Q4 2024 KLA Corp Earnings Call
Operator: are specified. All earlier references are to calendars.
Since our two calendar years.
Kevin M. Kessel: Today's material contains a detailed reconciliation of GAAP to non-GAAP results. KLA's IR website also contains future investor events, presentations, corporate governance information, and links to our SEC filings, including our most recent annual report and quarterly reports on Forms 10-K and 10-K-1. Our comments today are subject to risks and uncertainties reflected in the disclosure of risk factors in our SEC filings. Any forward-looking statements, including those we've made on the call today, are also subject to those risks, and KLA cannot guarantee those forward-looking statements won't come true.
Specified. All earlier references are to calendar years.
Faraday's material contains a detailed reconciliation of GAP to non-GAP results.
Speaker Change: KLA's IR website also contains future investor events, presentations, corporate governance information and links to our 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 disclosure.
Speaker Change: of risk factors in our SEC filings. Any forward-looking statements, including those we've been on the call today, are also subject to those risks, and KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements.
Kevin M. 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 Brad with additional financial highlights, including our outlook. Now, I will turn the call over to our CEO, Rick Wallace. Rick?
Rick: Rick will begin the call with some introductory comments, followed by Brad with additional financial highlights, including our outlook. Let me turn the call over to our CEO , Rick Wallace. Rick?
Richard P. Wallace: Thank you, Kevin. I will cover a few business highlights for this quarter. KLA's June quarter revenue, gross margin, and EPS were all above their respective guidance, which played out mostly as expected with strong customer demand and solid company execution. We continue to see signs of a strengthened market environment for customers at the leading edge and remain confident in our plan for steady improvement throughout the remainder of this calendar year and into 2025. This quarter, KLA results returned to sequential and year-over-year revenue growth, demonstrating an improving industry environment.
Richard P. Wallace: Thank you, Kevin. I will cover a few business highlights for this quarter. Taylor's June quarter revenue, gross margin, and EPS were all above their respective guidance midpoints.
Speaker Change: What have played out mostly as expected with strong customer demand, solid company execution.
Speaker Change: We continue to see signs of a strengthening market environment for customers at the leading edge and remain confident in our plan for steady improvement throughout the remainder of this calendar year and into 2025.
Speaker Change: This quarter, KLA results returned to sequential and year-over-year revenue growth, demonstrating an improving industry environment. Foundry logic, a continuation of scaling and incorporation of new technologies, and slowly rising capital intensity.
Richard P. Wallace: Foundry logic, a continuation of scaling and incorporation of new technologies, and slowly rising capital intensity, continues to be a long-term tailwind. In memory, technology development investments for AI, high-bandwidth memory, and the improving supply-demand environment report and expected return to growth for memory markets in 2025. The June quarter also marked another quarter of strong performance from our portfolio of Bargain Plasma, or DBP, products, which we also refer to as Gen 4 and Gen 5. This year marks 40 years of innovation for our PVP powdered wafer inspection.
Speaker Change: continues to be a long-term tailwind. In memory, technology development investments for AI, high-bandwidth memory, and the improving supply-demand environment support an expected return to growth for memory markets in 2025.
Speaker Change: The June quarter also marked another quarter of strong performance from our portfolio of broadband plasma, or PVP, products, which we also refer to as Gen 4 and Gen 5. This year marks 40 years of innovation for our PVP pattern wave inspection business.
Richard P. Wallace: We continue to see significant differentiation, keeping this product line at the forefront of defect discovery for the semiconductor industry. We expect this product and family momentum to continue delivering strong relative growth performance in calendar year 2024. AI continues to be a driver and enabler for KLA's business. AI adoption is driving higher volume in wafer manufacturing, more complex designs, larger die, and chip size, and growing advanced packaging demands which support an increase in process control attention.
Speaker Change: We continue to seek significant differentiation, keeping this product line at the forefront of defect discovery for the semiconductor industry.
Speaker Change: We expect this product and family momentum to continue delivering strong relative growth performance in Calvary Year 2024.
Speaker Change: AI continues to be a driver and enabler for KLA's business. AI adoption is driving higher volume wafer manufacturing, more complex designs, larger die and chip size, and growing advanced packaging demands which support an increase in process control intensity.
Richard P. Wallace: Last quarter, we estimated that the KLA opportunity would reach approximately $400 million in annualized revenue exiting calendar 2024. Today, we're raising that estimate to more than $500 million in total advanced packaging revenue across the entire KLA portfolio based on the momentum we experienced. Additionally, AI is enabling KLA to further differentiate its products and continuous improvement in the performance of our system. Daily service business grew to $614 million in the June quarter, up 4% sequentially and 14% year over year. Utilization rates of existing installed capacity are steadily rising across all business sectors, and Mark. Finally, quarterly free cash flow was $832 million.
Speaker Change: Last quarter, we estimated that the KLA opportunity would reach approximately $400 million in annualized revenue exiting calendar 2024.
Speaker Change: Today, we're raising that estimate to more than $500 million in total advanced packaging revenue across the entire KLA portfolio on the momentum we're experiencing. Additionally, AI is enabling KLA to further differentiate our products and make continuous improvement in the performance of our systems.
Speaker Change: Haley's service business grew to $614 million in the June quarter, up 4% sequentially and 14% year-over-year. Utilization rates of existing installed capacity are steadily rising across all business segments as end-market demand improves.
Speaker Change: Finally, quarterly free cash flow was $832 million. The last 12-month free cash flow was $3 billion, with a free cash flow margin of 31% over the same period.
Richard P. Wallace: The last 12-month free cash flow was $3 billion, and the free cash flow margin was 31% over the same period. Daily results continue to demonstrate our sustained process control leadership and the success of our broad portfolio specific product strategy. In this industry environment, KLA will continue to focus on supporting customer requirements, executing our product roadmaps, and preparing for growth at the leading edge. Now, I'll hand the call over to Bren to go through the financial highlights. Thanks, Greg.
Speaker Change: Daily results continue to demonstrate our sustained process control leadership and the success of our broad portfolio of specific product strategies.
Speaker Change: 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. I'll now hand the call over to Bren to go through the financial highlights and outlook.
Bren Higgins: ALA's quarterly results demonstrated our market leadership combined with the consistent execution of our global, Haley continued to show resourcefulness and the ability to adapt to new customers' changing requirements. Quarterly revenue was $2.57 billion, above the guidance net midpoint of $2.5 billion. Non-gap diluted DPS was $6.60, and gap diluted DPS was $6.18, both above their respective guidance. Gross margin was 62.5% at the upper end of the guidance range as a richer product mix than modeled and higher revenue volume drove upside to guidance.
Bren: Thanks Rick. ALA's quarterly results demonstrated our market leadership combined with the consistent execution of our global team.
Bren: Daily continued to show resourcefulness and the ability to adapt to new customers changing requirements. Early revenue was $2.57 billion, above the guidance met midpoint of $2.5 billion. Non-GAP diluted EPS was $6.60, and GAP diluted EPS was $6.18.
Bren: Both above their respective guidance pinpoints.
Bren: Gross margin was 62.5% at the upper end of the guidance range as a richer product mix than modeled and higher revenue volume drove upside to guidance. Operating expenses were $553 million.
Bren Higgins: Operating expenses were $553 million. Operating expenses were comprised of $324 million in R&D and $229 million in SG&A. Operating margin was 41%. Other income and expense net was a $32 million expense, and the quarterly effective tax rate was 12.6%.
Bren: Operating expenses were comprised of $324 million in R&D and $229 million in SG&A. Operating margin was 41%. Other income and expense net was a $32 million expense, and the quarterly effective tax rate was 12.6%.
Bren Higgins: Quarterly non-GAF net income was $893 million, GAF net income was $836 million, cash flow from operations was $893 million, and free cash flow would be $832 million. The company had 135.3 million diluted average shares outstanding at the end of the quarter.
Bren: Quarterly non-GAF net income was $893 million, GAF net income was $836 million, cash flow from operations was $893 million, and free cash flow was $832 million.
Bren: The company had $135.38 million in diluted leaded average shares outstanding at the end of the quarter.
Bren Higgins: The breakdown of revenue by reportable segments, end markets, major products, and regions can be found in the shareholder letter and slide. Turning to the balance sheet, KLA ended the quarter with $4.5 billion in total cash, cash equivalents, and marketable securities. Debt of $6.7 billion and a flexible and attractive bond maturity profile supported by strong investment grade ratings from all three major rating agencies. Moving to our outlook, we believe our business is transitioning from a period of stabilization to a resumption of growth, which began in our June quarter and we expect to continue through the remainder of calendar 24 and into 2025.
Bren: The breakdown of revenue by reportable segments, end markets, major products, and regions can be found within the shareholder letter and slides.
Bren: Turning to the balance sheet, KLA ended the quarter with $4.5 billion in total cash, cash equivalents and marketable securities, debt of $6.7 billion, and a flexible and attractive bond maturity profile, supported by strong investment grade ratings from all three major rating agencies.
Speaker Change: Moving to our outlook, we believe our business is transitioning from a period of stabilization to a resumption of growth which began in our June quarter and we expect to continue through the remainder of calendar 24 and into 2025.
Bren Higgins: For calendar 2024, we remain encouraged by the improvement in our customers' revenue and profitability over the course of this year. This improvement will ultimately translate into new investment in capital equipment to support semiconductor growth over the medium term. Our high-level outlook for the industry remains largely unchanged.
Speaker Change: For calendar 2024, we remain encouraged by the improvement in our customers' revenue and profitability over the course of this year. This improvement will ultimately translate into new investment in capital equipment to support semiconductor growth over the medium term.
Bren Higgins: Our expectation is for the WNB market to be in the mid $90 billion range and that the second half of the calendar year will be stronger than the first half. While it is too early to be overly specific on expectations for calendar 2025, we do expect a year of growth, due principally to growth in leading-edge investments in both logic foundries and in memory. Given KLA's business momentum, we are confident in our relative performance opportunities moving forward. Daily September quarter guidance is as follows. Total revenue is expected to be $2.75 billion, plus or minus $150 million.
Speaker Change: Our high-level outlook for the industry remains largely unchanged. Our expectation is for the WFP market to be in the mid-$90 billion range, and that the second half of the calendar year will be stronger than the first half.
Speaker Change: While it's too early to be overly specific on expectations for calendar 2025, we do expect a year of growth, fueled principally by growth and leading-edge investments in both logic foundry and in memory. Given KLA's business momentum, we are confident in our relative performance opportunities moving forward.
Speaker Change: Daily September quarter guidance is as follows, total revenue is expected to be $2.75 billion plus or minus $150 million.
Bren Higgins: Boundary logic revenue from semiconductor customers is forecasted to be approximately 80%, and memory is expected to be approximately 20% of SEMI process control systems revenue. Within memory, DRAM is expected to be about 83% of a second, and Nan, the remaining 17%. This margin is forecasted to be in a range of 61.5 percent, plus or minus one percentage point, as higher revenue volumes are offset by weaker anticipated product. Consistent with our comments last quarter, based on the current industry outlook, top-line growth expectations for calendar 24, higher forecasted growth in services, and expected system product, we are still modeling non-gap gross margins to remain relatively stable around the mid-61% range.
