Q2 2025 Lam Research Corp Earnings Call

January 29, 2025

Hi Shiraz, How are you?

Speaker Change: Good afternoon, and welcome to the LAM Research December 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then 1 on your telephone keypad. To withdraw your question please press star then 2.

Please note, this event is being recorded.

Ram Ganesh: I would now like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead.

Speaker Change: Thank you and good afternoon, everyone. Welcome to the LAM Research Quarterly Earnings Conference Call. With me today are Tim Archer, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer.

Speaker Change: During today's call, we will share our overview on the business environment and we will review our financial results for the December 2024 quarter and our outlook for the March 2025 quarter.

Speaker Change: The press release detailing our financial results was distributed a little after 1 p.m. Pacific Time. The release can also be found on the Investor Relations section of the company's website, along with the presentation slides that accompany today's call.

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

Please see accompanying slides in the presentation for additional information.

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

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

Speaker Change: This call is scheduled to last until 3 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website. And with that, I'll hand the call over to Jim.

Speaker Change: Thank you, Ram, and thank you all for joining the call today.

Jim: LAM closed out 2024 with another solid performance. December quarter revenue, gross margin, operating margin, and EPS were all above our guidance midpoints, reflecting strong and consistent operational execution.

Jim: Wafer Fabrication Equipment Spending for 2024 finished in line with the mid 90 billion dollar range we guided earlier in the year.

Jim: Overall, 2024 was a good year for LAMP, even as NAN spending remained at muted levels.

Jim: System revenues in both DRAM and Foundry Logic grew to record highs and the size of our installed base increased to approximately 96,000 chambers.

Jim: Our results show that we are making good progress on our strategy of broadening LAMs exposure across end-market device segments.

Jim: It also demonstrates the increasing strength of our product portfolio as semiconductors move into the AI era.

Jim: For example, gate-all-around and advanced packaging technologies are critical enablers for AI device manufacturing, including GPUs and high-bandwidth memory.

Jim: In calendar 2025, we see WFE spending rising slightly to approximately $100 billion.

Jim: Again, we expect technology inflections to lead to faster growth for land.

as AI applications demand greater device and package level performance.

Jim: In 2025, LAM shipments to gate all-around nodes and advanced packaging combined should be well over $3 billion.

Jim: Customer migration towards backside power distribution and dry resist processing technologies will add further opportunity in the coming year.

Jim: As we look forward, we view the increasing importance of deposition and etch technology as a differentiator for LAM and an opportunity to outperform.

We are now seeing these investments yield important product advances.

are recently introduced Cryo 3.0 technology.

Jim: is winning at the leading edge, delivering best-in-class results for high-aspect ratio dielectric etch applications on our latest Vantech CX Plus product, and also helping extend the capabilities of our large flex install base through cryo upgrades.

Jim: Our breakthrough dry resist capability for EUV is enabling patterning of extremely fine device features with greater precision, reduced defectivity, higher productivity, and reduced environmental impact.

Jim: You may have seen that earlier today we announced that our Ether dry resist solution has achieved a major milestone, having just been selected as the production tool of record for high bandwidth DRAM at a leading memory customer.

Jim: Technology inflections in DRAM and Foundry logic combined with an upgrade focused NAND environment create what we believe is a unique setup for LAM to outgrow WFP spending and strengthen our bottom line in calendar 2025.

Jim: In NAND, the industry is looking to transition the current installed capacity to higher layer counts to achieve better device performance at lower bit cost.

Here, several trends play to our favor.

Jim: One is the transition from Libidinum, or MOLLE. LAM's patented multi-station sequential deposition technology allows us to employ a differentiated liner and fill process sequence that is proving to be a winner with customers. The momentum for our new MOLLE product is strong.

Jim: While we are in the early innings of these transitions and early in the industry upgrade cycle overall, we expect adoption of MOLLE and carbon gap fill to drive several hundred million dollars in NAN shipments for LAM in calendar 2025.

Jim: Lamb's opportunity will grow even further in future years as more of the million-plus wafer starts per month installed capacity converts to higher layer counts.

Jim: The differentiation we are delivering for customers runs deeper than the process technology itself.

Jim: Our semiverse solutions capabilities apply advanced modeling, simulation, data science, analytics, machine learning, and artificial intelligence to further enhance our equipment performance and reduce the time needed for process optimization.

Jim: This is strengthening our competitiveness, and most recently, we used our SEMIVERSE solutions capabilities to successfully defend a key dielectric etch application at a major memory manufacturer.

Jim: Furthermore, we are leveraging these capabilities to help address the semiconductor industry's global workforce shortage.

Jim: Through collaborations with universities in the United States, India, and Korea, SEMIVERSE solution software is already being used to educate the next generation of semiconductor industry innovators.

