technology, driven profile next year, which should be good for the team but.
Speaker Change: Wanted to get your views.
Speaker Change: Great Harlan and thanks for the question the direct.
Richard Wallace: Thanks for the question. Absolutely, we are having different kinds of discussions now than we've had for a while with our leading-edge logic and memory testers. As they prepare for the ramp, and we're seeing increased demand, they are seeing increased demand. They're talking about tool availability, scheduling of resources, making sure that they don't get behind, really conversations we haven't had for a while. I think the build-outs are still, as we indicated, we see kind of stability with rising demand through the year, but the real build-out is going to come in 2025 and beyond that, as we see some of the conversations we're having.
Harlan Sur: <unk>, we are having different kind of discussions now than we've had for a while with our leading edge logic and memory customers.
Harlan Sur: As they prepare for the ramp and we're seeing increased demand for they are seeing increased demand they are talking about.
Harlan Sur: Tool availability scheduling of resources, making sure that they don't get behind.
Harlan Sur: Really conversations we haven't had for a while I think the build outs are still as we indicated we see kind of stability with rising.
Harlan Sur: Demand through the year, but the real build out is going to come in 'twenty five and beyond that as we see some of the conversations we're having so really good indicators, leading indicators design starts advancement no discussions R&D work, so we feel pretty good about the setup.
Richard Wallace: So, really good indicators, leading indicators, design starts, advanced node discussions, R&D work, so we feel pretty good about the setup. Great, thanks for that. And you know, good to see the continued growth in the services business with industry utilization clearly on an upward trajectory. We've got a record number of tools coming off warranty. Customers, I think,
Speaker Change: Alright, thanks for that.
Speaker Change: You can see the continued growth in the services business with industry utilization is clearly on an upward trajectory you've got record number of tools coming off warranty customers I think wanting more value added services and offerings just given the complexity challenges ahead hesitant view on the services growth profile improve relative to that.
Harlan Sur: services and offerings has given the complexity challenges ahead, has the view on
Harlan Sur: The services growth profile improved relative to the last earnings call. I know you talked about being at the upper end of that sort of 12 to 14.
Speaker Change: The last earnings call I know you talked about being at the upper end of that sort of 12% to 14%.
Bren Higgins: The upper end of that sort of 12 to 14 percent sort of target range this year on the last call. Has that changed? I would say, hey Harlan, it's Bren. I would say, you know, look, we're continuing to see very strong momentum. Utilization rates are improving. We had a lot of tools come off of warranty, and they went into contract, and our conversion rate is about 95%. So that's very positive. Customers are extending the lives of the systems, which bodes well for long-term service growth overall.
Speaker Change: The target range. This year on the last call has that changed.
Speaker Change: I would say hey, Harlan it's Bren.
Bren: I would say look at it we're continuing to see very strong momentum utilization rates are improving we had a lot of tools come off of warranty and then go into contract and our conversion rate is.
Speaker Change: It was about 95%. So that's very positive customers are extending lives of the system, which is good and bodes well for long term.
Speaker Change: <unk> growth overall, so I think as we as we track here I think we feel pretty good about the range that we have and we're closer to the upper end for sure than the lower end as we move forward over the next few years.
Bren Higgins: So, I think as we track here, I think we feel pretty good about the range that we have, and we're closer to the upper end, for sure, than the lower end as we move forward over the next few years.
Operator: We'll take our next question from CJ Muse with Cantor Fitzgerald. Please go ahead. Your line is open.
Speaker Change: Thank you.
Speaker Change: We will take our next question from C. J Muse with Cantor Fitzgerald. Please go ahead. Your line is open.
Christopher Muse: Good afternoon. Thank you for taking the question.
Speaker Change: Good afternoon, and thank you for taking the question.
Christopher Muse: I guess, first question, a near-term question on the mix you expect for June, which is a pretty massive shift to Foundry logic from memory. So I guess, as part of that, can you speak to some of the underlying drivers? And within that, do you see perhaps a pickup from domestic Chinese memory beyond the June quarter? Or I think in the prior quarter, you talked about revenue rec being pushed to the June quarter. So I'm curious about the moving parts there.
Speaker Change: First question a near term question on the mix you expect for June, which pretty massive shift with foundry logic for memory. So I guess as part of that can you speak to some of the underlying drivers and within that.
Speaker Change: Do you see perhaps a pickup from domestic China memory beyond the June quarter or.
Speaker Change: I think in the prior quarter, you talked about revenue rec pushed to the June quarter. So so curious about the moving parts there.
Bren Higgins: Yeah, I would say as far as China memory goes, it's more first half heavy than second half. While we're having very positive conversations with our customers on the memory front, as Rick indicated, in terms of long-term plans, we're seeing their businesses now improve, we're seeing profitability and cash flow starting to improve, but we don't expect any significant investments as we move through the rest of the year. Now, things could change, but I think that the profile might kick up a little bit in the second half, overall, non-China, but I don't see it changing in a real meaningful way.
Speaker Change: Yes, I would say as far as China memory goes it's it's more first half heavy than second half.
Speaker Change: While we are having very positive conversations with our with our customers on the memory front as Rick indicated in terms of long term plans, we're seeing their businesses now improve we're seeing profitability and cash flow starting to improve but we don't expect any significant investments as we move through the rest of the year now things could change, but I think that.
Speaker Change: The profile it might tick up a little bit in the second half overall, non China, but I don't see it changing in a real meaningful way. If you look back at our business, we were a little bit over 70% maybe logic foundry.
Bren Higgins: If you look back at our business, we were a little bit over 70%, maybe Logic Foundry in 2023, and I think we're going to be right around 70%. I think it's going to be a pretty similar overall mix this year.
Speaker Change: In two.
Speaker Change: <unk> 2023, and I think we're going to be right around 70% I think it is going to be pretty similar overall mix. This year.
Christopher Muse: And then in terms of your commentary around accelerating COPLON revenues throughout the remainder of calendar 24, I guess, can you speak to, you know, the main drivers there as it relates to perhaps 2 nanometer pilot, logic in Arizona, handset-related EPC, you know, what's really driving that? And is there sort of a percentage growth rate we should be thinking about for HAP on that?
Speaker Change: Excellent and then in terms of your commentary around accelerating topline revenues throughout the remainder of calendar 'twenty four.
Speaker Change: Can you speak to.
Speaker Change: The main drivers there as it relates to perhaps two nanometer pilot.
Speaker Change: Logic in Arizona.
Speaker Change: Handset related EPC, whats really driving that and is there sort of.
Bren Higgins: Thanks so much. Yes, CJ, I think you covered most of it.
Speaker Change: Percentage growth rate, we should be thinking about half on half. Thanks, so much.
Bren Higgins: Yeah, CJ, I think you covered most of them, right? We will see some early investment in 2-nanometer. You have the 3-nanometer buildout. You have the investment that you mentioned in Arizona.
Speaker Change: Yes C. J I think you've covered most of them right. We will see some some early investment and two nanometer you have the three nanometer build out you have the investment that you mentioned in Arizona. So those are all pretty good for or the.
Bren Higgins: So those are all pretty good for the Logic Foundry segment. Right now, when I look at the overall business, first half versus second half, I think the second half is in the high single digits versus the first half in that ballpark. We're not guiding, but I think it's going to end up in that range as we progress through the year. On the EPC front, I think it is... A little bit stronger. You do have some seasonality in EPC in the first part of the year, but we'll see some improvement there, I think, as we move through the second half of the year as well. And of course, services are growing quarter on quarter, so you've got that effect as well.
Speaker Change: So the logic foundry segment right now when I look at the overall business first half versus second half I think the second half is high single digits.