Speaker Change: Boundary logic revenue from Semi-conductor customers is forecasted to be approximately 80%, and memory is expected to be approximately 20% of Semi-process control system's revenue.
Speaker Change: Within memory, DRAM is expected to be about 83% of the segment mix, and NAMS the remaining 17%.
Speaker Change: This margin is forecasted to be in a range of 61.5%, plus or minus one percentage point, as higher revenue volumes offset by weaker anticipated product max.
Speaker Change: Consistent with our comments last quarter, based on the current industry outlook, top-line growth expectations for calendar 24, higher forecasted growth in services and expected system product mix,
Speaker Change: We are still modeling non-gap gross margins to remain relatively stable around the mid-61% range. Variability quarter-to-quarter is typically driven by product mix fluctuations.
Bren Higgins: Variability quarter to quarter is typically driven by product mix fluctuation. Operating expenses are forecasted in the September quarter to be approximately $565 million as we continue to make important R&D and scaling investments to support expected revenue growth.
Speaker Change: Operating expenses are forecasted in the September quarter to be approximately $565 million as we continue to make important R&D and scaling investments to support expected revenue growth.
Bren Higgins: Looking ahead, we expect approximately $10 to $15 million in incremental growth in quarterly operating expenses for the remainder of calendar 24 and into 2025. This is supported by our revenue growth expectations and in line with our 40 to 50% incremental operating margin business model. Other model assumptions for the September quarter include other income and expense, net of approximately $34 million.
Speaker Change: Looking ahead, we expect approximately $10-15 million incremental growth in quarterly operating expenses for the remainder of calendar 24 and into 2025. This is supported by our revenue growth expectations and in line with our 40-50% incremental operating margin business model.
Speaker Change: Other model assumptions for the September quarter include other income and expense net of approximately $34 million expense. Gap to looted EPS is expected to be $6.69 plus or minus $0.60.
Bren Higgins: Gap's alluded EPS is expected to be $6.69 plus or minus, and Non-Gap Deleted DPS of $7, plus or minus. DPS guidance is based on a fully diluted share count of approximately 135 million shares. In conclusion, our business has transitioned from a period of stabilization to one of growth. We remain optimistic that the indicators of improvement we have seen will continue throughout the remainder of calendar year 24 and into 2025. JLA is focused on delivering a differentiated product portfolio that anticipates customers' technology roadmap requirements and drives our longer-term growth expectations. With the KLA operating model guiding best-in-class execution, KLA continues to implement strategic objectives that are geared to drive out performance.
Speaker Change: A non-gap deleting DPS of $7 plus or minus $0.60.
Speaker Change: CPS guidance is based on a fully diluted share count of approximately 135 million shares.
Speaker Change: In conclusion, our business has transitioned from a period of stabilization to one of growth. We remain optimistic that the indicators of improvement we have seen will continue throughout the remainder of calendar 24 and into 2025.
KLA: KLA is focused on delivering a differentiated product portfolio that anticipates customers' technology roadmap requirements and drives our longer-term growth expectations.
Speaker Change: With the KLA operating model guiding best-in-class execution, KLA continues to implement strategic objectives which are geared to drive out performance.
Bren Higgins: Daily's focus on customer success, delivering innovative and differentiated solutions, and operational excellence is what drives industry-leading financial and free cash flow performance and allows us to return capital quickly. Return on scale and increasing complexity has solidified our confidence in the increasing importance of process control in enabling technological advancement. This is not just about improving time-to-results and process integration in FabRAMP but also about optimizing yield across a volume production environment with high semiconductor device design.
Speaker Change: Daily's focus on customer success, delivering innovative and differentiated solutions, and operational excellence is what drives industry-leading financial and free cash flow performance and allows us to return capital consistently.
Speaker Change: The return of scaling and increasing complexity has solidified our confidence in the increasing importance of process control in enabling technology advancements.
Speaker Change: This is not just an improving time-to-results and process integration in FabRAMP, but also an optimizing yield across a volume production environment with high semiconductor device design mix.
Bren Higgins: This bodes well for KLA's long-term growth outlook as near-term industry demand trends are continuing to improve. In alignment with this, Caley's business is improving, and the long-term secular trends driving semiconductor industry demand and investments in WFP remain compelling. That concludes the prepared remarks. Let's begin Q&A. Kevin.
Speaker Change: This bodes well for KLE's long-term growth outlook, as near-term industry demand trends are continuing to improve. In alignment with this, KLE's business is improving, and the long-term secular trends driving semiconductor industry demand and investments in WFP remain compelling.
Speaker Change: That concludes the prepared remarks. Let's begin Q&A. Kevin?
Kevin M. Kessel: Thank you, Brian. Operator, we're ready for you to provide instructions and begin the Q&A section. Absolutely. At this time, if you'd like to ask a question, please press star and 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star and 2.
Kevin: Thank you, Brian . Operator, we're ready for you to provide instructions and begin the Q&A section.
Speaker Change: Absolutely. At this time, if you'd like to ask a question, please press star and 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star and 2.
Operator: We remind you to please unmute your line when introduced and, if possible, pick up your handset for optimal sound quality. In the interest of time, we ask that you please limit yourself to one question and one follow-up. We will now take our first question from Vivek Arya with Bank of America Securities. Please go ahead.
Speaker Change: We remind you to please unmute your line when introduced and, if possible, pick up your handset for optimal sound quality. In the interest of time, we ask that you please limit yourself to one question and one follow-up.
Speaker Change: We will now take our first question from Vivek Arya with Bank of America Securities. Please go ahead. Your line is open.
Vivek Arya: Your line is open. Thanks for taking my question. Rick, recently TSMC said they expect the number of new tape outs for 2 nanometer in the first two years to be higher than what they saw for 3 and 5 in their first two years. And I think they've also heard a number of AI customers accelerate their roadmaps. I'm curious, what does this mean for KLA in terms of your outlook and your share of the WFE wallet? And do you expect 2 nanometers to be a bigger factor for 2025 or for 2026? Thanks for that!
Vivek Arya: Thanks for taking my question. Rick, recently TSMC said they expect the number of new tape outs for 2nm in the first two years to be higher than what they saw for 3nm and 5nm in their first two years. And I think they've also heard a number of AI customers accelerate their roadmaps. I'm curious, what does this mean for KLA in terms of your outlook and kind of your share of the WFE wallet? And do you expect 2nm to be a bigger factor for 2025 or for 2026?
Richard P. Wallace: Yes, we're definitely having those same conversations with customers in terms of, in the reticle world, of course, when there are more design starts, we see activity in the reticle market in terms of inspection for those reticles and then early lots. We're still early in N2, and in terms of your question, it's really going into 25 and then 26. But the other thing we've seen is strengthening in... and three as well.
Speaker Change: Thanks, Vivek. Yes, we're definitely having those same conversations with our customers in terms of
Speaker Change: In the radical world, of course, when there are more design starts, we see activity.
Speaker Change: In the reticle market, in terms of inspection for those reticles and then early lots, we're still early in N2, and in terms of your question, it's really going into 25 and then 26, but the other thing we've seen is strengthening in
Richard P. Wallace: So I think both of those factors are being driven by some of the same drivers we talked about in the prepared remarks in terms of what we're seeing from AI driving that. So it does lead us to believe that our goals to increase our percent of WFE continue to be supported by the opportunities afforded by the additional process control challenges. So I think we're in pretty good shape with that.
Speaker Change: and three as well. So I think both of those factors are being driven by some of the same drivers we talked about in the prepared remarks in terms of what we're seeing from AI driving that. So it does lead us to believe that our goals to increase
Speaker Change: Our percent of WFE continue to be supported by the opportunities.
Speaker Change: afforded by the additional process control challenges.
Richard P. Wallace: The other thing, of course, is being driven in some of these advanced AI chips as larger die sizes, which, as you know, are a bigger challenge from a yield perspective and creates more incentive for more inspection, especially as processes are brought online and ramped up. So mostly, what we see is it's 25 leading into 26 in terms of when they reach HPL. Bren, anything to add?
Speaker Change: So I think we're in pretty good shape with that. The other thing, of course, is being driven in some of these advanced AI chips, this larger die size.
Speaker Change: which as you know are a bigger challenge from a yield perspective and creates more incentive for more inspection, especially
Speaker Change: as these processes are brought online and ramped up. So mostly what we see is it's 25 leading into 26 in terms of.
Bren Higgins: You know, I think I covered most of it, Rick. I would also say one of the things that we're encouraged by the design start environment, given the high mix of parts, is that our participation with our customers in terms of process control and monitoring that happens in production tends to be at a higher level. So they're trying to manage a robust design environment that's testing design rules in different ways. And that tends to be positive for continuous process control investment, as they wrap up the note.
Bren: when they reach HBM. Bren, anything to add?
Bren: You know, I think you covered most of it, Rick. I would say also one of the things that we're encouraged by is that with the Design Start environment, given the high mix of parts,
Bren: that our participation with our customers in terms of process control and monitoring.
Speaker Change: that happens in production tends to be at a higher level. So they're trying to manage a robust design environment.
Speaker Change: It's testing design rules in different ways, and that tends to be positive for continuous process control investment as they wrap the node.
Bren Higgins: And remember, Vivek, earlier in the year, we talked about a more positive tone we were seeing from our customers, and it was related to the early demand that they were starting to sense from their customers. That's why we believed and that's how it's playing out that we would see a strengthening of our business. Maybe what's new, a little bit new is the strength, additional strength in M3, which wasn't as forecasted as the rollout of M2.
Speaker Change: Remember Vivek, earlier in the year we talked about a more positive tone we were seeing from our customers.
Speaker Change: And it was related to the early demand that they were starting, in a sense, from their customers.
Speaker Change: And that's why we believed, and that's how it's playing out, that we would see strengthening in our business. Maybe what's new, a little bit new, is the strength, additional strength in M3, which wasn't as forecasted as the rollout of M2. So I think both of those are adding to...
Bren Higgins: So I think both of those are adding to our belief that we're in a good period for consistent acceleration and demand on the leading edge. Now, on advanced packaging, you raised it from 400 million. I wanted to clarify, is that on an existing full year basis, or is that for the full year? So just that clarification, then how would you break it out in terms of specialty and inspection metrology? Yeah, it's a good question.
Speaker Change: Our belief that we're in a good period for consistent acceleration and demand on the leading edge.
Speaker Change: I'd
Speaker Change: Now on advanced packaging, you raised it from 400 to 500 million. I wanted to clarify, is that on an exiting full year basis or is that for the full year? So just that clarification then. How would you break it out in terms of specialty and inspection metrology?
Bren Higgins: So that's our expectation for the business level in 2024. So it isn't a run rate necessarily, but it is what we expect to do, which is significantly above what we did last year, which was close to 300 million. So 60, mid-60% growth rate, with continuing momentum, I would think that we would continue at least through the first half of next year to see strong demand around packaging. So it's really an opportunity for us to certainly see a lot of customer interest, as we're seeing more and more focus on front end capability moving into the back end.
Speaker Change: Yeah, it's a good question. So that's our expectation for the business level in 2024. So it isn't a run rate necessarily, but what we expect to do, which is significantly above what we did last year, which was closer to $300 million.