Jim: And our goal is to provide access to LAM's semiconductor simulation technology to tens of thousands of aspiring engineering students through the rest of the decade.

Jim: In CSBG, our Equipment Intelligence and Infab Service Automation solutions are seeing significant traction with customers.

Last month, we announced the industry's first collaborative maintenance robot.

Jim: Since then, we have shipped our Dextro Cobot to a third major memory manufacturer and it is being installed in their fab as part of a multi-year services agreement.

over the next decade.

Jim: The semiconductor industry is expected to witness a strong expansion of fab capacity globally.

Jim: And our Cobot technology offers an important and cost-effective solution to enable precise and repeatable maintenance beyond what human workers alone can achieve.

Lastly, our strategic investments in

Jim: Our Asia operations continue to ramp very efficiently, and in 2024, help drive meaningful improvement in both our responsiveness to rising customer demand and our gross margin.

Doug will provide some additional detail in his prepared remarks.

Jim: But as a headline, I am pleased we delivered, in calendar 2024, approximately 160 basis points of operating margin expansion, even as we invested heavily in new products and infrastructure to fuel future growth.

Jim: So to wrap up, LAM is in a strong position as we enter the new year. Deposition and etch are becoming increasingly vital to semiconductor manufacturing and we have made key investments to strengthen LAM's product portfolio. I look forward to sharing more on this at our upcoming investor day.

Thank you and I'll now pass it on to Doug.

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

Doug Bettinger: We delivered strong financial results in calendar year 2024, with revenue of $16.2 billion in diluted earnings per share of $3.36.

We're obviously pleased with the company's continued strong execution.

Doug Bettinger: For calendar year 2024, CSBG revenue increased 11% to $6.6 billion, exceeding our expectations.

Doug Bettinger: Gross margin came in at 48.2% which was the highest annual result since lamb were merged with novellus in 2013.

Doug Bettinger: Let's look at the details of our December quarter financial results.

Doug Bettinger: Our Revenue, Gross Margin, Operating Margin, and Earnings Per Share were all above the midpoint of our guided range.

Doug Bettinger: Revenue for the December quarter was $4.38 billion, which was an increase of 5% from the prior quarter.

Doug Bettinger: Our deferred revenue balance at quarter end was $2 billion, essentially flat with the September quarter.

Doug Bettinger: I do believe our Deferred Revenue Balance will trend lower into calendar year 2025, but will likely fluctuate from quarter to quarter.

Doug Bettinger: From a market segment perspective, December quarter systems revenue in memory was 50 percent, up from 35 percent in the prior quarter.

Doug Bettinger: Within memory, non-volatile memory increased coming in at 24% of our system's revenue, up from 11% in the prior quarter.

Doug Bettinger: This market segment has reached the high point since the end of 2022, driven by NAN spending on tech conversions from 1xx layer class devices to 256 layer.

We expect these conversions to continue in calendar year 2025.

Doug Bettinger: ERAM represented 26% of systems revenue compared with 24% in the September quarter.

Doug Bettinger: DRAM spending was focused on tech upgrades to the 1Alpha, 1Beta, and some initial ramp of 1Gamma nodes to enable DDR5 and high bandwidth memory.

Doug Bettinger: HBM Investments and our tools enabling through silicon rear capability continues to be strong.

Doug Bettinger: Boundary represented 35% of our system's revenue, a decrease from the percentage concentration in the September quarter of 41%.

Doug Bettinger: Growth for data-all-around node spending partially offset the decline in mature node spending.

Doug Bettinger: The decrease was driven by reduced spending in both leading edge as well as specialty technology nodes.

Now we'll discuss the regional composition of our total revenue.

Doug Bettinger: The China region accounted for 31%, which was down from 37% in the prior quarter.

Doug Bettinger: Most of our China revenue continued to come from domestic Chinese customers.

Doug Bettinger: The next largest geographic concentration was Perea at 25% of revenue in the December quarter, an increase compared with the September quarter level of 18%.

Doug Bettinger: And finally, Taiwan and the United States rounded out the remainder of the top four regions.

Thank you.

Doug Bettinger: The Customer Support Business Group generated almost $1.8 billion in revenue for the December quarter, consistent with the September quarter, and 20% higher than the same period in 2023.

Doug Bettinger: Sequentially, growth in upgrade revenue largely offset the decline that we saw in reliant systems.

Doug Bettinger: All spares in the Reliant product line continue to be the two largest components of CSBG revenue generation.

Doug Bettinger: We achieved record upgrade revenue, demonstrating the strength of that growing install base.

Doug Bettinger: During the gross margin performance, the December quarter came in at 47.5%, which was above the midpoint of our guided range, but was down from the September quarter level of 48.2%.

Doug Bettinger: This was primarily a result of unfavorable customer mix, which we foreshadowed in the last earnings call.

Doug Bettinger: We've improved elements of our cost structure during the past two years.