Speaker Change: Versus the first half in that ballpark, we're not guiding but but I think it's going to end up in that range as we progress through the year on the EPC front I think it is.
Speaker Change: A little bit stronger you do have some seasonality in EPC in the first part of the year and.
Speaker Change: But we will see some improvement there I think as we move through the second half of the year as well.
Speaker Change: And of course service is growing quarter on quarter, So you've got that effect as well.
Speaker Change: And we'll take our next question from Krish Shankar with TD Cowen. Please go ahead. Your line is open.
Operator: And we'll take our next question from Krish Sankar with T.D. Cohen. Please go ahead. Your line is open.
Krish Sankar: You have answered my question. I had two of them.
Krish Sankar: Yeah, Hi, Thanks for taking my question that drove them one little brand last quarter, you kind of said that.
Krish Sankar: One is, Richard Bren, last quarter you kind of said that for KLA, the overall calendar 24 revenues could grow mid-single digits based on WFP. And obviously, some of those expectations of WFP growth are going to be higher thanks to Little. Given that you do have some exposure on that side, I'm just kind of curious how to think about your overall revenue profile for this year, year-over-year, and then add a follow-up.
Krish Sankar: For KLA, the overall kind of clinical revenue could grow mid single digits based on WMC and obviously some expectation that maybe it's going to be higher litho given that you do have some exposure on that side I'm just kind of curious.
Krish Sankar: Think about your overall revenue profile for this year.
Speaker Change: And then I had a follow up.
Bren Higgins: When you look at the WFE level, we talked about flat to modestly up, and that I think depends on your view of WFE as everybody adds it up differently. Our view is that WFE was probably $90 to $91 billion, and then it's slightly up from there, or flat to slightly up from there in terms of how we're looking at this year. I think that's the way to think about it.
Speaker Change: Yes so.
Speaker Change: When you look at the Wip level, we've talked about a flat to modestly up in that I think it depends on your view of wip as everybody adds it up differently. Our view is that Wip was probably 90 to 91 billion and then slightly up from there are flat to slightly up from there in terms of how we're looking at this year. So.
Speaker Change: <unk>.
Speaker Change: I think thats the way to think about it.
Bren Higgins: Simply put, given that WFE is more or less flat to modestly up, we were going to see this increase in service that we've talked about. We're going to see some modest improvement in EPC. And we've seen some improvement, given the outperformance we saw in March and the incremental guide into June in our semi-PC business. So I think overall, the semi-PC share in the overall market is probably going to be fairly consistent, maybe a little bit up from what we saw in 2023. And all that translates into our semi-PC business roughly performing mostly in line with where we think the market's going to be this year.
Speaker Change: Simply put when given that <unk> is more or less flat.
Speaker Change: Flat to modestly up that we're going to see this increase in service that we've talked about we're going to see some modest improvement in EPC and we've seen some improvement given the the outperformance we saw in March the.
Speaker Change: The incremental guide into June and our <unk> business.
Speaker Change: So I think overall semi PC share of the overall market is probably going to be fairly consistent maybe a little bit up from from what we saw in 'twenty three and all of that translates into our semi PC business roughly performing mostly in line with where we think the market is going to be for this year.
Krish Sankar: Got it, got it. That's very helpful. And then a quick follow-up on China. I'll give you a long lead time.
Speaker Change: Got it.
Speaker Change: Helpful. And then that could go a little follow up on China, I will give you a long lead time, so I'm kind of curious how do you think about China you did say.
Krish Sankar: So I'm kind of curious, though, what do you think about China? You did say memory would be the first updated, overall Chinese revenues. And along the same path, if I back out the SPD, gross margins from March to June were down 90 basis points, QOQ.
Speaker Change: Memory would be first half weighted overall, China revenue.
Speaker Change: Along the same path if I back out the SPD gross margin from March to June is down 90 basis points.
Bren Higgins: You said it's product-mixed. Is it mainly from China? I'm just kind of curious about that. Thank you.
Speaker Change: You said product mix is it mainly from China or I'm, just kind of curious number. Thank you.
Speaker Change: Yes that was mostly product mix quarter on quarter down from the.
Bren Higgins: Yeah, no, it's mostly product mix quarter-on-quarter down from the FPD adjustment related to the inventory that we took related to the decision there. So it's mostly just product mix across our semi-PC business. You do have some growth in service quarter-on-quarter, and service is diluted to the overall gross margin. We believe it's accreted to the operating margin, but to the gross margin, it's a little diluted. And then the rest is just the normal product mix we have across the portfolio.
Speaker Change: The SPD adjustment related to the inventory that we took related to the decision there.
Speaker Change: It's mostly just product mix across our semi PC business you do have some growth in service quarter on quarter in services is.
Speaker Change: Dilutive to the overall gross margin, we believe it's accretive to the operating margin, but the gross margins a little dilutive and then the rest is just the normal product mix, we have across the portfolio.
Bren Higgins: Different margin profiles across the portfolio, and so depending on what we're earning in a given quarter, it can cause some fluctuation. But, you know, I think the guidance range is appropriate. Like we saw, you know, I think we guided somewhere around 61.5 last quarter, and it came in above 62%.
Speaker Change: Different different margin profiles across the portfolio and so depending on what where revenue in any given quarter. It can cause some fluctuation, but I think the guidance range as a program like we saw I think we guided somewhere around 61, five last quarter. It came in above 62%, depending on how things end up revenue ing as we engage with customers in <unk>.
Bren Higgins: Depending on how things end up revenueing as we engage with customers and ship systems, there's always, you know, room for upside, which is why, you know, we give the range that we give. So there's nothing really particular to actual customers. It's more about the product mix of all regions. It's more about the product mix of the products we're shipping and getting acceptance on.
Speaker Change: <unk> systems.
Speaker Change: There's always room for upside which is why we.
Speaker Change: We give the range that we gave so theres nothing really particular to actual customers. It's more about the product mix. So all regions was more about the product mix of the products, we're shipping and getting acceptance.
Bren Higgins: And then is China's shipment to the rest of the world in a similar range or not? Oh, so China...
Speaker Change: Okay, and then just curious tire fitments through the rest of the year the range or.
Speaker Change: Oh, So China is interesting I think it's probably flattish over the course of the year second half is more or less flattish with the first half the mix is changing a bit in terms of the end market mix.
Bren Higgins: Oh, so China is, you know, interesting. I think it's probably flattish over the course of the year. The second half is more or less flattish with the first half. The mix is changing a bit in terms of the end market mix, but we see it as a percent of the totals go down as we see most of the growth in the year coming from our non-China customers.
Speaker Change: But we.
Speaker Change: We'd see it as a percent of the total come down as we see most of the growth in the year coming from our non China customers.
Operator: We'll take our next question from Brian Chin with Stiefel. Please go ahead. Your line is open.
Speaker Change: Thank you very much thank you.
Speaker Change: We will take our next question from Brian Chin with Stifel. Please go ahead. Your line is open.
Brian Chin: Hi there, thanks for letting us ask a few questions. You know, I was sort of asked earlier, but with all these CHIPS Act announcements continuing to roll in, has this solidified the timing or magnitude of any of the U.S. greenfields that have built out? Or maybe what is your latest thinking on some of these projects? Well, yes, there have been many announcements, and it's exciting to see, but when you look at the timing for those projects, even, for example, the one that was announced today in New York, that one's quite a ways out, so I think the approval of the funding relative to the timing, the customers we talk to, they're excited about this, the chance to reshore under the US, but they're still building their capacity based on market demand, so it doesn't really affect the overall capacity investment.
Speaker Change: Yes.
Brian Chin: Hi, Thanks for letting us ask a few questions I guess.
Brian Chin: Yes sort of.
