Q1 2025 KLA Corp Earnings Call
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Lee Standby, we're about to begin.
Good afternoon everyone, my name is Bo and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation September quarter 2024 earnings conference call and webcast.
All parts of Finland have been placed in a listen-only mode to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2.
Speaker Change: Please let me yourself to one question and one follow-up. Lastly, if you should need operator assistance during the call today, please press star zero. I'll now turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead, sir.
Welcome to our earnings call with a discuss of September 2024 results in the December quarter outlook. I'm joined by our CEO, Rick Wallace and our CFO, Bren Higgins.
We will discuss today's results released after the market closed and available on IR.KLA.com along with the supplemental materials. Today's discussion in metrics are presented on a non-gap basis, unless otherwise specified. All full-year references we make are to calendar years.
The United States Materials contained a detail reconciliation of gaps in on-gap results. KLA's IR website also contains feature investor events, presentations, corporate governance information, and links to our SEC file, including the most recent annual report in the report on forms 10K, 10Q.
are coming today on subject to risk on certainties, reflecting in the disclosure of risk factors in our S-2 violence.
and he's board-looking statements, including those we may have gone our call today, are also subject to those risks. And Kaley cannot guarantee those board-looking statements will come true.
are after results made different significantly from those projected in our forward-looking statements.
and we'll start with some introductory comments, followed by Bren with Financial, Highlights, and our outlook.
Speaker Change: before I turn the call over to our CEO Rick Wallace. I wanted to provide a safe date for our 2025 investor date. It will be held on the morning of 2018-25 in New York City at the NANDEC Marketplace.
and we will provide more details closer to the event. Now, over to Rick. Thank you, Kevin. Hey, I September quarter, Executive Strengthening Custer demand, and solid execution by our global team.
Rick Wallace: Results of the Texas expectation and delivered continued relative out performance, with revenue of $2.8 billion, non-gaped to LVDPS of $7.33 and gapped to LVDPS of $7.1.
All results came in at the cover end of their guidance ranges.
As expected, we're encouraged by the signs of the strengthening leading at Schlochic and memory environment for our top-class players.
Rick Wallace: and we remain confident in our plans for steady improvement and continued growth in 2025. The orders on number of highlights, including strong double digits, plunge, and year-over-year revenue growth.
and Foundry Logic, the continuation of scaling and incorporation of new technologies and slowly rising capital attempts continue to be a long-term secular tailwind.
and Memory Technology Development Investments for AI and High-Bandland Memory and then improving supply demand environment, positioning memory makers for return to growth to the
Rick Wallace: This quarter continues to demonstrate growing customer adoption of KLA's advanced packaging portfolio. And we remain confident that revenue in this category looks at $500 million in 2.24 and continues to go to like 25.
We also continue to see AI as an important driver and innate learner purpose.
Rick Wallace: Provinces the man for AI chips, supports rising process control intensity, which benefits the LA iniquity.
Additional in Kaley was in early adopter using and incorporating AI into our products and designing our computer architecture, Silveridge, GPs.
Speaker Change: Giers.
Hayley's future product enhancements, leverage AI to improve the performance and customer cost-abonorship of our leading-edge systems.
Speaker Change: KELA Service Business is screwed up to $64 million in September of quarter, 5% to $15% year over year, making this the 49th consecutive quarter growth on a year of your basis.
Finally, the September quarter was strong from a cash flow and capital returns perspective.
Quarterly free cash that was $935.
of the last 12 months, free cash flow was $3.2 billion, and free cash flow margin of 31% of the same period. Total capital return in September quarter was $765 million, comprised of $567 million in sheer repurchases.
and 198 million as dividends. Total capital return over the past 12 months was $2.6 billion.
and the President of the California Opera and the President of the company, well for stable out performance, relevance to the industry over the long run.
Speaker Change: and Tyler Chandler.
Thanks, Rick. Daily September and Coral Results, Temestray Park Leadership, combined with the consistent execution and dedication of our global team. Coral Derevenin was 2.84 billion above the guidance of it, 0.2.75 billion.
Speaker Change: [inaudible]
from the American. For those margin was 6 to 1.2 percent, finally below the midpoint of the guidance range, as the system's product makes was modestly weaker than expected.
Operating expenses were 560 million. Operating expenses were comprised of 322 million in R&D and 230 million in pedestrian
Operating margin was 41.5%.
Other incoming expense debt was a $41 million expense, with the downside from guidance tribute to the market effect of a strategic supply investment.
Speaker Change: and the Court of the Executive Taxi rate was 13.2%.
Speaker Change: 4 to lean on Gap Nading, come with 980 9. Gap Nading, come with 946 million. Cash flow from operations is 995 9. And free cash flow was 935 9.
The breakdown of revenue by affordable segments and in markets, major products and regions can be found within the shareholder letter and slides.