Doug Bettinger: and expanded the gross margin contribution from our Asia operations strategies by a little more than a hundred basis points as we exited calendar year 2024.

Doug Bettinger: We expect incremental benefit to gross margins as we continue to scale production on a go-forward basis from this strategy.

Doug Bettinger: Operating expenses for December were in line with our expectations at 735 million dollars, up from the prior quarter amount of 722 million dollars.

Doug Bettinger: The increase was primarily due to higher incentive compensation tied to the company's increased profitability.

R&D accounted for 67% of total operating expenses.

Doug Bettinger: Operating margin in the current quarter was 30.7%, a little bit below the September quarter level of 30.9%, and near the high end of our guidance range, primarily because of that higher revenue and the stronger gross margin performance.

Thank you.

Speaker Change: And I just reiterate what Tim mentioned, that we delivered 160 basis point improvement in operating margin for calendar year 2024.

Speaker Change: The non-debt tax rate for the quarter was 13.2% within range of our expectations.

Speaker Change: Our estimate for the March 2025 quarter is for the tax rate to be in the low to mid-teens range.

Speaker Change: Other income and expense for the December quarter came in at $11 million in income compared with $13 million in income in the September quarter.

Speaker Change: The slight fluctuation in OI&E was due to lower interest income, which was somewhat upset by lower foreign exchange losses and a little bit of gain in equity investments.

Speaker Change: And as we sit here today, I do believe OI&E will have a slight negative bias in the March quarter.

Speaker Change: On the capital return side of things, we allocated approximately $650 million to open market share repurchases, and we paid $298 million in dividends in the December quarter.

For more information visit www.FEMA.gov

Speaker Change: For the 2024 calendar year, we returned 98% of free cash flow, totaling $4 billion, which was at the high end of our long-term capital return plans of 75% to 100% of free cash flow.

Speaker Change: For the December quarter, diluted earnings per share came in at 91 cents.

Speaker Change: The diluted share count was roughly 1.29 billion shares, which was a reduction from the September quarter.

Thank you.

Speaker Change: During 2024, we repurchased nearly 34 million shares through our Share Buyback Program.

Speaker Change: And we have $9.2 billion remaining on our board-authorized share repurchase plan.

Speaker Change: Let me pivot to the balance sheet. Our cash and short-term investments totaled $5.7 billion at the end of the December quarter.

Speaker Change: down from 6.1 billion dollars at the end of the September quarter.

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

Speaker Change: The sales outstanding was 69 days in the December quarter and increased from 64 days in the September quarter.

Speaker Change: Inventory at the December quarter end totaled 4.4 billion dollars, a slight increase from the September quarter, as we prepare for higher revenues in the March 2025 quarter.

Speaker Change: Inventory turns were 2.1 times flat from the prior quarter level.

Speaker Change: We will continue to manage inventory levels to the best of our ability to align with customer demand.

Thank you.

Speaker Change: We're pleased to announce that we upsized our revolving credit facility from $1.5 billion to $2 billion.

Speaker Change: Additionally, I just mentioned that we have $500 million of unsecured notes maturing in March this year, which we intend to simply pay off using cash on the balance sheet.

Speaker Change: We may choose to refinance this notional amount in the future as we continue to monitor the interest rate environment.

Speaker Change: By bolstering our liquidity with the credit facility, we've created some optionality and flexibility here.

Speaker Change: Non-cash expenses for the December quarter included approximately $82 million for equity compensation, $83 million in depreciation, and $13 million in amortization.

Speaker Change: Capital expenditures in the December quarter were $188 million, up $78 million from the September quarter.

Speaker Change: Spending was mainly centered on lab-related investments in the United States and Asia and manufacturing facilities supporting our global strategy to be close to customers development and manufacturing locations.

Thank you.

Speaker Change: We ended the December quarter with approximately 18,300 regular full-time employees which is an increase of approximately 600 people from the prior quarter.

Speaker Change: Growth was predominantly in field and factory roles to support increased tool installation as well as growing manufacturing activities.

Thank you very much.

Speaker Change: Now let's turn to our non-GET guidance for the March 2025 quarter.

Speaker Change: We're expecting revenue of $4.65 billion plus or minus $300 million.

Speaker Change: gross margin of 48 percent plus or minus one percentage point.

We anticipate roughly consistent levels of customer concentration.

Operating margin of 32% plus or minus one percentage point.

Speaker Change: This guidance accounts for the normal seasonal increase in operating expenses that we always see at the beginning of the calendar year.

Speaker Change: And finally, earnings per share of $1 plus or minus 10 cents based on a share count of approximately 1.29 billion shares.

Speaker Change: I would mention that as we look into 2025, we plan to continue to deliver incremental leverage to the bottom line.

At the same time, we will be growing R&D.