Brian Chin: Asked earlier, but with.
Brian Chin: With all these chips ex announcements continuing to roll in as this solidifies the timing or magnitude of any of the U S. Greenfield fab buildout.
Brian Chin: Or maybe what is your latest thinking on some of these projects.
Speaker Change: Well, yes, there have been many announcements it's exciting to see.
Speaker Change: But when you look at the timing for those projects. Even for example, the one that was announced today in New York that was quite a ways out. So I think the approval of the funding relative to the timing.
Brian Chin: The customers we talk to they are excited about this the chance to reassure under the U S. But there is still building their capacity based on market demand. So it doesn't really affect the overall capacity investment they're gauging that based on the overall demand and I think what happens is they it's the size of the <unk>.
Brian Chin: They're gauging that based on overall demand, and I think what happens is, the size of the investment in terms of how many wafers start to go out at what point is driven by the market. So we'd stick to the comments about what we see for the business environment, relatively independent of what location the customers are choosing to make those investments. Yeah, that's fair.
Brian Chin: But in terms of how many wafer starts to level out at what point is driven by the market. So we'd stick to the comments about when the.
Brian Chin: What we see for the business environment relatively independent of what location.
Brian Chin: Customers are choosing to make those investments.
Speaker Change: Okay got it that's fair and then maybe I did.
Bren Higgins: And then maybe, I did notice that in the shareholder letter and on the call, you highlighted advanced packaging revenue could be around $400 million in calendar 24. What growth rate does that represent versus calendar 23? And then how would you size your served dressable market in advanced packaging, which I know certainly crosses, I guess, boundaries across your portfolio? Yeah, so it's greater than 25%. So we're somewhere down in there, around 300 in 23, a little over 300 and close to 400 expectation for 24.
Speaker Change: I noticed that in the.
Speaker Change: Shareholder letter and on the call you highlight advanced packaging revenue to be around $400 million.
Speaker Change: Calendar 'twenty for what growth rate does that represent versus calendar 'twenty three.
Speaker Change: How would you size your served addressable market in advanced packaging.
Speaker Change: Certainly crosses boundaries across your portfolio.
Speaker Change: Yes.
Speaker Change: Greater than 25%, so we're somewhere down in there around 323.
Speaker Change: Over 300, and close to 400 expectation for 'twenty four it's across a broad portfolio of REIT, we have process control, which we sell to those customers.
Bren Higgins: It's across a broad portfolio, right? We have process control, which we sell to those customers, which is inspection metrology, but also process tools in our specialty semiconductor business. It's about 50-50 in terms of the contribution from each part of the portfolio.
Speaker Change: Which is the inspection and metrology, but also process tools.
Speaker Change: Especially semiconductor business.
Speaker Change: It's about 50 50 in terms of the contribution from each part of the portfolio and I think on the go forward, we feel pretty excited about the opportunity to see a growth rate that's meaningfully faster than <unk>.
Bren Higgins: And I think going forward, we feel pretty excited about the opportunity to see a growth rate that's meaningfully faster than WFE. Yeah, and I think for opportunity, there's a couple of factors that are in play. One is the speed with which customers are accelerating their packaging efforts, the degree with which those are requiring leading-edge. You know, our ability to make it make sense from a business standpoint, the packaging challenges really need to be leading-edge, so there's still a number of packaging applications that are in markets that are served by lower-end competitors that we're not really competing for.
Speaker Change: Yes, and I think for opportunity.
Speaker Change: There's a couple of factors that are at play one is the speed with which customers are accelerating their packaging efforts.
Speaker Change: The degree with which those are requiring leading edge our ability to make it make sense from business standpoint, the packaging challenges really need to be leading edge. So theres still a number of packaging applications that are in markets that are served by lower end competitors that we're not really competing for so it has to do with how quickly the new technologies come.
Bren Higgins: So it has to do with how quickly new technologies come on, but this has been an increasing conversation in meetings that we've been having with leading customers for the last year or so. It's already been talked about, but it's accelerating, so I think it's hard to judge exactly what the growth rate will be at this point, but it's pretty clear that there's a huge demand, and for many customers, they view it as a competitive necessity in order to— there's very much of a race of getting that new capability into the market, especially as it pertains to some of the AI applications.
Speaker Change: On but this has been an increased conversation and meetings that we've been having with leading customers for the last year or so that was already talked about but it's accelerating so I think it's hard to judge exactly what the growth rate will be at this point, but it's pretty clear that there is a huge demand and for many customers. They view it as the <unk>.
Speaker Change: <unk> necessity in order to there's very much of a race of getting that new capability into the market, especially as it pertains to some of the AI applications. So I would say that it's a huge driver for our customers. We're engaged there is a lot of requests for new capability and some of it.
Bren Higgins: So I would say that it's a huge driver for our customers. We're passionate. There are a lot of requests for new capability, and some of it comes down to us developing solutions in conjunction with those customers to meet those demands. But on its own, as it stands right now, it'll outgrow WFE, and we think it has the potential to go well beyond that, depending on how the adoption goes and how we continue to execute against it. Great, yeah, thanks for all that, Carla.
Speaker Change: Comes down to us developing solutions in conjunction with those customers to meet those demands but on its own as it stands right now it will outgrow WMC and we think it has the potential to go well beyond that depending on how the adoption goes and how we continue to execute against it.
Speaker Change: Great Yeah. Thanks, Thanks for all that color.
Speaker Change: We will take our next question from Tim Arcuri with UBS. Please go ahead. Your line is open.
Operator: We'll take our next question from Tim Arcuri with UPS. Please go ahead; your line is open.
Timothy Michael Arcuri: Thanks, a lot I wanted to ask about <unk>.
Timothy Michael Arcuri: Two weeks so.
Timothy Michael Arcuri: There has been a lot of talk recently about the big volume event for <unk> is not going to be probably until 'twenty six although there will certainly be some customers.
Timothy Michael Arcuri: Thanks a lot. I want to ask about...
Timothy Michael Arcuri: I wanted to ask about N2, Rick. There has been a lot of talk recently about the big volume for N2 is probably not going to be until 26, although there will certainly be some customers, you know, Crypto. Yeah, great question. It is definitely one of the conversations we're having with critical customers about timing. And we have seen part of our optimism going forward is that those conversations are being pulled in terms of needs because our customers are feeling market pull. So I think you're right that it's the bulk of it, the highest volume will be in 26. But for KLA, we're already seeing those conversations.
Timothy Michael Arcuri: Crypto customers and whatnot that will ramp in 25, so there will be capacity that gets installed next year. So I guess my question is how much of a driver do you think end too.
Timothy Michael Arcuri: We will specifically be for your business are you seeing any of that yet is it more in the back half of this year things that.
Timothy Michael Arcuri: Just asking you about like timing when that starts to help your business.
Speaker Change: Yes, great question.
Speaker Change: It is definitely being one of the conversations we're having with critical customers about timing and we have seen part of our optimism going forward as those conversations are being pulled in in terms of the needs because our customers are feeling and market. Paul So I think youre right.
Timothy Michael Arcuri: The bulk of it the highest volume will be in 2006, but for KLA.
Timothy Michael Arcuri: We're already seeing those conversations and we'll start to see some meaningful business in 'twenty five for that with orders coming towards the end of 'twenty four as customers figure. It out. The other thing is we're seeing a number of advanced design starts for the two nanometer node. It's a big as you know Tim its a big power.
Richard Wallace: And we'll start to see some meaningful business in 25 for that, with orders coming toward the end of 24, as customers figure it out. The other thing is that we're seeing a number of advanced design starts for the two nanometer node. It's a big, as you know, Tim, it's a big power-friendly node. And so for a lot of customers, some of the challenges around data centers and, frankly, around AI are power-related in terms of customers being able to even build those sites.