Speaker Change: Moving to the balance sheet, KLA into the quarter with 4.6 billion in total cash, 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.
are death levels are expected to decline in the December quarter, as the company retires its November 2024 bonds in that maturity.
and the New York Times, the industry outlook remains positive for our business.
are ordered for performance is also consistent with the views we articulated beginning at the year.
for Paladir 2024 supported by recent customer announcements. Our expectation is for the WSD market to increase modestly from the mid to the high 90 billion dollar range for the calendar year. Based on our internal analysis, the reporter results in guidance across our peers and customers.
Speaker Change: are perspective on calendar 2025 expectations is mostly unchanged from what we are to kill a disaster quarter.
While we were on the overly specific on expectations for next calendar year to report January, we do continue to expect another year of growth.
Speaker Change: Field, personally, by growth and investment in both leading edge foundry logic and memory, mostly DRAM, offset by lower China demand as customers at SOARF the equipment investment made over the past couple of years.
Speaker Change: and Kevin Kessel is business momentum, barcature opportunity.
and Higher-Expected Process Control Intensity is a leading entry cross-all segments.
We are confident we can maintain our relative WFC Market Out Performance in calendar 2025.
Taylor's December quarter guidance is the smallest, total revenue is expected to be 2.95 billion, once or minus 150 million.
Foundry logic revenue from semiconductor customers is forecast to be approximately 76%. And memory is expected to be approximately 24% of semiconductor customers.
10 memory, the ram is expected to be about 76% of the second next.
and then from a 84%
Speaker Change: and the Gagros margin is forecasted to be 61.5%. PUNSERMINE is 1% at 2.0. For up 30 basis points to coincidentally at the midpoint, a slightly higher revenue will be more favorable product next to expectations.
On-gap operating expenses are forecasted in December quarter to be approximately 580. As we continue to make important R&D and scaling assessments to support expected revenue growth.
Looking ahead, we expect approximately 15 million in incremental quarterly spending and operating expenses over the next several quarters supported by our product development roadmap requirements. We're having to grow the expectations.
Speaker Change: and further balance against our 40-50% incremental operating margins leverage business model over the long run.
and other model assumptions for the December quarter include Tom Gap, other income and expense debt of approximately a $33 million expense. Gap diluted, yes.
Speaker Change: is expected to be $7.45 plus or minus 60 cents, and non-gap that would be DPS, but $7.75 plus or minus 60 cents.
EPN Skylands is based on a fully diluted share of count, approximately 134 million shares.
Speaker Change: In conclusion, we are guiding to our third consecutive quarters of the Quintral Revenant Grove on a proving market demand at the leading edge. And in fact, Daniel Rose who continued in calendar 2021-5.
Speaker Change: Kaley remains focused on the liberated differentiated product portfolio that addresses customer's technology roadmap requirements, drives our longer-term relevance to improve expectations.
Bailey's focus on customer success, delivering the innovative and differentiated solution, and operational excellence, while it drives industry-began financial and free cash flow performance, and allows us to return capital consistently.
Speaker Change: The return of semiconductor scaling leads to increasing complexity and new technologies that have strengthened our confidence and the right importance of process control for enabling new technology advances.
is not just an improving time to results in process integration at Batramp, but also an optimized ideal to cross high volume manufacturing environment with high significant current device design mix.
and Edition. Our service business continues to increase its relevance to system-life time increase.
Speaker Change: and customer expectations for increased tool availability and performance is a growing long-term tailwind.
This pose well for Kaley's long-term growth outlook and industry demand transferring Kaley or continuing to improve.
and I'm at with this, Hayley Businesses, Welp position and the long-term secular transcribing semiconductor industry demand and investments in WFP are very promising.
Speaker Change: Back in Closer for Parano Marks, let's begin with you today.
Speaker Change: Thank you, ladies and gentlemen, I'm an actress.
Lee: Thank you, Lee.
Ladies and gentlemen, at this time, I would like to ask a question, please press star 100 telephone keypad if you wish to remove yourself from the queue. You may be so by pressing star 2.
We remind you to please unmute your line when introduced and if possible please 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 first today to the deck area of Bank of America.
Thank you for the question. They can kill you. There's a lot of excitement about the leading edge, but how do we go there to the fact that...
Speaker Change: Only the leading foundry appears to, you know, one of them increased spending, but the next two want to cut spending. So is this key SMC spending good enough to drive up leading edge in mass grants by the W Digital Special Base that everyone is looking for? This curious, you know, this excitement is a broad base, or is it this?
Speaker Change: based on one foundry desire to increase spending.
Thanks for the question. It's not a boundary question, it's the customer of the
Speaker Change: Suppliers of leading edge, I think that the business would be spread across them. But right now, there's one supplier in the leading edge and what they're seeing is...
significant demand above as they indicated, they're called what they anticipated. And a bit of the, we anticipated two nanometer demand to be strong, but the fact that there's additional demand for a three nanometer lead us to some pretty robust forecast through the rest.