Bren Higgins: So it's an encouraging opportunity moving forward. I think the growth rate relative to growth at WFP will be higher over the next few years. So one of the things, Vivek, I'm sure you've heard is that one of the bottlenecks now for AI is silicon, part of it, but the packaging co-op is also part of what we're seeing. And we had customers, for the first time in my career, from the front end start pulling us into packaging conversations because they want front-end capability, as Bren said, being used in packaging to assist.
Speaker Change: Packaging. So it's really an opportunity for certainly we're seeing a lot of customer interest as we're seeing more and more focus on front-end capability moving into the back-end.
Speaker Change: So it's an encouraging opportunity moving forward. I think the growth rate, relative to growth rate at WFE, will be higher over the next few years.
Speaker Change: So one of the things, Vivek, I'm sure you've heard is that...
Rebecca: One of the bottlenecks now for AI
Rebecca: Silicon is part of it, but the packaging, co-oss, is also part of what we're seeing.
Speaker Change: We had customers for the first time in my career from the front end start pulling us into packaging conversations.
Bren: Because they want front-end capability, as Bren said, being used in packaging to assist. So I think, you know, we talk about AI being a driver. It's really driving not just the silicon, but also packaging and also, of course, HBM.
Bren Higgins: So I think, you know, when we talk about AI being a driver, it's really driving not just the silicon but also packaging and, of course, HBM. You need all three of those to fully execute on the plans people have.
Speaker Change: You need all three of those to fully execute on the plans people have. So to your question on MIGS, about, let's say, 60% of it is process control, and then you have the remaining 40% is in our specialty process business.
Christopher Muse: So to your question on MIGs, about, I'd say, 60% of it is process control, and then you have the remaining 40% is in our process, specialty process business, and also some exposure in terms of chemical process control as well. But about 60% of it is in the classic semiconductor process control part of our business. Thank you. We'll take our next question from CJ Muse with Cantor Fitzgerald. Please go ahead; your line is open.
Speaker Change: and also some exposure in terms of chemical process control as well. But about 60% of it in the classic semiconductor process control part of our business.
Speaker Change: Thank you.
Speaker Change: We'll take our next question from CJ Muse with Cantor Fitzgerald. Please go ahead, your line is open.
Christopher Muse: Yeah, good afternoon. Thank you for taking the question. In your prepared remarks, you talked about returning to growth from memory in 2025. I know it's early, but would love to hear kind of your initial thoughts.
Bren Higgins: 2025. I know it's early, but would love to hear kind of your initial thoughts, and maybe separating VRAM versus NAND, and then with the VRAM, you know, how you're seeing HPM conversion versus DDR5 and Greenfield. And same for NAND, layer counts versus any sort of expectations for Greenfield in the 2025 timeframe. Well, 2024 is really a transition year from memory.
Speaker Change: and maybe separating DRAM versus NAND, and then within DRAM, you know, how you're seeing HPM conversion versus DDR5 and Greenfields. And same for NAND, layer counts versus any sort of expectations for Greenfield in the 2025 pipeline.
Bren Higgins: We're not seeing a lot of growth overall, some in the DRAM front and some investment that's happened in China. So I think, from a WFP point of view, 2025 is when we expect more growth there. I think that you talked about the drivers, particularly around DRAM and HBM being drivers into next year. I think as we see that our customers' business models improve, and we're certainly seeing the financial performance improve with pricing going up so significantly over the course of this year, that that will translate into investment as we move into next year. I think on the flash market, we're less bullish into next year, although it's operating off a pretty low level. We'll see as we get closer to it.
Speaker Change: [inaudible]
Speaker Change: I think that you talked about the drivers, particularly around DRAM and HBM being drivers into next year. I think as we see our customers' business models,
Speaker Change: Improved, and we're certainly seeing the financial performance improve.
Speaker Change: with pricing going up so significantly over the course of this year. But that will translate into investment as we move into next year. I think on the flash market we're less bullish into next year, although it's operating at a pretty low level. We'll see as we get closer to it, but right now, we do see a recovery in both parts of it. But certainly led by more DRAM than flash on an absolute WSE basis.
Bren Higgins: But right now, we do see a recovery in both parts of it, but certainly led by more DRAM than flash on an absolute WFP basis. Yeah, and I think it's much like some of what we saw in the early discussions of AI last year, where we didn't really see an increase in silicon because there was still utilization leverage that our customers have. Some of that's in memory. So we really don't see capacity starting to be added significantly until 25 and into 26 around HBM. So, as Brent said, conversion, but then you don't get the capacity until later. And it's really HBM associated deramp before you see flash.
Speaker Change: Yeah, and I think much like some of what we saw in the early discussions of AI last year where we didn't really see an increase in silicon because there was still utilization leverage that our customers have, some of that's in memory, so we really don't see capacity starting to be added.
Speaker Change: significantly until 25 minutes, 26 around HBM. So, as Brent said, conversion, but then you don't get the capacity until later. And it's really HBM associated deramp before you see flash.
Bren Higgins: Very helpful. And then, as a follow-up, again, in the prepared remarks, you talked about confidence in your relative performance. And, obviously, no question around the Foundry Logic side, you know, given the complexity and large device size. But curious, as you see, increased memory into the mix, is there enough share of wallet on the Logic Foundry side to kind of mitigate that and allow that relative performance? We would love to hear that kind of put and takes around that. Yeah, we feel pretty good, CJ.
Speaker Change: Very helpful. And then, as a follow-up,
Speaker Change: Again, in the prepared remarks, you talked about confidence in your relative performance and obviously no question around the Founder Logic side, you know, given the complexity and larger data sets, but curious as you see
Kevin: increase memory into the mix. Is there enough share of Wallet on the logic boundary side to kind of mitigate that? And allow that relative up performance would love to hear that kind of puts them takes around that?
Bren Higgins: We're seeing relative performance this year, and this is a year that's still pretty heavy overall on what I'll call legacy levels of investment, particularly in China. So as we start to move to the leading edge, and you see the entry ramp, but also the initial investments in N2, we would expect that, given our position, particularly in certain markets that we expect to scale and grow much faster than the overall, that we're pretty well positioned into next year to see foundry improve a lot. We've seen DRAM improve from a process control intensity point of view since the introduction of EUV.
Kevin: Yeah, we feel pretty good, CJ. We're seeing relative performance this year, and this is a year that's still pretty heavy overall.
Speaker Change: in what I'll call legacy levels of investment, particularly in China. So as we start to move to leading edge...
Speaker Change: And you see the entry ramp, but also the initial investments in N2. We would expect that, given our position, particularly in certain markets that we expect to scale and grow much faster than the overall, that we're pretty well positioned into next year to see Foundry and Logic leading edge investment drive KLA's share of the overall spend.
Speaker Change: We were talking about DRAM and HBM, and HBM is a device that tends to, first of all, you have advanced DRAM, so you have...
Speaker Change: EUV is a, you get the introduction of, or use of EUV.
Speaker Change: with those chips, but also as you start to...
Speaker Change: put the chips together it creates not only potential packaging opportunities moving forward but you also have increased sampling to ensure that each of the DRAM die is functioning properly. So we've seen DRAM improve from a process control intensity point of view since the introduction of EUV and I would expect to see that continue as well as we move forward. So yeah I think we feel pretty good about the relative positioning of the company.
Bren Higgins: And so I would expect to see that continue as well as we move forward. So yeah, I think we feel pretty good about the relative position in the company as we move into next year. So CJ, one of the things that we're seeing, and we haven't seen in many, many years, if you remember, part of the reason memory had lower adoption was because of repair. And it seems that on leading DRAM, repair is less effective than it's been.
Speaker Change: as we move into next year. So CJ, one of the things that we're seeing and we haven't seen in many, many years, if you remember part of the reason memory had lower adoption was because of repair.
Christopher Muse: And it seems that on leading DRAM, repair is less effective than it's been.
Bren Higgins: And so that is a factor that's driving some of our customers. Obviously, they're going to try to get through that. But they're expecting that they're going to have a greater need for process control because of that. And as Bren said, you also have, because of the UV, you get the introduction of print check into memory.
Christopher Muse: And so that is a factor that's driving some of our customers. Obviously, they're going to try to get through that, but they're expecting that they're going to have
Christopher Muse: larger need for a greater need for process control because of that and as Brent said you also have because of the UV you get the introduction of print check
Bren Higgins: And they have issues associated with pellicles. So I know it's very much into the weeds, but it drives more print checks. Very helpful. Thank you. And we'll take our next question from Harlan Sur with J.P. Morgan. Please go ahead.
Bren: into memory, and they have issues associated with pellicles. So I know it's very much into the weeds, but it drives more print checks. So the process control adoption is setting up to maybe be better than historical levels, at least for the advanced DRAM.
Speaker Change: Very helpful, thank you.
Speaker Change: And we'll take our next question from Harlan Sur with J.P. Morgan. Please go ahead.
Harlan L. Sur: Yeah, good afternoon. Thanks for taking my question. As the team steps into the second half of this year, advanced technology deployment is accelerating. Obviously, your strong guidance for the September quarter appears to be reflected in your confidence on the spending outlook this calendar year and growth into the near term. Does the team anticipate sequential growth in the December quarter? And then, relative to, let's say, the last earnings call, has your qualitative view on 2025 improved? I mean, I know, Rick, you mentioned incrementally better three nanometer investments. Any other indicators that are coming in better versus your prior expectations as you look into next year? Yeah, Harlan. I'll start here.
Harlan L. Sur: Neil, good afternoon. Thanks for taking my question. As the team steps into the second half of this year, advanced technology and deployment is accelerating, obviously reflected in your strong guidance for the September quarter.
Speaker Change: appears to be reflected in your confidence on the spending outlook this calendar year and growth into next.
Keene: Does the team anticipate sequential growth in the December quarter?
Keene: [inaudible]
Bren Higgins: First, we do expect sequential growth into the December quarter, as we discussed last quarter when we talked about the March quarter being the bottom and an expectation of sequential growth through the year. So that's how we see things into the December quarter. We'll see how things play out in terms of what that looks like.
Keene: Yeah, Harlan, I'll start here. First, we do expect sequential growth into the December quarter, as we discussed last quarter when we talked about the March quarter being the bottom and an expectation of sequential growth through the year.
Bren Higgins: I would say on the margin, we're incrementally more bullish, certainly when you look at the funnel, in terms of opportunities into next year. As we've seen that fill out, we have seen strength in the funnel to support our outlook into next year.
Speaker Change: So that's how we see things into the December quarter. We'll see how things play out in terms of what that looks like. I would say on the margin we're incrementally more bullish, certainly when you look at the funnel in terms of opportunities.
Speaker Change: into next year. As we've seen that fill out, we have seen strength in the funnel to support our outlook into next year.
Harlan L. Sur: And then for my follow-up, and this is sort of a follow-on to what Rick was saying, but as you mentioned, memory has always had a lower process control intensity, but there are dynamics that are pushing advanced logic-like capabilities, right, into memory. You mentioned, you know, more EUV layer adoption in DRAM, but like, for example, in HTM DRAM, I mean, that's requiring this very advanced logic chip that sits at the bottom of the stack, right, that uses advanced CMOS logic technology. In NAND, you know, the periphery and controller chip, which is increasingly becoming more advanced logic, is being processed separately from the NAND stack, right, and then bonded together.