Timothy Michael Arcuri: Verbal node and so for a lot of customers some of the challenges around data center and frankly around AI, our power related in terms of customers being able to even build those sites. So it is a big driver for our customers right. Now. So we think and two is going to be a very significant node and we're going to definitely see a lot of that.
Richard Wallace: So it's a big driver for our customers right now. So we think N2 is going to be a very significant node. And we're going to definitely see a lot of that. We're already seeing the activity, but it'll be a big factor in 25. And then, as we go through 25, compilations just under their names.
Timothy Michael Arcuri: We're already seeing the activity, but it'll it'll be a big factor in 'twenty five and then as we go through 'twenty five.
Speaker Change: Got it got it okay, perfect and then I will ask about China brand. You. Just said I think you said, China is going to be flattish sort of in the back half of the year.
Timothy Michael Arcuri: And so are these new, you know, newly named fabs that are coming on that are sort of filling in the back half of the year? And then if, you know, we've seen a lot of headlines around potential entity lift additions, if this happens, which there have been a lot of headlines about, but if it does happen, is this a downside to what you're thinking for the back half of the year or for next year? Thanks.
Speaker Change: It sounds like every quarter trying to keeps getting stronger.
Speaker Change: And I think there has been a down tick in it doesn't because you're just going to take tools loans. They are allowed to take tools. So my question is really just on the mix around China.
Speaker Change: This is the back half coming in a bit because of new customers.
Speaker Change: Will be 30 to 40, new is being built if not more than that that are a part of these calculations just under <unk> and so is it these new.
Speaker Change: Louis deemed fabs that are coming on that are sort of filling in the back half of the year and then if.
Bren Higgins: Well, Tim, I don't want to speculate about hypotheticals about what might come or not come from the U.S. government in regards to further export controls. We continue to work very closely with the government and spend a lot of time and resources to make sure that whatever the rules are, we're compliant. It's a pretty decent mix. I talked about DRAM being down. I think the wafer infrastructure in the second half will probably be down a little bit in the second half.
Speaker Change: We've seen a lot of headlines around potential entity with tradition, if this happens.
Speaker Change: There's been a lot of headlines about it but if it does happen is this downside to what youre thinking for the back half of the year or for next year. Thanks.
Speaker Change: Well, Tim I don't want to speculate about hypotheticals about what might come or not come from from the U S government in regards to.
Timothy Michael Arcuri: The further export controls and we're continuing to work very closely with the government and spend a lot of time and resources to make sure that whatever the rules are that work we're compliant.
Timothy Michael Arcuri: Pretty decent mix I talked about DRAM being down I think the wafer infrastructure in the second half I think the wafer infrastructure is probably down a little bit in the second half I think the reticle infrastructure is probably up and then the logic foundry is up overall and when you net it all out it's basically a flattish profile.
Bren Higgins: The reticle infrastructure is probably up, and then the logic foundry is up overall. And when you net it all out, it's basically a flattish profile. The customer mix, you do have a number of new projects continuing to take systems, but you also have the – I'll call them the more mature legacy customers in China that are also part of that mix. So I think it's continuing to be healthy, I think, through this year.
Timothy Michael Arcuri: Customer mix you have you do have a number of new projects continuing to take systems, but you also have the I'll call them the more mature legacy customers in China that are also part of that mix. So.
Speaker Change: Thank you.
Speaker Change: It's continuing to be healthy I think through this year and I think the profile as we even beyond this year feels like kind of continues more or less it.
Bren Higgins: And I think the profile as we – even beyond this year, it feels like it kind of continues more or less at current levels. Obviously, those are like half-to-half comments. I mean, in any given quarter, we'll see some movement. But that's how we see things today.
Speaker Change: At current levels, obviously, those are like half to half.
Speaker Change: And in any given quarter, we will see some movement, but.
Speaker Change: That's how we see things today.
Operator: We'll take our next question from Charles Shee with Needham. Please go ahead. Your line is open.
Speaker Change: Okay Awesome. Thank you Brett.
Speaker Change: We will take our next question from Charles <unk> with Needham. Please go ahead. Your line is open.
Charles Shee: So, TSMC definitely said that revenue is going to ramp up in 2026 for N2, and you kind of alluded to that, that you think a 26 volume for you will be higher than 25, but if I look at how the 3 nanometer ramp looks like, and it occurred to me that 2022, which was the N-1 year in terms of the production timeline for the 3 nanometer, was a higher volume for you guys compared with probably 2023 So, I just really wonder the fact that you said you think 26 will be a higher volume for you compared with 25.
Charles: Thanks, I wanted to ask a question Bill.
Speaker Change: What.
Charles: So with him earlier.
Charles: So TSMC.
Charles: Except that the revenue from the ramp in 2006 and two.
Bill: You kind of alluded to about the ethane deployment volume for you will be higher than five but if I look at.
Charles: How the three nanometer.
Speaker Change: Rams.
Speaker Change: Hi.
Speaker Change: It occurred to me that for plenty of clients.
Speaker Change: Minus one year in terms of.
Speaker Change: The box on timeline for the three nanometer with the higher volume for you guys comfortable with the property upon the funding. So I was just really wonder.
Speaker Change: But the fact that used that ethane will.
Speaker Change: It will be a high volume per year compared with one <unk> was that coming from the discussion with the customers and what's changed this time why they want on that.
Charles Shee: Was that coming from some discussion with the customers, and what's changed this time? Why do they want to kind of, I mean, move the capacity a little bit closer to the high volume at the point of entry into high volume production? Thanks.
Speaker Change: Move the capacity, there with a little bit closer to the high volume.
Speaker Change: At the point of entry to the high volume production.
Richard Wallace: Yeah, it's a great question, and there are a couple of things to consider when thinking about N2. First of all, this is now very clear in our customers' minds as a race for AI capability. So you see several designs start happening, not just the ones we're most familiar with, but other players, too, designing for capability. And so you have a very different demand environment. You also have a constrained capacity environment, now constrained somewhat even by the ability to build facilities.
Speaker Change: Yes, it's a great question and there is a couple of things to consider when thinking about into first of all this is now very clear in our customers' customers' minds.
Speaker Change: A race for AI capability, and so you see several design starts happening not just the ones that we're most familiar with the other players to designing for capability. So you have a very different demand environment. You also have a constrained capacity environment now constrained somewhat even.
Speaker Change: By the ability to build facilities, but the last factor is you have the KLA phenomenon as we get pulled in early so we're front end loaded into some of these facilities because you need our systems to be able to qualify the rest. So it is a different node than what we've seen in quite a while because of those factors.
Richard Wallace: But the last factor is that you have the KLA phenomenon where we get pulled in early. So we're front-end loaded into some of these facilities because you need our systems to be able to qualify the rest. So it is a different node than what we've seen in quite a while because of those factors.
Richard Wallace: And as we meet with customers, they are very concerned about supporting the demand that they're seeing. That's why we believe we're going to get a lot of pressure at the end of this calendar year to start supporting some of the POs that we're going to see as they plan out those nodes. And it'll go through, and we're talking about volume in 26 for them, but toward the end of 25, we'll be seeing more and more of that business.
Speaker Change: As we meet with customers. They are very concerned about supporting the demand that they're seeing so that's why we believe we're going to get a lot of pressure to support the end of this calendar year to start supporting some of the <unk> that we're going to see as they plan out those nodes and it'll go through and we're talking about volume in 2006 for.
Speaker Change: Them, but towards the end of 'twenty five is when we'll be seeing more and more of that business and of course, we don't know how much broader.