This year for the bookings and also in 2025.
Speaker Change: So I don't think it's a function of the number of players, I think it's a demand driver.
and as you know it's across the number of players.
Speaker Change: of the Snaaches in support. I mean, it AI is the fastest growing segment. That's both for training chips, but also for instance trips. And that's really driving this additional demand that we're seeing.
Speaker Change: Hey, but back to the other thing I would add is it's a very close to our customers.
and we're going to be doing a lot of work. They all brought us to different ways. Generally, we want to make sure that we're collaborating, inclusive enough to them that we have.
a pretty good understanding of the overall demand picture. So we think that in terms of assessing what each customer is doing in terms of the demand, that they're going to satisfy, that regard to the related, we feel good that we have our...
or Sublime in supporting that, aligned with that demand expectation.
and from my follow up question on your trying to expose you at about 42%.
in September curious what you are expecting or what they can for December.
Maybe if the broader question is, can you maybe dissect what the exposure is in China? You know, how much is products services, you know, how much is resilient or how much might be exposed to any potential restrictions or overbated? How do you...
I think about China for the next several quarters, whether it's on an absolute basis, or whether it's on a percentage of sales basis. Thank you.
Well, we're back under Sandy China right now this year. It's important to keep in context what happened in 2022 and in 2024, right? So if you go back to 2022, we took a lot of orders for Greenfield projects.
Speaker Change: and has the black constraints and strong demand from our other non-trient customers.
Speaker Change: that effectively limited what we were able to produce in 22. And we focused on our more strategic longstanding customers. And as we moved into 23 and 24, because a lot of that activity was greenfield, it wasn't necessarily being put in place.
Speaker Change: 2.
React to supply and demand dynamics. It was basically new fads that were starting up. While they were finding available, those customers were able to step in and fill the void.
and 2324 that came from our other customers pulling back pretty mainly. So as we look at 20, so it's been a delegate of levels for a couple years. If we look at the fourth quarter, as I said before, I thought we could...
See the percent comes down and it looks like it is coming down to somewhere in the pit 30s.
for the fourth quarter and then so if you look at 2024 it's been elevated.
and into the low 40s.
as a percent, and so when we look into next year expecting some digest in next year, I would expect that to drop.
somewhere down to around 30% plus or minus a couple of points.
Speaker Change: or so moving forward.
I'm not going to get into the various aspects of the mix.
from a service other than saying just from a service point of view, it's a less mature market.
Service is a lower percentage star at corporate average percent as a percent of revenue.
Speaker Change: So hopefully that's helpful but that's all I'll say on that front. Heather relates to export controls. He would be getting his question for.
Over a year now in terms of when and if and how much and so I don't want to speculate on the hypotheticals that are out there and how to think about it. So once we have clarity, if it's something happens.
Speaker Change: will assess the impact and we'll have more to share with you. But for now I don't want to speculate on anything more than that.
Speaker Change: Thank you. Thank you.
Thank you, we're next now to Harlan Sir at J.B. Morgan.
Speaker Change: and the Graftman Richard's Coral Execution. I'm your Conoculars Commentson.
Speaker Change: The 2021-25 year record calling out growth.
for next year. He said not much change relative to your new 90 days of life soon that's
in terms of maybe total dollar spending.
Speaker Change: You did call out, lower China Revenue next year, right versus your U on stable previous knee-soaked.
Should we interpret the down shift in China as being more than offset by incrementally better spending on advanced boundary and logic and memory on the strong demand trend that Rick York is related earlier?
Yeah, I think we started with it just go back to
What we said in the quarter ago, that a few of the stability maybe would be up a little bit down a little bit.
but not as clear. I think where we sit today, I would expect that it'll be down some, and we think it's being offset by the leading edge demand that Rick referred to. So overall, our views on 25 have a real change.
I mean, our letter to think about the exit rate that we're talking about for Q4. That is, you know, if you keep that rate for 25, that's a higher number. So you can have China be at a similar dollar level, but a lower percentage.
and then on your Apostles Concert Business, if I look at, you know, wait for inspection.
Paddenine and Metrology, right? Up 10% year, Vier, first nine months, first of the year, will not within this inspection is up 18% year, Vier, so very, very strong right for the first nine months that is calendar year.
Paddinging, Mythology.
Speaker Change: Down about 5% right over that team period of time, but...
Looking into next year, right, giving the...
Patternying and Metrology sort of intensity increases on things like gate all around, backside power distribution, advanced memory, like, which you anticipate your patterning last mythology business to see in acceleration of growth as we move into next year.
He had us our current view. Metrology is very closely linked to process tool purchases because you're monitoring the bill, you're monitoring overlay, and so on. So patterning tends to scale up and down with more capacity investments.