Speaker Change: Perfect. And then for my follow-up...
Speaker Change: And this is sort of a follow-on to what Rick was saying, but...
Speaker Change: As you mentioned, you know, memory has always had a lower process control intensity.
Speaker Change: But there are dynamics that are pushing advanced logic-like capabilities right into memory.
Speaker Change: to talk to us about the future of the EUV layer adoption and DRAM, but for example, in HTMD RAM, I mean, that's requiring this very advanced logic chip that sits at the bottom of the stack, right? That's using, again, T-MOS logic technology. In NAND, you know, the periphery and controller chip, which...
Speaker Change: is increasingly becoming more advanced logic is being processed separately from the man staff, right? And then bonded together.
Bren Higgins: And then this whole NAND sort of bonding technology process appears to be a nightmare from a manufacturability and real perspective, but kicking in totality, I mean, it does appear that these dynamics are driving memory process control intensity higher. I mean, any way to quantify, I know historically, memory intensity has been about 10%, but if you look at all of these trends over the next few years, like, where can you see that memory intensity sort of trending to? Yeah, it's a good question, Harlan.
Speaker Change: And then this whole NAM sort of...
Speaker Change: Bonding technology process appears to be a nightmare from a manufacturability and yield perspective.
Speaker Change: But...
Speaker Change: [inaudible]
Speaker Change: Over the next few years, like, where can you see that memory intensity sort of trending to?
Bren Higgins: And you covered all the advancements that have us pretty excited in terms of opportunity moving forward. We have seen intensity improve over the last couple of years or so, but what we're waiting for to, lean in, if you will, into that improvement is to see a whole cycle in terms of investment by our customers. And so, as we look into next year, I think that where we are today is probably, historically, around 10%.
Speaker Change: Yeah, it's a good question, Harlan, and you did cover all the advancements that have us pretty excited in terms of opportunity moving forward. We have seen intensity improve over the last couple of years or so, but what we're waiting for to continue to see is the growth of the economy.
Harlan L. Sur: lean in, if you will, into those.
Harlan L. Sur: to that improvement is...
Harlan L. Sur: is to see a whole cycle in terms of investment by our customers.
Speaker Change: And so, I think as we look into next year, I think that where we are today is probably historically around 10%, that we're probably in excess of 11% today.
Bren Higgins: That we're probably in excess of 11% today, and I think moving forward, if we can execute and deliver some of the products and capabilities we have in development here, I think it creates a number of opportunities, covering the things you talked about and some of the other things we talked about in the last question or two. Yeah, and just contrast that from a few years ago, Harlan, if you go back and think about 3D.
Speaker Change: And I think moving forward, if we can execute and deliver some of the products and capabilities we have in development here, I think it creates a number of opportunities, covering the things you talked about and some of the other things we talked about in the last question or two.
Speaker Change: Yeah, and just contrast that from a few years ago, Harlan, if you go back and you think about 3D. You know, 3D happens and our customers go backwards in lithography.
Bren Higgins: You know, 3D happens, and our customers go backwards in lithography. Right? DRAM is not really pushing design rules or pushing advanced logic around the DRAM, and repair is still working. Like, you take all those factors off, and you get more into the expected growth and intensity that you get in logic or in the leading-edge foundry for similar reasons. But we haven't fully modeled it because it's really hard. You know, customers are still trying to figure it out, but there's more characterization happening at the leading edge, leading us to believe that there's going to be more implementation. But until they've been through the stages, they don't know.
Speaker Change: Great.
Harlan L. Sur: DRAM is not really pushing design rules, nor pushing advanced logic around the DRAM, and repair is still working.
Harlan L. Sur: Like, you take all those factors off and you get more into the expected growth and intensity that you get in logic.
Speaker Change: or in the Leading Edge Foundry for similar reasons. But, so we haven't fully modeled it because it's really hard, you know, customers are still trying to figure it out.
Speaker Change: But there's more characterization happening at the leading edge, leading us to believe that there's going to be more implementation. But until they've been through the cycles, they don't know. But it is to Bren's point why we feel more bullish.
Bren Higgins: But it is to Bren's point why we feel more bullish in our engagement with those customers. They recognize an increased need for the process control capability. And then you just add on this bonding packaging question. And that's a huge issue.
Speaker Change: And our engagement in those customers, they recognize an increased need for the process control capability. And then you just add on this bonding packaging question.
Bren Higgins: And, you know, the value of HBM is so high also. So I think there are a lot of factors in many ways. There are plenty of opportunities. Then the other part of that answer is making sure that our solutions actually are going to work for those opportunities. And we're still proving that out. Perfect. Thank you very much.
Speaker Change: And that's a huge issue, and you know, the value of HBM is so high.
Speaker Change: Also, so I think there's a lot of factors. In many ways, there are plenty of opportunities, then the other part of that answer is making sure that our solutions actually are going to work for those opportunities, and we're still proving that out.
Speaker Change: Perfect. Thank you very much.
Atif Malik: Thanks, Harlan. We'll take our next question from Harlan Sur, or, I apologize, from Atif Malik with Citi. Please go ahead, your line is open.
Speaker Change: Thanks, Harlan.
Speaker Change: We'll take our next question from Harlan Sur, or I apologize, from Atif Malik with Citi. Please go ahead. Your line is open.
Bren Higgins: Does that imply that you're gaining share on the reticle side? So let me unpack that a little bit. I think that it is definitely the case for data all around that it creates new integration challenges, and so we've seen, and we've talked about this for some time now, the adoption of Gen 4 to support that in a new configuration to be able to resolve the issues around that. So that's a driver.
Atif Malik: Hi, thank you for taking my questions. The first one is for Rick.
Atif Malik: on gate all-around PVC intensity. Some of your peers have talked about 30% increase in metrology intensity at two nanometer gate all-around over three nanometer.
Speaker Change: And the reticle inspection field has talked about the EV map that's actually coming down to 20, from 30, from 3 nanometers. So when you put these two trends together, I'm curious how you're looking at your overall PVC intensity, and does that imply that you're gaining share on the reticle side?
Speaker Change: So let me unpack that a little bit. I think that it is definitely the case for data all around that it creates new integration challenges.
Speaker Change: And so we've seen and we've talked about this for some time now.
Speaker Change: The adoption of Gen 4 to support that in a new configuration to be able to...
Bren Higgins: It's also a different approach than what customers have to use because of the architectural change. There's more metrology intensity being used and a largely an increase in the need to control voltage thresholds. So VT control becomes more important.
Speaker Change: resolve the
Speaker Change: There is a driver, it's also a different approach than what customers have used because of the architectural change. There's more metrology intensity being used and largely an increase in the...
Bren Higgins: So that's also part of it. You also just have film thickness measurement and management higher. So overall, we would anticipate, but that's all kind of rolled into how we model the increasing process control intensity that we've outlined before. There's really nothing that's different than when we modeled that going forward toward our 2026 plan in terms of overall process control intensity in our share. Atif, if you look back to the last local high in Caley's share at WFP, it was when the industry transitioned from planar to FinFET structures. So typically, architecture changes do drive process control intensity to a higher level because of just the change that's happening and the immaturity of the change. So, you know, historically, it's proven.
Speaker Change: need to control voltage thresholds, so VT control becomes more important.
Speaker Change: [inaudible]
Speaker Change: Before, there's really nothing that's different than when we modeled that going forward toward our 2026 plan in terms of overall process control intensity and our share performance.
Keith: Atif, if you look back to the last local high and KLE share at WFP, it was when the industry transitioned from planar to FinFET structures.
Keith: So typically architecture changes.
Keith: do drive, because of just the change that's happening and the immaturity of the change.
Bren Higgins: Rick talked about not only inspection opportunities, but you're depositing in a lot more layers, 20 to 30% more critical layers on the metrology side. So we think in a number of areas, it's going to create opportunities. And you still have the scaling dynamics, while litho layers are constant, those are still pretty challenging layers in terms of from a defect control point of view.
Keith: It does drive process control intensity to a higher level.
Keith: So, you know, historically it's proven, so Rick talked about, not only inspection opportunities, but you're depositing in a lot more layers.
Richard P. Wallace: You have 20 to 30% more critical layers on the metrology side. So we think in a number of areas.
Richard P. Wallace: It's going to create opportunities. And you still have the scaling dynamics. While litho layers are constant, those are still pretty challenging layers in terms of from a defect control point of view.
Bren Higgins: So we're pretty, pretty bullish about the opportunities. I think it's feeding into a lot of what we've said here in the last few questions in terms of our confidence moving forward. Great.
Richard P. Wallace: So, uh, we're pretty, pretty bullish about the opportunities. I think it's feeding into a lot of what we've said here over, uh, in the last few questions in terms of our confidence moving into next year.
Bren Higgins: And as a follow-up, Brent, the revenue guide is a bit wider than usual, plus minus 150 versus 125. Is that just a function of high revenues, or is it something else? Yeah, a function of higher revenues. It's about 5% or so.
Richard P. Wallace: As a follow-up, Brent, the revenue guide is a bit wider than usual, plus-minus $150 versus $125. Is that just a function of higher revenues or is it something else?
Bren Higgins: At some point, as we move through the different quarters and revenue ranges, we start to make an adjustment just because of the higher levels. So there's nothing indicative in that other than the revenue's up 9% higher. We decided to close 9% in June, and then the guidance is another 7%, so it was prudent to raise the range. You have to also remember that we do have integers that are quite large. If you think about our broadband plasma systems, they could be anywhere, even plus $20 million, depending on the configuration.
Brent: Yeah, a function of higher revenues. It's about, you know, 5% or so. At some point, as we move through the different quarters and revenue ranges, we start to make an adjustment just because of the higher levels.
Speaker Change: So there's nothing indicative in that other than, you know, the revenue's up 9% higher, we decided to, well, it was 9% in June , and then the guidance is another 7%, so that it was prudent to
Speaker Change: to raise the range. You have to also remember that that we do have integers that are quite large. If you think about our broadband plasma systems, they could be anywhere, you know, even plus 20 million, depending on the configuration. So, you know, tools moving in and out can
Speaker Change: can, you know, have an impact in terms of our overall. So it's really more just the increasing revenue level and not really anything else.
Bren Higgins: So tools moving in and out can have an impact in terms of our overall revenue, so it's really more just the increasing revenue level and not related to anything else. Thank you. We'll take our next question from Chris Caso with Wolf Research. Please go ahead. Yes, thank you. Good evening.
Speaker Change: Thank you.
Christopher Caso: We'll take our next question from Chris Caso with Wolf Research. Please go ahead.
Christopher Caso: I guess my first question is on the trends that you're seeing in mature nodes and, you know, specifically, well, I guess Chinese revenue in general. I think your prior comments were expectations for China were about flat in the second half. You talk about that's still your view and, you know, what you're seeing, you know, outside of the leading indicators. Yeah, it's still my view, not on an absolute dollar basis, right? And then with the second half growing relative to the first half, the percent will start to move in the second half versus the first half.
Christopher Caso: Thank you, good evening. I guess first question is on the trends that you're seeing in mature node and
Christopher Caso: You know, specifically, well, I guess China revenue in general. I think your prior comments were an expectation for China about flat in the second half. Can you talk about if that's still your view and, you know, what you're seeing, you know, outside of the leading edge?