Richard Wallace: And of course, we don't know how much broader it's going to get in terms of the number of design starts. So it is remarkable that there are this many designs specifically for one application at this point in the process, but it's pretty remarkably consistent as we talk to different customers and even their customers.
Speaker Change: Get in terms of the number of design starts. It is remarkable that there are this many designs specifically for one application at this point in the process, but.
Speaker Change: It's pretty remarkably consistent as we talk to different customers and even their customers.
Speaker Change: Thanks, a lot of color on maybe a second question I wanted to ask you about.
Charles Shee: Sounds like you're having more constructive conversations with your customers, maybe to put more KLA, more advanced process control capabilities into the packaging side of the process control. So I get the overall idea, but I just really hope you can provide a little bit more color. What kind of areas do you think the customers are facing challenges in terms of maybe ramping up co-ops, maybe ramping up SOIC, and where do you see, from a process control perspective, the biggest opportunities for KLA? Thanks. Yeah, I'll give you some color just from...
Speaker Change: Packaging capability.
Speaker Change: We've got board there it sounds like you are having more.
Speaker Change: Constructive conversation with our customers may be more.
Speaker Change: A more advanced deposit control.
Speaker Change: Capability into the packaging sorry about that.
Speaker Change: Pop with control so I get the overall idea about really hope for you to provide a little bit more color what kind of areas you think customers are facing challenges.
Speaker Change: Maybe ramping up co ops, maybe wrapping up ASO, IC, and where you see process control perspective, the biggest opportunities okay. All right. Thanks.
Speaker Change: Yes, I'll give you some color just from the from two stories one years ago. When we bought Iqos part of the theory of that case was it was giving us exposure to the backend and I remember meeting with one of our big customers and their backend people and they literally said to me why are you guys talking about the backend thats not the case.
Richard Wallace: Yeah, I'll give you some color just from two stories. One, years ago when we bought Icos, part of the theory of that case was it was giving us exposure to the back end. And I remember meeting with one of our big customers and their back-end people, and they literally said to me, "why are you guys talking to us about the back end? That's not a KLA market."
Speaker Change: Market.
Richard Wallace: And fast forward to the end of last year, calendar year; in a meeting that Ahmad and I had with a critical customer, they had two topics they wanted to talk about. One was our support for EUV and the ramping up, continuous ramping up, of EUV designs and capabilities. And the other was advanced packaging.
Speaker Change: Fast forward to the end of last year, a calendar year and our meeting.
Speaker Change: Martin I had with a critical customer.
Speaker Change: They had two topics. They wanted to talk about one was our support of the UV.
Speaker Change: Wrapping of continuous ramping of EV designs and capabilities and the other one is advanced packaging and these are the folks that were historically and traditionally responsible for the front end and one of the things I said is we think you guys have the capability in a lot of your front end tools that we need that modified and we need that for the back end because.
Richard Wallace: And these were the folks that were historically and traditionally responsible for the front end. And then one of the things they said was, we think you guys have the capability in a lot of your front end tools, but we need that modified, and we need that for the back end, because the back end is a critical part of our differentiation. And that's the part that we need you to work with us to take what you consider front end tools and make them.
Speaker Change: The backend is a critical part of our differentiation and that's the part that we need you to work with us to take what you consider front end tools and make it and what we're more concerned with and cost and this is often the case at the beginning of a node. They are more concerned with capability and then they were necessarily on costs. So the dynamic has shifted.
Richard Wallace: And what we're more concerned with than cost, and this is often the case at the beginning of a note, they're more concerned with capability than they are necessarily with cost. So the dynamic has shifted pretty considerably.
Speaker Change: Pretty considerably and again I go to one of the biggest drivers for all of this is all the work that's going on with AI and if you look at the success and the requirement to have advanced packaging as part of those solutions. That's what's driving it so that we kind of anticipated a few years ago that is more than more trend was going to become more and more relevant.
Richard Wallace: And again, I go to one of the biggest drivers for all this, and that is all the work that's going on with AI. And if you look at the success and the requirement to have advanced packaging as part of those solutions, that's what's driving it. So we kind of anticipated a few years ago that this more than more trend was going to become more and more relevant. But we're seeing it very specifically with customers bringing front-end people who they've worked with on the front end, having them work on these back-end challenges, and asking specifically for capability that we have in the front end to be used in the back end.
Speaker Change: But we're seeing it very specifically with customers, bringing in people that they've worked in the front and having them work on these backend challenges and asking specifically for capability that we have in the front end to be used in the backend and in some cases, we've done that with some of our inspection tools and capability, but as you know we have to make model.
Richard Wallace: And in some cases, we've done that with some of our inspection tools and capability. But, as you know, we have to make modifications to handling and then some of the operating conditions to make that work. So we're definitely seeing that.
Speaker Change: Acacia to handling and some of the operating conditions can make that work. So we're definitely seeing that and in some cases, our ability to support and modify those systems will be the gating item for us to realize revenue on it not the demand the demand is there and from a competitive standpoint, we are uniquely positioned to do that so we feel pretty good.
Operator: And in some cases, our ability to support and modify those systems will be the gating item for us to realize revenue on them, not the demand. The demand is there. And from a competitive standpoint, we're uniquely positioned to do that. So we feel pretty good about the opportunity. And it's a major focus area for the company.
Speaker Change: The opportunity and it's a major focus area for the company.
Speaker Change: Thanks, so much.
Christopher Caso: We'll take our next question from Chris Caso with Wolfe Research. Please go ahead. Your line is open.
Speaker Change: We'll take our next question from Chris Caso with Wolfe Research. Please go ahead. Your line is open.
Christopher Caso: Yes, thank you. Good evening.
Christopher Caso: Yes. Thank you good evening.
Christopher Caso: This is a follow-up question with regard to memory. And I think I understand what you're saying with regard to this year, perhaps some improvement in non-Chinese memory, but nothing significant. I guess, what are your customers telling you to be prepared for, perhaps, as you're going into next year? You know, we're starting to see some prices go up, and utilization go up. You know, what's your expectation for potential improvement in 2025? Yeah, yeah, Chris, you're seeing all the things you want to see, right?
Christopher Caso: As a follow up question with regards to memory and I think I understand what you what you're saying with regard to.
Christopher Caso: This year.
Christopher Caso: Reps.
Christopher Caso: Some improvement non China memory, but nothing significant I guess what are your customers.
Christopher Caso: Telling you to be prepared for perhaps as you're going into next year.
Christopher Caso: Turning to season prices go up utilization up.
Christopher Caso: Whats your expectation for the potential improvement in.
Speaker Change: 25.
Speaker Change: Yes, Chris you are seeing all the things you want to see right Youre seeing pricing improve customers are taking up utilization utilizations were were very low and so theres a fair amount of capacity that's been out there and we're seeing the profitability improve and ultimately that will translate into cash flow and then.
Bren Higgins: You're seeing pricing improve, customers are taking up utilization. Utilizations were very low, and so there's a fair amount of capacity that's out there. We're seeing profitability improve, and ultimately, that'll translate into cash flow and then what we expect to be investment next year. I think we're seeing more in DRAM driven by the leading edge of DRAM, or expect to see more there. And then, of course, the drivers related to high bandwidth memory. But I think, in some ways, the device market is improving this year, and that'll translate into investment next year. I got it.
Speaker Change: What we expect to be investment next year.
Speaker Change: I think we're seeing more in DRAM, given driven by the leading edge of DRAM or expect to see more there and then of course the drivers related to.
Speaker Change: High bandwidth memory, but I think.
Speaker Change: In some ways the device market part of the market's improving this year and that will translate into investment next year.
Speaker Change: Got it.