I think given expectations for design starts, you're also going to see the radical part of the business increase next year as well.
So I would expect that we'll see growth in metrology and in radical inspection in the next year. What's in driving inspection?
is a lot of this in-reactivity.
I've given some of the yield challenges that customers have been facing obviously in two is starting to pick up here in the fourth quarter and then of course in advance packaging what we've seen an inflection of growth in our in our inspections of the offerings for that part of the market as well. So that's been a driver for some of the incremental growth of inspection relative to patterning. [inaudible]
Speaker Change: Yeah, one other thing, I think if you look at capacity constraints, we were more dated on the times of some systems such as optics for the suspension business.
Speaker Change: didn't really have that phenomenon in the trilogy so those tend to flex this branch at war with production. So we still have good backlog when it comes to the...
and the BBP platforms and an increasing demand environment for those. So we're also seeing additional capacity coming on for support the growth in 2025 so that that will allow the B.
BBP product, blinds to grow.
Gradien'sites, thank you.
Wiggle next now to Jill Quattrochi at Wells Fargo.
Yes, thanks for taking the question. I was wondering on two animators, you think about just the capital of Tennessee process control? Is there any color you can really share there? And how we think about sample rates, all of the three animators?
Speaker Change: Sure, what we're seeing right now is what we expected on two and what we're seeing a little bit on three is there's more process, the window process windows are being squeezed even further so there are more inspection points.
being added. So when we think about how many steps
and the places that people are inspecting, those are going up. So we have a run part analysis of what it looks like.
and the tools of the little tape. What happens is...
Let's say you go from 3 to 2, you might not dramatically increase the number of EUV layers, for example, but there is some increase.
Sensitivity settings, which means you need more capacity to support it. So we haven't fully quantified because, when we work with our customers on that, we're actually looking for efficiency. So you debug, and then you see what is left, that I have to sample at a higher frequency.
The expectations are, and what we're seeing is that two nanometers will be higher, more sampling at higher levels, with more systems, with more configurations, driving higher process control intensity. And that's the trend that we're seeing. The other thing is, as Brent mentioned, because they're more
If you think about what's coming, there are going to be more designs at these advanced nodes than we maybe a few years ago might have imagined. There's higher variability, so higher mix, and higher mix drives a need for more sampling as well.
Speaker Change: So, Joe, on architectures, when architectures change, it tends to drive process control higher. We saw that with FinTech. If you go back to the last local high of process control intensity, or KLA share of WSE.
So, as we transition here into a new architecture, it will create, not only are there additional patterning requirements from a metrology point of view, more layers deposited,
and that creates opportunities for us on the film measurement side. You also have new defect mechanisms because of the nature of the structure. So you have these buried defects.
Speaker Change: N2 or gate all-around specific defect type. And so there's an increment of opportunity there beyond what we would normally expect to see in a node-to-node transition. So there's a lot of opportunity out there and if we can execute we feel very encouraged by what's in front of us.
as we've seen kind of, you know, second half, first half and 2024. How should we think about that?
Well, I would say, to Rick's earlier point, that based on our expectations into Q1, we see a pretty stable environment.
from the current run rates as we move forward. So I won't get into the full half at this point. We'll have a lot more to say about our views on 25 when we report out for the December quarter of January. But certainly, as we look at the March quarter today, I feel very good about the overall stability and the run rate levels of the business.
Thank you.
Thank you.
Speaker Change: We'll go next now to CJ Mews of Cantor Fitzgerald.
CJ Mews: Yeah, good afternoon. Thank you for taking the question. I guess maybe to follow up on that last question and your comment, but around stability into March.
I believe 2 is moving into HVM and Q1.
Speaker Change: and you talked about...
I think yesterday you talked about, you know, expected strength from advanced packaging. And when I look at your FoundryLogic business in the current quarter where Taiwan actually fell sequentially, looks like you're seeing some good business from Rapides and it's currently Intel. So can you speak to perhaps the breadth of FoundryLogic that you're seeing in early 2025? And I would think that would be a complete offset to the slow down in China. I'd love to hear your thoughts.
Yeah, I would expect given the, I'll say this, just given the normal ramp schedule that our leading Foundry customer executes against, that normally you'd start to see those tools start to shift in volume in the first part of the year.
Okay, great. And then a gross margin question for you. It looks like semi-process-controlled gross margins dropped maybe 150 bps sequentially in September, and you attributed that to mix. So as we look forward, how should we think about those margins kind of normalizing, and what kind of run rates should we model into and through 2025?
and Kevin Kessel, Richard Wallace and Kevin Kessel, Richard Wallace and Kevin Kessel,
Donald Trump: Donald Trump.
The trend there for the need for more capability moving forward.
So it's, you know, those kinds of issues I would say that, you know, we're operating here in this.