Bren Higgins: But on an absolute dollar basis, as I said last quarter, it's about flat. Now, you know, depending on what happens, you've got a lot of new projects, and rubric could be an issue with newer customers. So where it shows up in terms of which quarter, I'm not going to comment on that. But if you just take a step back and look at a half to half point of view, it's very similar to what I said last quarter. I got it.
Speaker Change: Yeah, I just don't like, you know, the absolute dollar basis, right? And then with the second half growing relative to the first half...
Speaker Change: The percent will start to move in the second half versus the first half, but on an absolutely dollar basis.
Speaker Change: As I said last quarter, it's about flat.
Speaker Change: Now, depending on what happens, you've got a lot of new projects, and REBREC could be an issue with newer customers, so where it shows up in terms of which quarter, I'm not going to comment on, but if you just take a step back and look at a half-to-half point of view, it's very similar to what I said last quarter.
Christopher Caso: And then, you know, following on, you've made some comments about the impact of HiNA in the past. I mean, one: could you remind us a little bit about the impact of HiNA on process control? And then secondly, you know, with regard to timing for that, you know, there's been some noise around that about, you know, sort of implementation schedules. You know, anything different than you see on your side might, you know, recognize that you folks would probably be a little bit earlier in seeing that, you know, given the timing of when you install process control. Well, I think that the difference for high NA, the most obvious difference is that you're going to continue to scale.
Speaker Change: Got it.
Speaker Change: And then, you know, following on, you've made some comments about the impact of HiNA in the past.
Speaker Change: Everyone, could you remind us a little bit about the impact of HINAE?
Speaker Change: on process control. And then secondly, you know, with regard to timing for that, you know, there's been some noise around that about
Speaker Change: You know, sort of implementation schedules, you know, anything different than you see on your side, and I, you know, recognize that you folks would probably be a little bit earlier, you know, in seeing that, you know, given the timing of when you install process control.
Bren Higgins: So you're going to get smaller defects, and you're going to have new challenges associated with radical qualification. And that takes the form both in the mashup and recall and print check. So all those factors continue, but it's really an extension of the trends that we've seen. And when you get high NA, you'll also get just the mix will shift; you'll have some layers initially of high NA, and then you'll have others that are going to be 0.33.
Speaker Change: Well, I think that the difference for high and A, the most obvious difference is you're going to continue a scaling. So you're going to get smaller defects and you're going to have new challenges associated with scaling.
Speaker Change: radical qualification and that takes the form both in the mash-up and recall and print check so all those factors continue
Speaker Change: [inaudible]
Bren Higgins: I think what we're hearing and seeing from customers is very consistent with what we believed in terms of what HVM happens. We don't see any acceleration in the timing; if anything, there's the potential for a delay. In terms of the HVM implementation, there will be characterization work happening before that. But like all technology transitions, we see, existing technology often extends longer and has more upgrades and is more cost-effective, and that's what drives customers ultimately. It's about the economics.
Speaker Change: It's very consistent with what we believed in terms of when HVM happens. We don't see any acceleration in the timing. If anything, there's the potential for delay.
Speaker Change: In terms of the HVM implementation, there will be characterization work happening before that, but like all technology transitions, you know, we see
Speaker Change: The existing technology often extends longer and has more upgrades and is more cost-effective And that's what drives customers ultimately. It's about the economics
Bren Higgins: And so I think what will happen is if they can do that, then they'll buy us toward extending the life of... 0.33 and the efficacy of that in the leading edge, and then INA comes after. So nothing's really changed in our view. No acceleration, if anything, potential for some additional delay in the implementation of it.
Speaker Change: And so I think what will happen is, if they can do that, then they'll buy us toward extending the life of the...
Speaker Change: 0.33 and the efficacy of that in the leading edge, and then INA comes after. So nothing's really changed in our view. No acceleration, if anything, potential for some additional delay in the implementation.
Speaker Change: Got it. Thank you.
Krish Sankar: Thank you. We'll take our next question from Krish Sankar with T.D. Cohen.
Speaker Change: We'll take our next question from Krish Sankar with T.D. Cohen. Please go ahead, your line is open.
Bren Higgins: Please go ahead. Your line is open, the question in a different way. You know, one of your peers, ASM International, today said that China matured nodes are in a digesting mode, and calendar Q1 was the peak. I'm kind of curious; are you seeing that? And how do you think about China's sales engine next year, especially given a long lead time? You might have better insight than others. And also, is that a factor in your growth margin being down just a smidge in the September quarter? And then a follow-up. Yeah, Krish, on China, it looks like, like I said earlier, I think from a half to half point of view, it's relatively flat.
Krish Sankar: Hi, thanks for taking my question. I have two of them. First one is actually on China and Rick and Bren, thanks for the insight on the China revenues. I just kind of wanted to ask the question in a different way. You know, one of your peers, ASM International, today said that
Speaker Change: China Metro nodes are in a digesting mode and calendar Q1 was a peak.
Speaker Change: I'm kind of curious, are you seeing that, and how to think about China's sales into next year, especially given a long lead time, you might have a better insight than others, and also, is that a factor in your growth margin down just a smidge in September quarter?
Bren Higgins: So I don't see any, you know, real change. A lot of that's dependent on project timing, given the level of greenfield activity that we're seeing there. As we move into next year, my early view on our business levels is more or less consistent with what we're seeing this year. I think when you look at the order funnel, what we have in backlog, and what we have in deposits, it gives me some confidence in terms of what we'll see into next year.
Speaker Change: Yeah, Krish, on China, it looks, like I said earlier, I think from a half-to-half point of view, it's relatively flat, so I don't see any, you know, real change. A lot of that's dependent on
Speaker Change: on project timing, given the level of Greenfield activity that we're seeing there. As we move into next year, my early view on our business levels is more or less consistent.
Speaker Change: [inaudible]
Bren Higgins: So I don't, I don't see a change, obviously, the mix could, will be changing, there's, there's infrastructure investments, obviously, the logic counterpiece memory, and so on. But from an overall level, it seems that it's pretty, pretty consistent year to year.
Speaker Change: It seems that it's pretty consistent year-to-year.
Speaker Change: On gross margin, it, you know, while we outperformed in the June quarter, it was a little bit more than what we had initially modeled in the quarter. There's some adjustment that we're seeing in the September quarter from that. When you look at KLA gross margins, I talk a lot about product mix being the biggest driver of our gross margin in terms of variability quarter to quarter. It's not customer mix, it's not region mix.
Bren Higgins: On gross margin, you know, while we outperformed in the June quarter, it was a little bit more than what we had initially modeled for the quarter. There's some adjustment that we're seeing in the September quarter from that. When you look at KLA gross margins, I talk a lot about product mix being the biggest driver of our gross margin in terms of variability quarter to quarter. It's not customer mix, it's not region mix, it is the portfolio mix.
Speaker Change: It is the portfolio mix, and not all the products in our portfolio carry the same margin profile, but also within the product families themselves. And particularly when you're selling across multiple nodes with highly configurable systems, you can end up with varying gross margin profiles even within the same product families.
Bren Higgins: And not all the products in our portfolio can carry the same margin profile, but also within the product families themselves. And particularly when you're selling across multiple nodes, with highly configurable systems, you can end up with varying gross margin profiles, even within the same product families. So it's really a function of that more than anything else. And, of course, you know that the June quarter was stronger. I did put the comments, which are very consistent with last quarter in terms of expectations for this year, in the mid-61% range. That's our expectation.
Speaker Change: So, it's really a function of that.
Speaker Change: than it is anything else. And of course, you know, the June quarter was stronger. I think that the comments, which are very consistent with last quarter in terms of expectations for this year, in the mid 61% range, that's our expectation. And then, you know, moving forward as we see the business continue to grow under 25, I think you'll see KLA's general incremental gross market performance.
Speaker Change: In and around that 65% incremental gross margin, plus or minus, as we move forward here. But in any given quarter, it could add a little bit of variability, but nothing that's different than what we usually see.
Speaker Change: and Kevin Kessel, Bren Higgins.
Krish Sankar: And then, you know, moving forward, as we see the business continue to grow into 25, I think you'll see KLA's general incremental gross margin performance in and around that 65% increase, incremental gross margin, plus or minus, as we move forward here. But in any given quarter, it could add a little bit of variability, but nothing that's different than what we usually see, the caller, like, you know, the 500 million run rate from 400 million, like, three months ago. Is this really a function of the advanced packaging market growing?
Krish Sankar: Or are you, like, targeting your markets like macro inspection, which I feel like, you know, your peers or your competitors are doing better than that? Are you, like, targeting those markets, which is also helping some of this incremental revenue growth we did this year? I'm also kind of curious if you can extrapolate that into, like, panel-level packaging, which is probably a few years out. Thank you. Yeah, I think there's no question that the package marketing market is growing, and it's for all the reasons that you hear.
Speaker Change: Is this really a function of the advanced packaging market growing?
Speaker Change: Or are you like targeting your markets like macro inspection, which I feel like...
Speaker Change: You know your peers or your competitors are doing better in that. Are you like targeting those markets? That's also helping some of this incremental revenue go through this year I'm also kind of curious if you can extrapolate that into like panel level packaging, which is probably a few years out. Thank you
Bren Higgins: I think that there's been acceleration. And again, I mentioned earlier in the call that some of the gaps, if you think about what's going on overall with AI, are packaging shortages. So there's a lot of investment happening there. It's not just macro.
Speaker Change: Yeah, I think there's no question that the package marketing market is growing and it's for all the reasons that you hear. I think that
Speaker Change: There's been acceleration and again, I mentioned earlier in the call that some of the
Bren Higgins: It's what would have been considered pretty advanced lithography, not that our inspection wasn't that many years ago, because the design rules and the yield and what's at risk cost-wise are much higher. You know, many years ago, when we bought a company and started doing its packaging, one of our customers asked, "Why are you even bothering?" This is not a KLA market.
Speaker Change: if you think about what's going on overall with AI, are packaging shortage related. So there's a lot of investment happening there.
Speaker Change: What's at risk? Cost-wise, it's much higher. Many years ago, when we bought a company and started doing its packaging, one of our customers asked,
Speaker Change: Why are you even bothering? This is not a KLA market.
Bren Higgins: What happened in the last year is now customers are saying, we need your capability that you have in the front end to be applied to some of our advanced packaging challenges, and accelerated workshops with us talking about accelerated product roadmaps, and a lot of customer excitement and interest. So they're driving it very hard because they have shortages. And it's really across many of our products, both in our processing but also in our process control. So it's been significant to see the growth and the speed of it. As we said, that's the annualized number for calendar 24.
Speaker Change: What happened in the last year is now customers are saying we need your capability that you have in the front end to be applied into some of our advanced packaging challenges and accelerated workshops with us talking about that, accelerated product roadmaps.
Speaker Change: and a lot of customer excitement and interest. So they're driving it very hard because they have shortages.
Bren Higgins: But we'd expect the trend to continue toward growth and 25 and beyond. Most of our growth has been more on the logic side. And I think one of the things we're excited about moving forward is that as you move from high bandwidth memory to hybrid bonding techniques, you do increase the complexity of the process a fair amount. And as you know, the KLA position in the market is one of higher value offerings supporting more complexity.