Christopher Caso: As a follow-up with regard to service, I think last quarter you talked about your expectation that it was kind of the high end of a 12 to 14 percent target. Is that still the right way of thinking about it? Again, we've seen utilization rates improve here. Does that make you, does that change your view of where services are going to come out for the year? Well, it's certainly a factor in the growth that we're seeing this year. So, I've been pretty open about thinking that we'd be somewhere between $250-$300 million of incremental service this year versus 2023. I think we're closer to the top end of that range than the bottom.
Speaker Change: As a follow up with regards to <unk>.
Speaker Change: Service.
Speaker Change: I think last quarter, you talked about your expectation of that being kind of the high end of our 12% to 14% target is that still the right way of thinking about it again, we've seen.
Speaker Change: Utilization rates.
Speaker Change: Improve here does that make you.
Speaker Change: Does that change your view of where services.
Speaker Change: Come out for the year.
Speaker Change: Well, it's certainly a factor in the growth that we're seeing this year. So I've been pretty open that I thought that we'd be somewhere between $250 million to $300 million of incremental service this year versus <unk>.
Speaker Change: 2023, I think we're closer to the top end of that range than the bottom so.
Bren Higgins: So, it is a factor. And given the nature of process control and the complexity of our systems, the mix, and the relatively lower volume, our customers tend to rely on us to ensure that they're optimizing their capital, particularly in environments when capital is constrained. Yields matter a lot. And so, our utilization rates never drop as much as process tools where they have more redundancy. But we are seeing it continue to improve. And so, I think it's a good sign in terms of the overall market health and our confidence about some of the growth drivers into next year.
Speaker Change: It is a factor and given the nature of process control and the complexity of our systems the mix and the relatively lower volume our customers tend to rely on us to ensure that that.
Speaker Change: They are optimizing their capital, particularly in environments. When capital is constrained yields matter a lot and so our utilizations never drop as much as process tools, where they have more redundancy.
Speaker Change: We are seeing it continue to improve and so I think it's a good sign.
Speaker Change: In terms of the overall market health and our confidence about.
Speaker Change: About some of the growth drivers into next year.
Operator: We'll take our next question from Joe Quatrochi with Wells Fargo. Please go ahead. Your line is open.
Speaker Change: Thank you.
Wells Fargo: We'll take our next question from true quite raunchy with Wells Fargo. Please go ahead. Your line is open.
Joseph Michael Quatrochi: Yeah, thanks for taking the question. I'm wondering if, you know, you could comment...
Speaker Change: Yes, thanks for taking the question.
Wells Fargo: Wondering if you could comment.
Joseph Michael Quatrochi: Obviously, you seem pretty positive in terms of just, you know, the opportunity looking into next year and thinking about the size of M2 and recovering the memory market. I guess, how did the conversations with your customers over the last, you know, several months and just thinking about your lead times give you confidence and your ability to reach that 2026 target model? Well, I think our confidence is pretty good.
Wells Fargo: Obviously, you've seen pretty positive in terms of just the opportunity looking into next year and thinking about the cider than two and a recovery in the memory market I guess, how does the conversation with your customers.
Speaker Change: Several months and just thinking about your lead times gave you confidence in your ability to reach that 2026 target model.
Speaker Change: Well I think our confidence is pretty good we've made a lot of investments around the company in 'twenty, one and 'twenty two both in terms of our own capacity, but also to ensure that our key suppliers have the capacity to support.
Bren Higgins: We've made a lot of investments around the company in 21 and 22, both in terms of our own capacity but also to ensure that our key suppliers have the capacity to support that kind of demand environment. So, it's one of the reasons why my inventory levels today are higher, and they continue to grow even where the market has corrected some, because of the commitments we've made to ensure that the suppliers keep that capacity in place.
Speaker Change: That kind of demand environment. So.
Speaker Change: It's one of the reasons why my inventory levels today are higher than then.
Speaker Change: Continuing to grow even where the market's corrected some because of the commitments we've made to ensure that the suppliers keep that capacity in place. So we feel very good about our ability to leverage what we have I don't think we really have to make a lot of it.
Bren Higgins: So, we feel very good about our ability to leverage what we have. I don't think we really have to make a lot of big investments to be able to support that trajectory. And I think because of the investments, I think, frankly, they're a little bit of a headwind today in terms of margins. But I think over time, the leverage opportunity is also compelling if we see the kind of growth environment that we expect over the next couple of years. Okay, as a quick follow-up, Bren, I was wondering if you could give us the RPO, the exit in the corner.
Speaker Change: Our big investments to be able to support that trajectory.
Speaker Change: <unk>.
Speaker Change: I think because of the investments I think frankly, they're a little bit of a headwind today in terms of the margins.
Speaker Change: So I think over time the leverage opportunity is also compelling if we see the kind of growth environment that we expect over the next couple of years.
Speaker Change: Okay.
Speaker Change: As a quick follow up.
Speaker Change: Brett I was wondering if you could give us the RVO that actually in the quarter.
Bren Higgins: It wouldn't be a quarterly conference call without your question, Joe. So, $9.9 billion-ish. We're going to file the Q in the morning or sometime tomorrow, I think. $9.9 billion. It was down about $750 million quarter on quarter. Deposits are about $677 million.
Brett: It wouldn't be a quarterly conference call without your question Joe.
Brett: So nine nine ish, we're going to file the Q in the morning, or sometime tomorrow, I think $9 9 billion.
Brett: Down about $750 million quarter on quarter deposits thereabout $677 million.
Speaker Change: Perfect. Thank you.
Tom O'malley: We will take our next question from Tom O'malley with Barclays. Please go ahead. Your line is open.
Tom O'malley: Hey, guys. Thanks for taking my question I think there's been a lot of discussion on the call about advanced packaging and you guys have talked about how you've had conversations already about potentially bringing some of your solutions from the front end to the backend there is obviously some.
Operator: We'll take our next question from Tom O'Malley with Barclays. Please go ahead, your line is open.
Tom O'malley: There are obviously some adjustments to those tools to get them ready. Can you talk about the timing of bringing those solutions there? Obviously, you're seeing a big growth rate on the back end, but from the moment that you say, hey, we want to take a tool and address the back end to when you're actually selling that to a customer, can you talk about how long that takes?
Tom O'malley: Adjustments to those tools to get them ready can you talk about the timing of bringing those solutions. There, obviously youre seeing a big growth rate in the backend, but from the moment that you say hey, we want to take a tool and address the backend to when you're actually selling that to a customer can you talk about how long that takes.
Richard Wallace: Sure, and let's be clear, we have some of our products already from the front end that are being used in the back end, but that started a while ago. We're just seeing an accelerated conversation about more tools, where some customers will actually name specific tools that they want. So it very much depends on the tool, and I can give you a range where it could be three months; it could be a couple of years, depending on whether you're modifying something that's already being used in that kind of application and specializing it.
Speaker Change: Sure and yes, let's be clear I mean, we have some of our products already from the front end that are being used in the backend.
Speaker Change: It started a while ago, we're just seeing an accelerated conversation about more tools, where some customers will actually.
Speaker Change: <unk> specific tools that they want so it very much depends on the tool and I could give you a range where it could be from three months. It could be a couple of years, depending on whether you're modifying something thats already being used in that kind of application and specializing in so it really it.
Richard Wallace: So it really depends, but I do think that we have some that are already there, so part of our $400 million is from tools that were from the front end, a fair amount of those, probably half of those, actually, and some process capability from SBTS. So those are really examples where we have them, and then also the case is some of those tools need to be upgraded to later specifications as customers move forward in technology.
Speaker Change: Really depends but I do think that we have some that are already there as a part of our 400 million is from tools that were from the front end a fair amount of those probably half of that is actually in summer process capability from S. Pts. So it's really those are examples where we have it and then also the cases some of those too.