I'll call it 61.5% range, and at current run rates as we sort of project out into next year, I think we're likely to be north of that versus south of that as we move forward. That's probably the best I can do.
Speaker Change: Very helpful, thank you.
Speaker Change: Thank you.
We'll go next now to Tom O'Malley at Barclays.
Hey guys, thanks for taking my question. I just wanted to ask specifically on the man market. So you guys are coming off a really low base in September. But there's a bit of a debate right now, if you look out into calendar year 25, about, you know, where normal capacity is for historical man and where you're moving potentially to technology transitions and what that means from an equipment perspective. So I guess maybe the broader question is
you know what are you seeing in the man market are you seeing intensity kind of pick up there um are you seeing customers look to expand lines or or are you seeing that technology upgrade as well just any comments on what uh is driving that man growth into next year and just your take on the market would be the first one
Well, it's off a pretty low base, so, you know, as we think about next year, we would expect some incremental investment next year, but again, off of a very low base. Mostly what we're seeing is...
Is utilization rates get better? We're seeing our customers' financial performance improving.
Kevin Kessel, Richard Wallace
Yeah, the one technology trend that'll help process control intensity for NAND is the wafer-to-wafer bonding. But other than that, they're not really pushing the technology.
compared to the derounder logic.
and Dan Higgins. And then the second is just on the advanced packaging side. You guys spent a decent amount of time on the last call talking on the topic and I think increasingly you're seeing the move to hybrid bonding kind of accelerate. So others are kind of saying 2026 time frame, but are you seeing some opportunities in 2025 and could you just try to shape like the size of that business today and some of the opportunities that you're kind of reaching down? Some of your smaller competitors are kind of talking about seeing you in some of those areas already, but any comments there would be helpful. Thank you. Yeah, you have development activity there, but we don't expect any move from a production point of view to the hybrid bonding as it relates to high bandwidth memory.
into you know until you know probably at least into the 26-27 time frame.
Speaker Change: So what's really driving.
That part of the business for us is, you know, mostly on the logic side, although we're encouraged by some of the trends we're seeing in memory in terms of opportunity. HBM devices themselves create higher process control.
opportunities because not only do you have the silicon trade in terms of bits per wafer if you will, but you also have higher reliability requirements, you have the logic circuitry that has to be processed.
you've got you've got a stack to die so there's a lot of opportunities within that that we are encouraged by as we move forward. So one of the one of the terrorisms in our business for inspection metrology is what is the cost
of the inspection at any step relative to the cost.
Speaker Change: of that staff.
What I mean by that is, you know, if you go back in time and they were making wafers for solar, we never saw there being much opportunity because the cost of the wafer was just not very high, so it couldn't support much inspection.
You go to the other end of that, and you have the cost of an EU reticle is so high, and the cost of failure is so high, there's a lot of money spent on the inspection.
The biggest dynamic that changed in advanced packaging is the relative cost of that step.
and the fact that the cost can support a much higher level and a need for a much higher level of inspection capability.
Our view is we did not go down to that market, that market came to us because it got much more challenging.
Speaker Change: and the need for higher level inspection if you think about HBM and you think about what's at risk for our customers.
more heavily to ensure that those steps are clean because the cost of failure there...
is so high. And that's a big part of what's driving capital intensity. And our product portfolio has moved to some of those dynamics. And those will play out over the next several years.
But we're already seeing early evidence of that, and the earliest indication of that was when our customers started talking to us about bringing in our front-end tools into the back-end because of these challenges.
Speaker Change: and Richard Wallace. Thank you. Thank you.
Speaker Change: Thank you. We'll go next now to Srini Prajuri at Raymond James.
Q3. Is N3 vs. N2 demand?
Yeah, I would say that what we've seen over the course of the second half of this year, 2024, has been more N3 upside. We're starting to see final line investment with some shipments this quarter for N2, and most of what's driving next year is very N2 centric.
Speaker Change: Okay, got it. That's helpful and then maybe you can speak to the visibility, especially as you know China comes down next year. I'm just wondering if that has any impact on your bookings and RPO and just in general, your level of visibility as we go forward.
Well, so the RPO has flattened out. We'll report, you'll see the specifics on it, but it was, you know, more or less flat quarter on quarter. Expected probably to increase a little bit next quarter or further in the December quarter.
So, I would say that in general, lead times have generally been coming in. Some of that has been, as Rick mentioned earlier, new supply or new supply capability. So we can actually...
start to ship some tools that we've had a
some supply constraints relative to the demand.
Speaker Change: Although, when you have new customers, they want to show commitment and so they typically will, and want to ensure delivery time, so they'll typically try to
give us orders and make sure we're planning for them further ahead. So, I would say in general, lead times are generally pulling in, and we've seen the RPO kick down, but now it looks like it's starting to turn around a bit. See how that progresses as we move through the rest of this quarter and into next year.