Speaker Change: That's the annual number for calendar 24, but we'd expect the trend to continue toward growth in 25 and beyond.
Bren Higgins: And so we're encouraged by what those opportunities might look like as we get out into, you know, the 26. Obviously, the industry is thinking a lot about what's next in terms of panel-level packaging and so on. And so there's obviously R&D that goes into that.
Speaker Change: Most of our growth has been more on the logic side, and I think one of the things we're excited about moving forward is that as you move
Speaker Change: is one of the higher value offerings supporting more complexity. And so we're encouraged by what those opportunities might look like as we get out into the, you know, into the 26th and
Speaker Change: [inaudible]
Bren Higgins: But you know, so that's work that we will be doing in the company. And so I think that those opportunities to reach a point are just showcasing, I think, what the opportunities that are available in this part of the market over the next several years. Just one final point.
Speaker Change: The opportunities that are available in this part of the market over the next several years. Just one final point. Some of our customers, you know, our competitors are coming at this from a lower end, and in many cases, the requirements are at the top of the...
Bren Higgins: Some of our customers, you know, our competitors are coming at this from a lower end, and in many cases, the requirements are at the top end of their capability. And so what we're hearing from customers is even though in some cases they're buying our systems, which are at the bottom end of our capability, what they also want is the roadmap. So I think they want the ability to buy that capability now with the expectation and the knowledge that, There's no question that roadmap is going to look more like a traditional scaling roadmap going forward. Gotcha. So it's future-proofing. Thanks, Rick. Thanks, man.
Speaker Change: And so, what we're hearing from customers is even though in some cases they're buying our systems,
Speaker Change: [inaudible]
Speaker Change: There's no question that roadmap is going to look more like a traditional scaling roadmap going forward.
Speaker Change: Thank you.
Joseph Michael Quatrochi: Very helpful. Thank you. Thanks for asking. We'll take our next question from Joe Quatrochi with Wells Fargo. Please go ahead. Looking at the guide for the September quarter and thinking about sequential growth into the December quarter, is it more fair to assume now we're kind of thinking about, you know, a low double-digit, half-on-half growth rate for the calendar year relative to the high single-digit last quarter that you talked about? And then, kind of dovetailing on that, I think last quarter you talked about the process control systems mix as being closer to Is that maybe a bit higher than that now?
Speaker Change: Thanks for tuning in.
Speaker Change: We'll take our next question from Joe Quatrochi with Wells Fargo. Please go ahead.
Joseph Michael Quatrochi: Yeah, thanks for taking the question. I just want to kind of understand...
Speaker Change: You know, I think...
Joseph Michael Quatrochi: Looking at the guide for the September quarter and thinking about sequential growth into the December quarter, is it more fair to assume now we're kind of thinking about, you know, low double-digit, half-on-half growth rate for the calendar year relative to the high single-digit last year?
Speaker Change: I think last quarter you talked about process control systems being closer to 70% for foundry logic. Is that maybe a bit higher than that now?
Bren Higgins: Yeah, so on those fronts, so again, I don't want to guide December, but I think, you know, high single digit, low double digit is probably the right way to think about our performance for the year overall. So, you know, I think that, you know, as we saw in June, relative to the expectations we had a few months ago, we did better than we thought. September's guide was higher, certainly higher than what the consensus was.
Speaker Change: Yeah, so on those fronts, so again, I don't want to guide December , but I think, you know, high single-digit, low double-digit is probably the right way to think about our performance for the year overall.
Speaker Change: So, you know, I think that, you know, as we saw in
Speaker Change: June , relative to the expectations we had a few months ago, we did better than we thought. September guide was higher, certainly higher than what consensus was. So I think the incremental optimism I talked about earlier in the funnel is revealing.
Joseph Michael Quatrochi: So I think the incremental optimism I talked about earlier in the funnel is revealing itself in some incremental growth here through the second half of the year. But when I look at the overall mix of business, I think that Foundry logic is likely closer to 75%. So last year it was 70, 70, 30 on for approximate semiconductor process controls revenue to semiconductor customers. It's closer to 75, 25, and 24, but we'll see how it ends up.
Speaker Change: and some incremental growth here through the second half of the year. When I look at the overall mix of business, I think that Foundry logic is likely closer to 75%. So, last year was 70%.
Speaker Change: [inaudible]
Speaker Change: It's closer to 75, 25, and 24. But we'll see how it ends up.
Bren Higgins: Perfect, that's helpful. And then as a follow-up, the N3 strength you're talking about, given the lead times for Gen 4, Gen 5, I mean... Is that going to kind of enter the model in terms of demand for next year? Is that how we should think about that? Or can some of those tools be pulled into 2024?
Speaker Change: [inaudible]
Speaker Change: Is that going to kind of enter the model in terms of demand into next year, is that how we should think about that, or can some of those tools be pulled into 2024?
Bren Higgins: Well, we are seeing more capacity come online. Those are products where we've been supply constrained, certainly around gen four. So as new capacity comes online, I think one of the challenges for us, frankly, back in 2023 was that we were limited. And as we move through this year, from a quarterly run rate point of view, we are getting incremental supply, and given the supply constraints and the level of demand, we are seeing growth there and would expect to see that continue into next year.
Speaker Change: Well, we are seeing more capacity come online. Those are products where we've been supply constrained, certainly around Gen 4. So as new capacity comes online, I think it's one of the challenges for us, frankly, back in 2023, is we were limited. And as we move through this year,
Speaker Change: From a quarterly run rate point of view, we are getting incremental supply in that.
Speaker Change: Given the supply constraints and the level of demand, we are we are seeing growth there and would expect to see that continue into next year. So I'm fairly bullish on on that part of the business growing faster than the overall market both this year and next year.
Speaker Change: So, I think that's one of those areas that I said earlier about our relative confidence in terms of share of the overall market is our presence in certain markets that are growing extremely fast relative to the overall and certainly high-end way for inspection is one of those.
Bren Higgins: So I'm fairly bullish on that part of the business growing faster than the overall market both this year and next year. So I think that's one of those areas that I said earlier about our relative confidence in terms of our share of the overall market is our presence in certain markets that are growing extremely fast relative to the overall market, and certainly, high-end way for inspection is one of those. Thank you. We'll take our next question from Toshiya Hari, Director of Global Research at Goldman Sachs. Please go ahead; your line is open.
Speaker Change: Thank you.
Speaker Change: We'll take our next question from Toshiya Hari with Goldman Sachs. Please go ahead, your line is open.
Toshiya Hari: I wanted to double-click on China and what you're seeing in the region. You guys gave a lot of color in terms of what you're expecting for the overall geo. But by application, any standouts, as you think about DRAM, foundry, other applications, or maybe by customer type, you know, mask-making, wafer-making, et cetera, whether it be, you know, trends you saw in the first half, or if you think about the flattish outlook in the second half, any standouts, the positive side or the negative side?
Toshiya Hari: Hi, thank you so much for taking the question.
Toshiya Hari: I wanted to double-click on China and what you're seeing in the region. You guys gave a lot of color in terms of what you're expecting for the overall geo, but by application, any standouts as you think about DRAM, foundry, other applications, or maybe by customer type, you know, mask-making, wafer-making, et cetera, whether it be, you know, trends you saw in the first half, or if you think about the flattish outlook of the second half, any standouts, the positive side or the negative side?
Toshiya Hari: DRAM is stronger in the first half and will be in the second half. I would expect that the wafers will probably be a little weaker. I think on the radical side, it's a little bit stronger, and then boundary logic is stronger, offsetting the weaker memory.
Speaker Change: And DRAM is stronger in the first half than it will be in the second half. I would expect that wafers probably a little weaker. I think on the radical side it's a little bit stronger. And then boundary logic is stronger, offsetting the weaker memory.
Bren Higgins: Some weakness and aught about it, follow up: is 12 to 14 still the right range? Yeah, so utilization rates are certainly a factor. So we've seen those steadily improve across all segments over the course of this year, and that's been a driver of incremental revenue. The other thing, and we had pretty good visibility into this, was the shipments that we, or the tools that we shipped in 21 and 22, have come off the warranty and gone into contract. And our contract with a higher tax rate is about 95%. So, those tools go off the warranty and into a contract that's a driver.
Speaker Change: Some weakness and aught about it.
Speaker Change: Got it, thank you. And then as a follow-up on your services business, you guys grew 14% year-over-year, and you're outperforming your peers, and I think that's off of a higher base relative to your peers, too, so really good to see that. You talked about growing toward the high end for the remainder of the year, if I'm not mistaken. Is that just simply utilization rates across your customer base improving, or is there more to it? And as a quick follow-up, is 12 to 14 still the right range?
Speaker Change #100: Yes, the utilization rate is certainly a factor, so we've seen those steadily improve across all segments over the course of this year, so that's been a driver of incremental revenue. The other thing, and we had pretty good visibility to this, was the shipments that we...
Speaker Change #100: The tools that we shipped in 21 and 22 have come off a warranty and gone into contract.
Speaker Change #100: And our contract with Moore, our tax rate is about 95%, so those tools go off a warranty and into contract if that's the driver. So we've had pretty good visibility.
Bren Higgins: So we've had pretty good visibility into the service business. We've had a headwind from FX because you do have some of the service revenue denominated in local currency, particularly in Japan. So there have been some headwinds to the growth rate, frankly. But, but yeah, we're trending towards that 14% sort of top part of the guidance range. And I think, or the mark, the target we put out there, and I think as we go over the next couple years, I feel like we're closer to the top end of the range than the bottom end. Thank you. We'll take our next question from Joe Moore with Morgan Stanley. Please go ahead.
Speaker Change #101: We've got a headwind from FX, because you do have some of the service revenue denominated in local currency, particularly in Japan, so there's been some headwinds to the growth rate, frankly, but yeah, we're trending towards
Speaker Change #101: That 14% sort of top part of the guidance range, and I think, or the mark, the target we put out there, and I think as we go over the next couple years, I feel like we're closer to the top end of the range than the bottom end of the range.
Speaker Change #102: Thank you for sharing.
Speaker Change #103: Thank you.
Speaker Change #104: We'll take our next question from Joe Moore with Morgan Stanley . Please go ahead.
Joseph Lawrence Moore: Great, thank you. I also had a couple of questions about China. At one point, you had a pretty sizable multinational business in China. Is the business today mostly dominated by the Chinese sovereigns? Very, very little multinational business.
Joseph Lawrence Moore: Thank you. I also had a couple of China follow-ups. At one point, you had a pretty sizable multinational business in China. Is the business today mostly dominated by the China sovereigns, I assume?
Joseph Lawrence Moore: Yes.
Bren Higgins: Okay, and then on the China sovereign side, I mean, having seen that business shift to more of a trailing edge focus, you know, what's happened to process control intensity, and you seem to be keeping pace with all of your competitors in terms of China exposure. So you seem to be doing quite well. I might have thought that process control intensity would drop off given the focus on lagging-edge technology. But sure, it's definitely not as high as what you would see on the leading edge.
Speaker Change #106: There's very little multinational business in China.
Speaker Change #106: Okay.
Speaker Change #107: And then I'm going to try the sovereign side, I mean...