Speaker Change: We need to be upgraded to the latest specifications as customers move forward in technology. So that's why.
Richard Wallace: So that's why, you know, NetNet, it's a positive; it's a growth segment for us. We think it'll continue to grow. Bren talked about the growth from last year, and it was a big driver for going back in time for the Orbitek acquisition was our belief that the packaging opportunity was going to continue to grow. So that's where we are on it, but it's very tool-specific how long it takes to modify. We also have new products that are going to support the substrate transition as the substrate integrates into the package.
Speaker Change: Net net it's a positive it's a growth segment for US we think it will continue to grow Brent talked about the growth from last year and it is it was a big driver for <unk>.
Speaker Change: Going back in time for the <unk> acquisition was our belief that packaging opportunity was going to continue to grow. So that's where we are on it but it's very tool specific how long it takes them out of.
Speaker Change: We also have new products that are going to support the substrate transition as a substrate integrates into the package on the inspection side of the lines and spaces shrank in the connecting layers. It will drive the need for more capability for more advanced inspection and metrology systems.
Richard Wallace: On the inspection side, as the lines and spaces shrink in the connecting layers, it will drive the need for more capability for more advanced inspection and metrology systems. And so anytime you add sensitivity, you add capability, there tends to be a throughput or a volume hit. So it creates an opportunity for us to sell higher ASP systems that have more capability. But if you're going to maintain the same sampling rate, then you'll need more systems. So it's all a factor in terms of all these factors, which are all positive in terms of how we think about the long-term opportunity.
Speaker Change: And so anytime you add sensitivity add capability, there tends to be a throughput or a volume hit so it creates an opportunity for us to sell higher ASP systems that have more capability, but if youre going to maintain the same sampling rate then you'll need more system. So its all a factor in terms of all these factors are all positive in terms of how we think about the long.
Speaker Change: Some opportunities.
Tom O'malley: Super helpful. And then my second one is just kind of on the tidbits that you've given us throughout the year. So you said second half over first half, high single digits. And you talked about kind of the mix of Foundry logic being similar to calendar year 23. I bet that's 70%. If you take those clues, you obviously see some really strong growth in memory in the second half. Can you just help us with any color?
Speaker Change: Super Helpful and then my.
Speaker Change: Second one is just kind of under two bits that you've given for the year. So you said second half over first half high single digits, and you talked about kind of the mix of foundry logic being similar to calendar year 'twenty three of about 70%. If you take those those clues you obviously see some really strong growth in memory in the second half could you just help us with any color obviously for March.
Tom O'malley: Obviously, from March to June, your DRAM percentage went down a bit in terms of its contribution to memory. But in the second half, how should we be thinking about the DRAM and NAND growth profiles? Thank you.
Speaker Change: Your DRAM percentage went down a bit in terms of its contribution to memory, but in the second half how should we be thinking about the DRAM and NAND growth profile. Thank you.
Speaker Change: Yes, I think.
Bren Higgins: Yeah, I think I don't think it's gonna, you know, it'll be a little bit stronger, potentially in the second half than the first, but not by much because, like I said earlier, that DRAM investments in China I would expect in the second half to be lower than in the first half.
Speaker Change: I don't think it's going to it'll be a little bit stronger potentially in the second half than the first but not much because.
Speaker Change: Like I said earlier than expected.
Speaker Change: Expected DRAM investments in China, I would expect in the second half to be lower than the first half.
Operator: And as a reminder, if you'd like to ask a question today, please press the star and one keys on your telephone keypad. We'll take our next question from Srini Parshuri with Raymond James. Please go ahead. Your line is open.
Speaker Change: Okay.
Speaker Change: And as a reminder, if you'd like to ask a question today. Please press the star and <unk> on your telephone keypad.
Joseph Moore: We'll take our next question from screening appreciably with Raymond James. Please go ahead. Your line is open.
Srinivas Reddy Pajjuri: Thank you. Sorry, guys, I joined a little late, so these questions have already been asked. I apologize. But I think last quarter, Bren, you had a customer push out that kind of impacted your revenue for the year. I'm just wondering if there's any change or any update to that customer, or if you're including that in the current year's guidance.
Joseph Moore: Thank you sorry, guys I joined a little late so if these questions have already been asked I apologize.
Joseph Moore: I think last quarter, Brian you had a customer push out that kind of impacted your revenue for the year I'm. Just wondering if there is any change.
Joseph Moore: Any update to that customer.
Joseph Moore: Including that in the.
Joseph Moore: Current year guidance.
Bren Higgins: Yeah, it affected the March quarter as we had, you know, some shifting around, which frankly affected a little bit of the December quarter and the March quarter. But, you know, the shifting around to make the December quarter work, obviously, the shortfall was in March.
Brian: Yes, it affected the March quarter, as we had some shifting around frankly affected a little bit of the December quarter, and the March quarter, but the shifting around to make the December quarter work, obviously the shortfall was in March.
Speaker Change: So I don't think anything has really changed I don't expect to see much activity from that customer until the till we get into 'twenty five.
Bren Higgins: So I don't think anything's really changed. I don't expect to see much activity from that customer until we get into 25. I mean, look, things could change. We could see, you know, some surprises. But right now, at least from a planning point of view, we put it in 25 and if it pulls in great, we can support it.
Speaker Change: Things could change we could see some surprise, but right now at least from a planning point of view, we put it we put it in 25 minute closing great. We can support it.
Srinivas Reddy Pajjuri: Got it. Thank you.
Speaker Change: Got it. Thank you and then on the two nanometer.
Srinivas Reddy Pajjuri: And then on the two nanometer scale, you know, I think your foundry customers are transitioning aggressively to get all around. Obviously, that helps you. But at the same time, I think the EUV layer count is going to be somewhat flattish. So I'm just wondering what sort of impact, kind of, you know, it'll have on process control intensity if you go to GA and keep the, I guess, you know, EUV kind of flattish in terms of layers. Should we expect any impact? Or is it kind of a non-event? Oh, it's an event. I mean...
Speaker Change: I think your foundry customers are transitioning aggressively into good all around obviously that helps you but at the same time I think that UV layer count is going to be somewhat flattish I'm, just wondering what sort of impact. It will have on process control intensity. If you go to Jay and keep that I guess, you'll be kind of <unk>.
Speaker Change: Laddish in terms of layers should we expect any impact or is it kind of a non event for you.
Richard Wallace: Oh, it's an event. I mean, our customers definitely, so you think about that dynamic. Our customers don't want to add process control intensity if they can avoid it. They also want to ramp up and yield, so that's the trade-off. So in the prototyping stage or the early pilot, they inspect more and they measure more in order to debug the process, if you will, and ramp it up. And the question is, how much do they have to maintain when they ramp up?
Speaker Change: It's an event I mean, our customers are definitely so you think about the dynamic of our customers don't want add process control intensity. If they can avoid it they also want to ramp and yield. So those are the that's the trade up so in the in the prototyping stage or the early pilot they inspect more and they measure more.
Speaker Change: In order to debug the process, if you will and ramp it and the question is how much do they have to maintain when they ramp and that's really what drives process control. They are definitely there.
Richard Wallace: And that's really what drives process control. They're definitely using more capability at the front end, and there are some areas where they're going to have to increase their sampling or measurement to keep up with the additional challenges of a smaller design role. And there's also some new capability they have to bring because of FinFET. And so we've talked in the past about modifications of a Gen 4 optical inspector to be able to support FinFET, but that's not the only change in that process.
Speaker Change: Using more capability at the front end and there are some areas, where they're going to have to increase their sampling or measurement to keep up with the additional challenges of smaller design row and there's also some new capability to have to bring because of finfet and so we've talked in the past about modifications of it.