All right, thank you.
Thank you. We'll go next now to Krish Sankar at TD Kallen.
Speaker Change: Thanks for taking my question. First of all, I want to clarify something, Bren. You mentioned that...
China could go from 40% to 30% of sales next year.
but dollar value remains the same, A is that true, if so then, you know, your overall revenue should still grow pretty strongly compared to what WP is expected to be, I'm just trying to figure out how to think about those two, you know, metrics.
investment levels have been you know pretty stable so we'll see how it plays out it's a little bit difficult to see into the second half of the 25 from here so I was just trying to give you some sense of directionally where where things are moving as we as we see next year from a percent of the overall
got it got it and then just to just to clarify one other thing you kind of mentioned about how you know the pounding demand is improving leading edge which kind of makes a ton of sense
Speaker Change: also did some China and then on the D-RAM side I think as mentioned in the past process control intensity is going up from 10 to 11 percent. Is that helping you next year or is most of that already baked in this year?
And as we said earlier, or I said before, is I'm encouraged by an expectation to see more DRAM investment next year and expect to see a stronger relevance of KLA and process control in that RAM. So if I go back to my comment about the cost of the semiconductor and the value of inspection, if you think about this trend for AI, it's definitely playing out in DRAM and in packaging.
All right, so the DRAM for...
Speaker Change: HBM is
more expensive technology
are going to have more EUV, and they're also have less redundancy in them. So the combination of those factors.
Speaker Change: and our trusted partners.
D.V.P. So if you think about the trends overall, we don't quite know how it's going to play out for Advanced DRAM, but the trends are very positive at this point.
Speaker Change: Thanks, Rick. Thanks, bud.
Speaker Change: Thank you.
Thank you. We go next now to Joseph Moore with Morgan Stanley.
Great, thank you. On the topic of export controls, you sort of said you don't want to speculate until we hear it. I guess I'm just curious.
How do you expect that to get conveyed? Have you had preliminary conversations?
You know, it sounds like there might be more of an entity list focus this time around.
Speaker Change: and Ed Zell had a much lower framework, how much of that is informed by what you're hearing they might do versus just kind of a guesswork at this point.
Also, if you go back to the 2000, you know, two years ago,
There was some notice, but I think for the government itself, they have their own process which involves multiple number of players.
There's not one person or one group that decides.
They have to go through a reconciliation across their own agencies and also when they're trying to do multilateral, they're talking to other places. So I think truly nothing is decided until it's announced.
and we don't get much heads up on when that's actually going to happen. So that's why we keep saying we don't know, we can't speculate. There's plenty that's been written.
But if you read all that's been written, this thing would have happened four times in the last nine months.
Speaker Change: So, clearly something is causing it to not get decided, and so we're not going to speculate on what it does. When it comes to what our peer companies have said, I think our forecast for...
Speaker Change: Higgins, Kevin Kessel, Richard Wallace
Speaker Change: talk to our customers and we envision what kind of investment environment there's going to be.
That's very helpful. Thank you. And then within the China business, I know you had kind of catch up on the DRAM side that was causing DRAM to be elevated. My perception is that's that's back in trouble. Is it more driven by foundry at this point?
Speaker Change: to modestly adjust, but still to be fairly strong. And I think infrastructure more or less continues, but that's more of a radical statement than a waiver statement.
Speaker Change: Thanks so much.
Speaker Change: www.mytrendyphone.co.uk
Thank you. We go next now to Charles Shee of Needham.
My first question, I remember a quarter ago you talked about not just a 3 nanometer for second half this year, but also next year, but we'll look at all the headlines about two out of your three 3 nanometer customers, it doesn't look like there is 3 nanometer upside from them, but the one last customer, actually the leading one.
They did not rule out more of the 5-3 nm conversion even for next year. So my question really is, are you still seeing the 3 nm upside for 2025 given the current visibility here?
So we had this question earlier in the call, but yes, 3 nanometer continues.
to be strong, and as we said earlier, we would expect...
Speaker Change: You know, two nanometer to be a big driver into next year, but there's still three nanometer activity that has been stronger than we anticipated six months ago.
Speaker Change: Thank you.
Speaker Change: Your reported North America revenue for the September quarter seems like pretty high. I go back probably the last seven, eight years, it looks like it's probably highest the number of revenue you get from North America, minus you provide some color, and we're struggling that big uptick in the September quarter.
Yeah, so it was, it was stronger and it's, you know, more, more leading-edge centric. I'll say that.
Speaker Change: Thank you.
Speaker Change: We'll go next now to Atif Malik at Citi.
Thank you for taking my questions. First, on China, is it possible to understand how big your wafer and reticle inspection business is in China? Because I believe that business is a bit different from your peers that are facing maybe restrictions.
Yes, it is different. We're exposed to those investments. We haven't disclosed the actual amount though, but I would say over the last couple of years.