Speaker Change #108: Having seen that business shift to more of a trailing edge focus.
Speaker Change #108: You know, what's happened to process control intensity, and you seem to be keeping pace with all of your competitors in terms of China exposure, so you seem to be doing quite well. I might have thought that the process control intensity would drop off given the focus on lagging-edge technology.
Joseph Lawrence Moore: But often, in the case of you have small, relatively size-wise small sites, then you're not really up against the percent against a huge number of wafer starts. So that's one factor. The other factor is some of the infrastructure that people are adding in terms of whether it's mask shops or wafers. So in aggregate, that's why it's for us, pretty much helps serve. Yeah, and Joe, on the multinational question, I mean, most of that business is a service, right?
Speaker Change #109: Sure, it's definitely not as high as what you would see on Leading Edge, but often in the case if you have small, relatively size-wise small sites, then you're
Speaker Change #110: You're not really up against the percent, against a huge number of wafer starts, so that's one factor. The other factor is some of the infrastructure that people are adding in terms of whether it's mask shops or wafers. So in aggregate, that's why it's for us.
Speaker Change #110: Pretty much help serve.
Speaker Change #110: And Joe, on the multinational question, I mean, most of that business is service, right? We're not really, there's no real equipment business that's happening with our multinational customers there, but there is service activity supporting those staff.
Joseph Lawrence Moore: We're not really, there's no real equipment business that's happening with our multinational customers there, but there is service activity supporting those. Got it. Okay. Thank you so much. And we'll take our next question from Srinivas Pajjuri. Please go ahead.
Joe: Got it. Okay. Thank you so much.
Srinivas Reddy Pajjuri: Your line is open. Thank you. Hi, guys. Actually, one question about 2025 WFE. Rick, obviously, demand is improving across the board, and China is stable, so that makes sense that WFE will grow next year. I'm just wondering, in terms of your assumptions, what sort of assumptions are you making as far as chip money is concerned? Because the checks seem to be coming in in the second half.
Joe: And we'll take our next question from Srinivas Pajjuri. Please go ahead, your line is open.
Srinivas Reddy Pajjuri: Thank you. Hi, guys. Actually, one question about 2025 WFE. Rick, obviously, demand is improving across the board, and China is stable, so that makes sense that WFE will grow next year.
Joe: [inaudible]
Richard P. Wallace: Just wondering if you're getting any explicit signals from your customers that that money is being spent in 2025. Yeah, our forecasts are entirely independent of any chip action. There's there's no there's no dependence on that that if our customers receive that, it's going to be they're going to be getting it. What they tell us is to offset the cost of building fabs in places that are more expensive. But it's not contributing to that they're going to build; they're going to build capacity based on demand; the demand is going to be based on their market and the overall market, and then they'll buy equipment accordingly.
Richard P. Wallace: Yeah, our forecasts are entirely independent of any ChIPAC money.
Speaker Change #115: There's there's no
Joe: There's no dependence on that.
Speaker Change #112: If our customers receive that, it's going to be, they're going to be getting it, what they tell us, is to offset costs of building fabs in places that are more expensive.
Speaker Change #112: [inaudible]
Richard P. Wallace: But we're not counting on our customers getting your money back to make our plan. Okay, thank you. And then more of a technology question, Rick, you know. I get questions about APMI from time to time for mask inspection.
Speaker Change #112: Okay.
Speaker Change #112: Thank you. And then, more of a technology question, Rick. You know, I time to time get questions about APMI for mask inspection. My understanding is that you guys
Srinivas Reddy Pajjuri: My understanding is that you guys were involved in that market and maybe exited at some point. I'm just curious, maybe I'm wrong here, but I just want to get your thoughts on that as to, you know, how you're approaching that, you know, market, and what your strategy for that market is. Yeah, we have not.
Speaker Change #114: were involved in that market and maybe exited at some point? I'm just curious, maybe I'm wrong here, but I just want to get your thoughts on that, as to, you know, how you're approaching that, you know, market, and what your strategy for that market is.
Richard P. Wallace: We're heavily involved in the reticle market. It's a market that we really started the company with, and we're still involved in it heavily. The question of whether you need actinic inspection for reticles has been a long debate that we've had.
Richard P. Wallace: Yeah, we have not, um...
Speaker Change #117: We're heavily involved in the reticle market. It's a market that we started a company with and we're still involved in it heavily. The question on, do you need actinic inspection for reticles?
Richard P. Wallace: And our conclusion, based on all the analysis that we've seen, is the real market need for that is when high N.A. gets introduced. Because at the existing technology nodes, there are really three ways to deal with the problems, basically using the Gen 5 print check application.
Speaker Change #116: It's been a long debate that we've had. And our conclusion, based on all the analysis
Speaker Change #116: that we've seen is the real market need for that.
Speaker Change #118: is when HiNA gets introduced because of the existing technology nodes. There's really three ways to deal with the problems. One is the challenges of radical quality. One is the...
Speaker Change #118: flagship product line that we've had for a long time the 6XX and extensions to that.
Speaker Change #118: The other one is a neem bean product that we've talked about that's being used for very high resolution.
Speaker Change #118: [inaudible]
Richard P. Wallace: When it comes to investment in the Actinic or the product that we've identified for high NA, we're pretty confident of our ability to intercept the high-volume manufacturing of high NA, which is still some years away. Thank you, very helpful. We'll take our next question from Brian Chin with Stiefel. Please go ahead. Good afternoon.
Speaker Change #118: basically using the Gen 5 Prick Check application for it. When it comes to investment in the Actinic or the product that we've identified for high N.A., we're pretty confident of our ability to intercept the high-volume manufacturing of high N.A., which is still some years away.
Speaker Change #119: Thank you. Very helpful.
Speaker Change #120: We'll take our next question from Brian Chin with Stiefel. Please go ahead.
Brian Edward Chin: Thanks for letting us ask a few questions. Rick, you talk about inflections and sequential and year-over-year revenue growth. We've also seen this in terms of bookings, and did your 12-month shippable RPO increase this quarter?
Brian Edward Chin: Good afternoon. Thanks for letting us ask a few questions. Rick, you talked about inflections and sequential and year-over-year revenue growth. We've also seen this in terms of bookings. Did your 12-month shippable RPO increase this quarter?
Bren Higgins: So we'll have all the specifics on that in the 10K that we'll file here in another week or two. It was pretty close to flat, down about 70 million per quarter. So pretty flat compared to last quarter. And I think given what we're seeing in the funnel, I would expect it, probably, over the next few quarters, we'll start to see it increase. But yeah, just slightly down from last quarter. Okay, that's helpful.
Brian Edward Chin: Um.
Speaker Change #122: So we'll have all the specifics on that in the 10k that we'll file here another
Speaker Change #123: Another week or two, it was pretty close to flat, down about $70 million on quarter.
Speaker Change #124: So, pretty flattish compared to last quarter, and, you know, I think given what we're seeing in the funnel, I would expect it likely to probably over the next few quarters, we'll start to see it increase, but yeah, just slightly down from last quarter.
Speaker Change #125: Okay, that's helpful.
Brian Edward Chin: Thank you. You've made a lot of disclosures in the past couple calls about advanced packaging, and you saw a step up in the year forecast over the past three months. Can you sort of ballpark how large the advanced packaging process control TAM is? You're probably not at your kind of typical, on average, 50-60% market share in process control overall, but maybe a sense of where the starting point is now, and obviously, I'm sure you expect the market to grow and probably your share as well in the years ahead.
Speaker Change #126: Thank you.
Speaker Change #127: He made a lot of disclosures in the past couple of calls about advanced packaging and you saw him step up on the year forecast over the past three months.
Speaker Change #128: Can you sort of ballpark how large the Advanced Packaging Process Control TAM is? You're probably not at your kind of typical, on average, 50-60% market share in process control overall, but...
Speaker Change #129: Yeah, maybe a sense of where the starting point is now, and obviously, I'm sure you expect the market to grow and probably your share as well in the years ahead.
Brian Edward Chin: So a lot, a grand deal of the specifics is rigged, but it's not just process control for us; it's also process tools because of the SPTS acquisition we did about five years ago. Yeah, and look, we, right now, our view is that this part of the market will grow faster than overall WFE. So if you look in the long run, as we expect WFE over the next few years, with capital intensity slowly rising to grow a little bit faster than semiconductor revenue, this part of the market will likely grow faster than that.
Brandil: So all that brand deal of the specifics is rigged, but it's not just process control for us. It's also process tools because of the SPTS acquisition we did about five years ago.
Brian Edward Chin: So that's the only quantifying we've done at this point. To Rick's point, we have a broad portfolio; we're seeing parts of it on the inspection side move up market, but we also sell a number of process tools, and we also sell some chemical process control capability as well. So we're approaching this market in multiple ways, and like I said, I think that, as we talked about earlier, in the memory part of the market as it relates to HBM, we think we're better positioned relative to some of the technology transitions that are coming, in terms of our share opportunity moving forward. Great. Thank you. We'll take our next question from Blayne Curtis with Jefferies. Please go ahead.
Brandil: Yeah, look, we, right now, our view is that this part of the market will grow faster than overall WFE, so it will be a long run.
Brandil: You know, as we expect WFP over the next few years, capital intensity is slowly rising to grow.
Brandil: A little bit faster than semiconductor revenue.
Brandil: that this part of the market will likely grow faster than that. So that's the only quantifying we've done at this point. To Rick's point, we have a broad portfolio. We're seeing parts of it on the inspection site move up market, but we also sell a number of process tools. We also sell some chemical process control capability as well. So we're approaching this market in multiple ways.
Speaker Change #131: And like I said, I think that, as we talked about earlier, in the memory part of the market as it relates to HBM, we think we're better positioned relative to some of the technology transitions that are coming in terms of our share opportunity moving forward.
Blayne Peter Curtis: Your line is open. Thanks for asking my question. I want to ask you about the outlook for EPC. I think you were looking for growth last time, but it might have come in a little bit below.
Blayne Peter Curtis: We'll take our next question from Blayne Curtis with Jefferies. Please go ahead, your line is open. Thanks for answering my question. I want to ask you on the outlook for EPC. I think you were looking for growth last time. It might have came in a little bit below. I'm just curious, since we're going through all the calendar 24 forecasts, if you could update that one.
Bren Higgins: Just curious, since we're going through all the calendar 24-forecasts, if you could update that one. Yeah, on Specialty Semiconductor, quarter to quarter, it dipped a little bit in the June quarter, but that's more of a timing issue. I think our expectation in that business is still some modest growth for the year. That business has a pretty diversified market exposure, and its power semi-related to the automotive business has come down. You've seen packaging pick up, but there's a little bit of a dip in June, but it recovers and has a much stronger second half. The flat panel business is where we announced our exit from that.
Speaker Change #133: Yeah, on Specialty Semiconductor, quarter-to-quarter, it dipped a little bit in the June quarter, but that's more of a timing issue. I think our expectation in that business is still some modest growth for the year. That business has a pretty diversified...
Blayne Peter Curtis: And so we still have revenue in our plans for that as we exit that business, and we expect to enter manufacturing, likely in Q1 of 2025. On the PCB front, which is more consumer-centric, we still have that market has been relatively sluggish. It's, you know, it's improved a bit, but not much. And that's obviously tied much more to mobility.