Speaker Change: Gen four optical inspector to be able to support the finfet, but it's not the only change in that process. So the UV layers matter, but the process integration challenges are still going to be there when we model. It though we do see an increase we have different scenarios for how much process control intensity will go up but it's consistent.
Richard Wallace: So the EUV layers matter, but the process integration challenges are still going to be there. When we model it, though, we do see an increase. We have different scenarios for how much process control intensity will go up, but it's consistent with our think there'll be a modest increase in the overall process control intensity for the leaders who have been successfully doing 3 nanometers. Anybody else that tries to jump to that node, though, will see a dramatic increase in their process control intensity because they don't benefit from the learning of having done 3 at volume.
Speaker Change: <unk> with we think there'll be a modest increase in the overall process control intensity for the leaders who have been successfully doing three nanometers anybody else that tries to jump to that node, though we will see a dramatic increase in their process control intensity, because they don't benefit from the learning of having done three in volume.
Richard Wallace: So in aggregate, depending on how many people are supporting it over time, it will drive our intensity up for our customers. We're also expecting a more robust design environment in the first few years than what we saw with 3 nanometers and likely a steeper ramp. So in addition to the challenges of just the gate-all-around architecture, what it means from inspection, but also metrology, but also more volume earlier, a steeper ramp, and a more robust design environment, which will challenge the customer's process integration more than you see when you just have a few designs. So we're encouraged on a number of fronts.
Speaker Change: So in aggregate it depending on how many people are supporting it over time.
Speaker Change: We'll drive our intensity up for our customers. We're also expecting a more robust design environment certainly in the first few years and what we saw at three nanometer and likely a steeper ramp. So in addition to the challenges of just the the gate all around architecture, what it means from inspection, but also metrology, but.
Speaker Change: Also more volume earlier steeper ramp in a more robust design environment, which will challenge the customer's process integration.
Speaker Change: More than.
Speaker Change: And you see when you just have a few designs. So we're encouraged on a number of fronts.
Operator: And we'll take another question from Krish Sankar with T.D. Cohen. Please go ahead. Your line is open.
Speaker Change: Got it thank you.
Speaker Change: So it will take another question from Krish Shankar with TD Cowen. Please go ahead. Your line is open.
Krish Sankar: Hi, thanks for doing my follow-up. Rick, I just had a follow-up on Gates All Around. Clearly, you have exposure to your 10-4 optical inspection and the metrology for High-K Metal Gates. Is there a way to quantify what you think your Gates All Around revenues could be in calendar 2024?
Krish Sankar: How is that and my follow up Richard.
Krish Sankar: A follow up on the gate all around clearly have exposure to your central optical inspection and metrology for high K metal gate is elevated quantify what do you think it gave other on revenues could be in.
Krish Sankar: Calendar 2004.
Richard Wallace: Yeah, I'd be making it up, Chris. I mean, we haven't, and we don't really look at it that way. We do think about what the node requirement is. So from that standpoint, if you think N2, you'd attribute it all to gate all around. So we think about node intensity for process control and blended. And as I said in the prior answer, that's slightly higher, but we don't have a specific number specifically around gate all around.
Krish Sankar: Yes.
Krish Sankar: Taken it up Chris I mean, we haven't.
Krish Sankar: We don't really look at it that we do think about what is the node requirement.
Krish Sankar: So from that standpoint, if you think and two you'd attribute it all to gate all around so we think about node intensity for process control and blended and as I said within the prior answer that slightly up but we don't have a specific number specifically around data all round, but obviously, that's the big driver for that.
Richard Wallace: But obviously, that's the big driver for the change and why customers are pushing for N2. And we don't know yet, but that's consistent with the 2026 model that we've had, where we see rising process control intensity or a corresponding increase per share for KLA.
Krish Sankar: James and why customers are pushing for end to end, we don't know yet, but that's consistent with the 2026 model that we've had and where we see rising process control intensity.
Speaker Change: Corresponding increase per share for KLA.
Krish Sankar: And then, just like if I could squeeze one more in, I'm just kind of curious about your Gen 4 lead times. I think last time we said it was like seven to nine months. Has that changed? If you assume that mature nodes are kind of slowing, China might moderate as the year progresses, is there a view that the lead times are coming in, or is it still like seven to nine months?
Speaker Change: Got it that's helpful. And then just if I could squeeze one more in.
Speaker Change: Just kind of curious about your genco to lead times I think last year was there was like.
Speaker Change: Seven to nine months.
Speaker Change: How does it change if you assume that mature nodes are kind of slowing China might moderate.
Speaker Change: Progressive is there a view that.
Speaker Change: The lead times are coming in or is it still like seven to nine months.
Richard Wallace: Gen 4 is highly demanded across nodes. It's a very configurable system. In fact, we recently introduced a non-upgradable version specifically for gate all around. So it's a product that has a lot of extendability. But it's been challenged in terms of supply, the ability to get supply to meet demand.
Speaker Change: Gen. Four is highly demanded across nodes its a very configurable system and in fact, we recently introduced a non upgradable version specifically for gate all around so it is a product that has a lot of extend ability.
Speaker Change: It's been challenged in terms of supply.
Speaker Change: Our ability to get supply to meet demand I would say and we will see some increase this year and revenue from that system, which hurt us.
Richard Wallace: I would say, and we will see some increase this year in revenue from that system, which hurt us last year just because we weren't able to get any incremental supply around key components. I'll see that increase this year, and so that will help. I still think lead times are probably in the 18 to 24-month range for that product, although we do a lot of juggling to make sure that we're in a position to support all of our customers.
Speaker Change: Last year, just because we were able to add any any incremental supply around key components I'll see that increase this year.
Speaker Change: And so that will help I still think lead times are probably in the 18 to 24 month range for that product, although we do a lot of javelin to make sure that we're in position to support all of our customers, but it has demand on on multiple fronts and I think it's.
Richard Wallace: But there is demand on multiple fronts, and I think it's testament to its extendability and the favorability of a broadband system, which has the ability to scale the deployments to meet very different inspection requirements across multiple nodes.
Speaker Change: A testament to its extend ability and the favorability of our broadband system, which has.
Speaker Change: The ability to scale that.
Speaker Change: To me very different inspection requirements across multiple nodes.
Krish Sankar: Thanks a lot. Thank you, Krish. Thank you, Krish. And I do think, Krish, you were referring to what we said about Gen 5, the seven to nine months, a quarter ago, Brian. So I don't know about Gen 5 if there's any change there. But Gen 5 is in the same ballpark. Still in the same ballpark.
Speaker Change: Thanks, a lot. Thank you.
Speaker Change: Yeah. Thank you Christian and I do think Chris you were referring to what we said about gen five to seven to nine months a quarter ago brands. So I don't know on Gen. Five if theres any change there, but if that gen. Five is in the same ballpark total sample perfect.
Operator: Perfect. Alright, so that brings us to the end of our call. We want to thank everyone for your time and attention. We know it's a very busy day. With that, I will pass the call back over to our operator to conclude. This does...
Speaker Change: Alright, so that that brings us to the end of our call. We want to thank everyone for your time and attention. We know it's a very busy day with.
Speaker Change: That I will pass the call back over to our operator to conclude.
Operator: This does conclude the KLA Corporation March quarter 2024 earnings call and webcast. Please disconnect your line at this time and have a wonderful day.
Speaker Change: This does conclude the KLA Corporation March.
Speaker Change: 24 earnings call and webcast. Please disconnect your lines at this time I just have a wonderful day.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: Uh huh.
Speaker Change: [music].
Operator: [inaudible]