I would say it's been somewhere between
25 and 35 percent of our of our China's systems business so
It's decent, but it's, you know, the preponderance, obviously, is our semiconductor customers.
On the services business given the scenario of a child demand coming down like you laid out, will there be an impact on your services growth expectations of 12% to 14% longer term?
We're seeing really, really dynamic trends in terms of useful life.
Speaker Change: and new value offerings that we have within our service.
service model that that is driving incremental service.
Speaker Change: Demand and of course at the shipment levels, you know, the new tools going out high conversion rates
Asp's generally are higher which drives you know contract pricing growth That's part of it, but also the extending useful life. So as we've said before it's a
It's a high-mix, high-complexity, relatively low-volume business. There's not a lot of redundancy. Customers have very high time expectations, and so they run the tools.
Speaker Change: So, these tools are the eyes and the ears in the fab, and as a result of that, customers ensure that they're operating, and so that drives.
and yes, there are dynamics around FX, depending on, you know, some service business's price.
Speaker Change: Thank you.
Thank you. We go next now to Timothy Arcuri at UBS.
Thanks a lot. Rick, I just want to be kind of clear about how much handicapping you're doing for the Export Control. It sounds to me like you're not really handicapping.
Speaker Change: and that's, you know, handicap and no guidance. Is that not the case for you, or are you making a base assumption for the guidance as to what the exports will look like?
Rick Wallace: Well, so Tim, I'll take the first part, so as that relates to guidance.
and how we're thinking about the fourth quarter.
You know, we have a guidance range.
Speaker Change: and I would say that as we contemplate all the scenarios and of course we have integer issues in terms of the size of our tools and so on from an ASP point of view, as we contemplate all the various scenarios we're comfortable with the guidance range that we've provided for the quarter. As it pertains to long-term impact of something that may or may not happen, we'll have to assess you know what it means in terms of what we have in backlog, what's in forecast.
guidance. I think we feel comfortable with the guidance range we provided.
there's no alternative tool that's that's you know available from a domestic Chinese uh you know company so you know why not to some degree stockpile your tools and move them around as these new entities can
solidate so I'm just wondering if you think that the hangover for you could be a little more severe than your peers
Tim, there's different buying patterns in terms of timing. If you look at 2023, I think we probably, our China business undergrew our peers.
You know, if you look at 23 and 24, I think the general...
Speaker Change: you know, activity levels of investment.
Ken Higgins, Kevin Kessel, Richard Wallace
Speaker Change: As wafers start to grow, then less process control tends to diminish a bit. So there's probably some timing in terms of how they buy overall. And then 25, given where we are today, and we'll see what overall WFE, but to the earlier comments, we do expect some digestion at 25.
Speaker Change: Okay, bye. Thank you.
We'll go next now to Toshie Ahari at Goldman Sachs.
Toshie Ahari: Hi, thank you so much for taking the question. I wanted to get your thoughts on, you know, customer mix going into 25 and any implications for margins. You mentioned China's down next year within leading edge foundry and logic. TSMC obviously is growing share and growing share within WFE as well. So does that or could that potentially pressure gross margins? I know your gross margin profile has been remarkably stable over many, many years, if not many decades. So I doubt it. But we do get this question quite a bit from investors. So curious how you're thinking about evolution and customer mix and implications for gross margins.
Yeah, our gross margins are not customer dependent, it's more product specific, so our margins don't vary across.
different customers. Obviously, customers that buy more tend to get volume-related incentives.
But beyond obvious volume incentives, there isn't any real difference between between customers or regions in terms of overall margin. Now they all buy process controls differently and have different strategies. And so all of our products carry different margins, they're not all the same. So that's one of the product mix factors that tends to drive some variability there.
Yeah, it's more about products than customers or regions.
Speaker Change: Got it. Thank you. And then as a quick follow-up, another one on China. I was hoping you could give us a little bit more context by application or customer type. I know you service a broader range of customers relative to some of your process tool peers. Customer groups like mass shops, wafer suppliers, more on the infrastructure side. I'm curious what percentage of total China those guys account for this year. And as you look forward into 2025, what kind of trends are you expecting?
Speaker Change: Thank you.
Speaker Change: and Wayfarer.
in 2025. So that's there. I think we mentioned memory earlier. I think memory comes down meaningfully, partly due to the investments that have happened, partly due to just the lack of market access to some memory investment for us.
So and then I think boundary and logic corrects but but doesn't you know correct all that much
Helpful, thank you so much.
Thank you. We go next now to Chris Kessel at Wolf Research.
Yes, hi, I guess the first question is on DRAM and you know kind of what you're you're thinking about for next year because it you know does sound like
there's some divergence between different customer groups there. Most are expecting the China part of DRAM to be down pretty significantly. Can you give us a view of generally what you're seeing with regard to DRAM investment and opinion from your customers as you go into next year and how that may have changed over the last quarter?