Speaker Change #134: second half
Speaker Change #135: In our plans for that as we exit that business and we expect into manufacturing, likely in Q1 of 2025, on the PCB front, which is
Speaker Change #135: More consumer centric we still have that markets been relatively sluggish
Speaker Change #135: [inaudible]
Speaker Change #136: And I think we're still working off some of that capacity. Now, in that business, we do have service exposure, so you have pretty good contract penetration in the PCB world, so while the systems business has been slower, there have been...
Bren Higgins: And so improvements into the future as we see more in the last year or so. But I would think that the overall, the aggregate part of that business, is up, you know, a few points year to year. I think it's, you know, we'll call it low to mid single digit. Thanks.
Speaker Change #137: Service contributions from a revenue point of view that we've had over the last year or so, but I would think that that overall The aggregate part of that business is is up You know a few a few points a year to year. I think it's you know we'll call low to mid single digits
Blayne Peter Curtis: And then I just wanted to ask you, I know there's been a couple of questions about China. I heard from others that you're hearing fewer new names. And I think the thought was maybe it would be more build-outs of facilities that were already in process. You talked about greenfields there, and obviously there's another slug of money potentially coming in. So as you look out a year or more, I'm just kind of curious how you think about that frenzy we had before of all these new names that you never heard of before creating companies. Are you seeing any signs that that might come back?
Speaker Change #138: Thanks. And then I just wanted to ask you, I know there's been a couple of questions on China. I heard from others that you're hearing less new names and I think...
Speaker Change #139: The thought was maybe it would be more build-outs of facilities that were already in process. You talked about greenfields there, and obviously there's another slug of money potentially coming in. So as you look out,
Speaker Change #140: I was kind of curious how you think about that frenzy we had before of all these new names that you never heard of before, you know, creating companies. Are you seeing any view that that might come back?
Bren Higgins: Well, there's still some new business from new customers. But the other thing that's happening in China is you do see investment from our mature legacy customers in China. And so we've been engaged in supporting those customers for many, many years, and their businesses are typically driven by supplying for specific markets and in response to expectations of demand moving forward. So you do have those customers also investing more here, I think, moving forward.
Speaker Change #141: Well, there's still some new business from new customers. The other thing that's happening in China is you do see investment from our mature legacy customers in China.
Speaker Change #142: And so...
Speaker Change #142: where we've been engaged in supporting those customers.
Speaker Change #142: for many, many years, and their businesses are typically driven by supplying for specific markets.
Speaker Change #142: And in response to expectations of demand moving forward. So you do have those customers also, you know, investing more here, I think, moving forward. And then you do move into second phases with certain ones, but there's also some new ones, too. So it's a pretty broad mix.
Bren Higgins: And then you do move into second phases with certain ones, but there's also some new ones, too. So it's a pretty broad mix as I look at the remainder of this year and into next year.
Speaker Change #142: As I look at the remainder of this year and into next year.
Timothy Michael Arcuri: Thank you. And we'll take our last question today from Tim Arcuri with UPS. Please go ahead, the U.S. Department of Commerce is trying to use the Foreign Direct Protocol against some of the non-U.S. suppliers, and it would kind of suggest that maybe there's some forthcoming news that there's a reason why they would want to use the FDPR, like maybe some entity list. So, how do you think about that? I know it's kind of hard for you to even, you know, handicap your guidance for that
Speaker Change #143: Gotcha. Thank you.
Speaker Change #144: And we'll take our last question today from Tim Arcuri with UBS. Please go ahead.
Bren Higgins: And I assume that you're not accounting for that at all because you don't even know, like, whether that's going to come. But how do you kind of think about that and what the likelihood is? And, you know, how do you even handicap for it?
Timothy Michael Arcuri: Thanks. I had two. So Bren, Mike,
Speaker Change #146: Question on China. So there's been some recent news, obviously, the U.S. Department of Commerce is
Speaker Change #147: Charney is the foreign direct product rule against some of the non-U.S.
Speaker Change #147: and some suppliers, and it would kind of suggest that maybe there's some forthcoming...
Speaker Change #147: News that there's a reason why they would want to use the FDPR like maybe some entity list additions. So
Speaker Change #148: How do you think about that? I know it's kind of hard for you to even, you know, handicap your guidance for that, and I assume that you're not accounting for that at all because you don't even know, like, you know, when or if that's going to come, but how do you kind of think about that and what the likelihood is and, you know, how do you even handicap for it?
Richard P. Wallace: Yeah, Sam, I mean, there's been a lot of news for some time. And so you're right, I can't, I can't participate here in speculation and hypotheticals about what could or could not happen. So, you know, we will continue to assess, and we work very closely with the US government. And, of course, we do everything we need to do in the company to be in compliance. We'll follow the laws we do, and we'll support our customers as well within the confines of whatever the regulations are.
Speaker Change #149: Yeah, Sam, I mean, there's been a lot of news for some time, and so you're right, I can't
Sam: I can't participate here in speculation and hypotheticals about what could or could not happen. So, um...
Speaker Change #151: We will continue to assess. We work very closely with the U.S. government. Of course, we do everything we need to do in the company to be in compliance. We'll follow the laws we do, and we'll support our customers as well within the confines of whatever the regulations are. So if and when something happens, we'll assess the impact and let you know.
Richard P. Wallace: So if and when something happens, we'll assess the impact and, and, and let you know what the impact is in sort of the near term and what it might be, you know, over the long run. Well, one of the things we talked about a lot, Sam, and I know you know this is that because of where we are with the AI drivers, we're seeing an acceleration at the leading edge. So if we think about what's really going to propel our business going forward, it's not so much the legacy, which has been maybe overrepresented on historical levels the last few years, but it's the stuff we're seeing right now, especially at the leading edge in terms of leading-edge foundry.
Speaker Change #149: what the impact is in sort of the near term and what might be, you know, over the long term.
Speaker Change #149: Well, one of the things we talk about a lot, Tim, and I know you know this, is the
Speaker Change #150: Because of where we are with the AI drivers, we're seeing an acceleration at the leading edge, so if we think about what's really going to propel our business going forward, it's not so much the legacy, which has been
Timothy Michael Arcuri: May be over represented on historical levels last few years, but it's the stuff we're seeing right now, especially at the leading edge in terms of leading edge foundry, and that's been driving a lot of our business.
Richard P. Wallace: And that's been driving a lot of our business and our expectations around what we're seeing in N3 and N2, plus the packaging, plus what we're seeing in HBM. So if I think about 25, 26, those are going to be the things that drive KLA, drive our performance, and should drive good opportunities for our investors. If you go back to 2022, 75% plus of our business was what we'll call leading-edge advanced design rules, you know, 20 nanometers or below.
Timothy Michael Arcuri: And our expectations around what we're seeing at N3 and N2, plus the packaging, plus we're seeing in HBM. So if I think about 25, 26, those are going to be the things that drive KLA, drive our performance.
Timothy Michael Arcuri: And should drive good opportunities for our investors. If you go back to 2022, 75% plus of our business was what we'll call leading edge, advanced design rules, you know, 20 nanometer or below.
Richard P. Wallace: So, you know, with the expectation of a ramp into next year from our more leading-edge customers on the logic and memory side, we think that that's going to drive the growth of our business as we move over the course of next year and beyond. Okay.
Timothy Michael Arcuri: So, you know, with the expectation of a ramp into next year from our more leading edge customers on the logic and memory side, you know, we think that that's going to drive the hundreds of our business as we move over the course of next year and beyond.
Timothy Michael Arcuri: And then last thing. So, you know, book-to-bill, based on the RPO, book-to-bill is just a touch below one. So, this is the seventh quarter that it's been below one. And it sounds like you think book-to-bill is going to start to drift up, actually, that we're going to finally start to be above one. So, is there some dynamic where, you know, there was this, you know, massive slug of bookings that, you know, happened back in mid-22, and we've been kind of, you know, shipping off of that ever since?
Speaker Change #153: Okay, and then last thing. So, you know, book-to-bill, you know, based on the RPO, book-to-bill is just a touch below 1, so this is the seventh quarter that it's been below 1, and it sounds like you think book-to-bill is going to start to drift up, actually, that we're going to finally start to be above 1.
Speaker Change #154: So, is there some dynamic where, you know, it seems like there was this, you know, massive...
Timothy Michael Arcuri: And are we kind of getting to a point now where you think that, you know, customers are kind of coming back in, and we could begin to see, you know, book-to-bill start to drift above one, you know, where we can, you know, start to not just be shipping off this big slug of orders from the middle of 2022? Yeah, I think based on the funnel that we will see, yeah, I think the order profile looks pretty good.
Speaker Change #157: Slug of bookings that, you know, happened back in mid-22, and we've been kind of, you know, shipping off of that ever since.
Speaker Change #154: And are we kind of getting to a point now where you think that, you know, customers are kind of coming back in and they're, and we could begin to see, you know, book-to-bill start to drift above one, you know, where we can, you know, start to not just be shipping off of this big slug of orders from the middle of 2022?
Speaker Change #155: Yeah, I think based on the funnel that we will see, yeah, I think the order profile looks pretty good. Now, you know, orders are not always indicative of what's going on given, you know, the number of customers and the size of the orders. And then when it comes to KLA, even the size of the ASPs of certain types of products.
Timothy Michael Arcuri: Now, you know, orders are not always indicative of what's going on given the number of customers and the size of the orders. And then, when it comes to KLA, even the size of the ASPs of certain types of products. But all that being said, yeah, it went from about $13 billion at its peak in terms of RPO down to just under $10 today. So it's still quite large, but I would expect that moving forward, at least over the next couple of quarters, it looks like the order profile looks decent. So yeah, I think that's a reasonable way to look at it.
Speaker Change #155: But all that being said, yeah, it went from about $13 billion at its peak, in terms of RPO, down to just sub $10 today. So it's still quite large, but I would expect that moving forward, that at least over the next...
Speaker Change #155: A couple of quarters, it looks that the order profile looks decent. So, yeah, I think that's a reasonable way to see it.
Bren Higgins: Thank you, Tim. I'll now turn the floor back over to Kevin Kessel for any additional or closing remarks. All right, on behalf of KLA, we appreciate your time and your interest. We'll be seeing many of you throughout this quarter at different conferences.
Kevin M. Kessel: Thank you, Kevin.
Kevin M. Kessel: I'll now turn the floor back over to Kevin Kessel for any additional or closing remarks.
Kevin M. Kessel: If you have any follow-up questions, please do reach out to the KLA Investor Relations team. With that, I'll turn it back to the operator to conclude the call. This concludes the KLA Corporation June quarter 2024 earnings call and webcast. Please disconnect your line at this time and have a wonderful day. Thank you for watching!
Kevin M. Kessel: On behalf of KLA, we appreciate your time and your interest. We'll be seeing many of you throughout this quarter at different conferences. If you have any follow-up questions, please do reach out to the KLA Investor Relations team. With that, I'll turn it back to the operator to conclude the call.
Speaker Change #158: This concludes the KLA Corporation June quarter 2024 earnings call and webcast. Please disconnect your line at this time and have a wonderful day.
Speaker Change #158: www.globalonenessproject.org www.globalonenessproject.org