I would say it hasn't changed all that much. You know, this year has been much more about our customers' businesses getting better, their financial performance improving.
and that some of the investment has been somewhat isolated. We mentioned China earlier as an example. We've seen utilization rates improve, which has been good for our service business.
Speaker Change: And we would expect, as it relates to high-end DRAM.
Speaker Change: and supporting high-bandwidth memory to see some incremental investment in there.
Kessel, Richard Wallace, Kevin Kessel, Richard Wallace, Richard Wallace, Richard Wallace,
Speaker Change: Okay, great.
Speaker Change: My next question is something some investors are starting to ask about.
and perhaps that could be just because, you know, one leading-edge customer has just grown so much more quickly than the others.
Speaker Change: It's probably early to make that call right now. I bet some of your customers would disagree with that. But, you know, thinking about it now, what would the implications be if we saw more consolidation? Would that provide some pressure because just more suppliers than simply more suppliers than customers?
I think it would depend on the drivers. In other words, in a world where there was a single driver for the leading edge, you know, say, take a...
Microprocessor, then and it had been made at multiple places then you'd argue sure consolidation would be more efficient. What's interesting now is because there's so many advanced designs.
Speaker Change: Capital Process Control for that segment as we go forward and we're not really modeling it.
to go up significantly because there's a lot of players at the leading edge. Truthfully, there haven't been.
you know for years now we've really had primarily one major player at the leading edge and so that's for for most of the volume. So we're kind of already there. If that were to change that might drive up intensity beyond what we're modeling more so than go the other way. That make sense?
Yep, yep, that's all cool. Something worth thinking about. Thank you.
Thank you. And ladies and gentlemen, we do have time for one more question today. We'll take that now from Blaine Curtis of Jeffries.
Hey, thanks for squeezing me in tonight.
I feel bad being the last question and giving you this one but I'm just kind of curious your perspective. You're one of the few that kind of does give an outlook to the market so I appreciate that greatly.
You know, we have had a handful of companies already report, I think, generally consensus is kind of double digits for everybody.
Speaker Change: I don't think people have brought them down below that. I'm just kind of curious as you assess the market. I know, like I said, I appreciate you trying to put something out there, but a low single-digit growth, it just seems low. So I'm just kind of curious.
One, I think your numbers are up double digits, it seems like your tone would suggest that that's maybe the right trajectory. So I'm just kind of curious where that outlook came from, and I think in general, do people have it wrong, I guess?
I'm sorry, but what period of time are you talking about?
Speaker Change: reporting.
Speaker Change: what we said three months ago. So as it relates to 2025, we haven't actually put a number out there. The only thing we've talked about is in reference to our own business.
and our views of, you know, current run rates, you know, a reasonable amount of stability here moving forward.
Speaker Change: I apologize. That was my mistake. I just want to ask on the other one on the China outlook.
for the rest of the year, and I thought I heard you say that then it still drops as a percent of revenue.
which is another way you can kind of back into, I guess, what you're saying in growth. So I was just trying to understand if that's the mechanics of what you said. And, you know, I guess that's another way you can kind of back into double digit growth. I know you're not trying to put it out there. I just want to understand what you said.
Yeah, so maybe just Rick, let me try to clarify our view. We said earlier in the year that we think we're one of the things we're doing is preparing for growth at the leading edge.
That's where we think we are now. We think the growth in the next year is going to come from the leading edge.
Speaker Change: and that's both in memory as it pertains to high bandwidth.
A lot of the work that's going on, it has to do with advanced packaging, it has to do with advanced logic foundry. The other business that we've had, for example, in China, we don't know exactly, but that's not leading edge. That's mature business.
And we think it's too early to say, but when we look to 25 and then look beyond to the
Speaker Change: The model we had for 26 or even what we'll start talking about 2030, we think we're getting back to the historical levels where leading edge is what's driving the growth. It's the largest percent of the business.
and the legacy will be a smaller percent. When exactly that happens, we don't know, but that's the trend that we're seeing. And what we're seeing is very good indications of strength in the leading edge based on the design starts and based on the conversations.
with customers. In the last quarter, for the first time in quite a long time, our leading edge customers have been asking for acceleration, more systems than they'd originally planned for, and they want to make sure we can support them and install them. That's what gives us the confidence that 25 is going to be driven by investment in the leading edge.
Speaker Change: Thanks for that.
Thank you, Blayne, and thank you, everybody, for your interest, for your time. I will be following up with many of you in the following days. And with that, I'll turn the call back over to the operator for any concluding instructions.
Thank you, Mr. Kessel. Ladies and gentlemen, that will conclude the KLA Corporation September quarter 2024 earnings call-in webcast. Please disconnect your line at this time and have a wonderful day.