Speaker Change: and continuing to grow investment in a digital transformation project that we initially launched in 2023.

Speaker Change: Each of these investments is expected to enable future financial benefits to the P&L that we plan to show you in February.

Speaker Change: So let me wrap up. We executed well in calendar year 2024.

Speaker Change: We delivered 11% growth in CSBG and 160 basis point improvement in operating margin, both of which exceeded our expectations from the beginning of last year.

Speaker Change: We've made key investments in our product portfolio to drive served available market and share opportunity, and we've grown the global infrastructure to collaborate and deliver innovative solutions for our customers.

We also grew spending in that digital transformation program.

Dr. Prima, Dr. Prima, Dr. Prima, Dr. Prima,

Speaker Change: We look forward to sharing more details on the strength of our product portfolio as well as an updated long-term financial model at our Investor Day in New York City on February 19th. We hope to see you there.

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

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.

Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.

To withdraw your question, please press star then 2.

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

Tim Arcuri: Thanks a lot. Doug, can you speak about the gross margin? The guidance is pretty good and you talked about Malaysia now is, you know, turning to a tailwind and I know that the, you know, China mix is basically reset. So how to think about the puts and takes for gross margin as you move, you know, March and through the, you know, rest of the year?

Doug Bettinger: Yeah, Tim, I think we're going to be a pretty tight range, kind of where we've been the last quarter, plus or minus a little bit, and the puts and takes, as you know, because we've talked about this in the past, you know, you're going to continue to see some headwinds from customer concentration.

Doug Bettinger: I think there's more headwind as we go through the year, most likely, offset to a certain extent by that Asia operations strategy. So those are the things to think about. I wouldn't run away from where we are right now, though, in fact, maybe trim it just a little tiny bit as we go through the year.

Speaker Change: Got it. And then, can you give any color? I know you're saying that, you know, WFP is going to be up maybe at $3, $4, $5 billion.

Speaker Change: year-over-year. But can you provide any color by end market? I know and I've asked you this before but you know one of your peers is talking about NAND you know basically doubling this year. So can you give any color there and and do you think that it is possible that it doubles this year? Thanks.

Speaker Change: Yeah Tim, maybe I'll unpack it just a little bit of color. We're not going to give specific details, but you know NAN will be up this year I don't know that it's going to double necessarily Understand also though that NAN spending there will be a little bit of NAN spending that will occur in China with a customer we can't sell to so that may be a little different from the peer you're asking about

Speaker Change: I think leading-edge boundary is going to be pretty strong this year. I think that's pretty well understood and DRAM will be plus or minus coming off a very strong year. Last year I think it'll continue to be pretty strong this year.

Thank you.

Thank you, Doug.

Speaker Change: Yep, thanks Tim. The next question is from Chris Sankar with Cowen & Company. Please go ahead.

Chris Sankar: Hi, thanks for doing my question. First one, Doug, I have for you is kind of A on China. What is kind of your visibility in terms of lead times? And also, can you help us quantify the impact of these recent China export controls for LAM in calendar 25? And then I have a follow up.

Doug Bettinger: Yeah, Chris, our lead times really haven't changed too much, and I don't know if you're asking specific to China, but China's no different than the rest of the world. Geographically, lead times are pretty much the same.

Doug Bettinger: And yeah, obviously in early December there were some new regulations that came out restricting a handful of customers.

Doug Bettinger: That certainly impacted us. The forecast we had from that group of customers was probably, oh, I don't know, $700 million or so. That obviously we won't be able to ship to those customers.

Doug Bettinger: And that revenue footprint, when we were looking at the forecast originally, would have been a little bit second half weighted in 2025. So that's the way to think about it. I don't know that that's all that different than what you've heard from our peers, Chris.

Chris Sankar: That's very helpful for quantifying that, Doug. And then just a quick follow-up, you know, you spoke about your WFP growing maybe four or five percent this year on a year-over-year basis. How do you think about the split between systems and CSBG in March and how that evolves through the rest of the year?

Chris Sankar: outside of China, and then within China we've got a handful of customers that, like I said, are now restricted.

Chris Sankar: Offset, though, it's going to be a strong gear for upgrades, and we've been talking about that, right? We believe NAN spending is going to be largely upgrade-related, and that's going to benefit the upgrade product line within CSBG.

Thank you, Arjun.

Yeah, thanks Chris.

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

Speaker Change: Yeah, thank you for taking the question. I guess to maybe piggyback on that question, you know, could you speak to, you know, if you had to rank order by product or upgrade or whatnot, you know, how we should be thinking about what are the biggest kind of incremental drivers for you? You know, I think you talked about get all around.

Speaker Change: and Advanced Packaging growing an incremental billion in calendar 25. Could you kind of add to that in terms of NAND upgrades, MOLLE, anything else that is relevant that we should be thinking about in 25?

Speaker Change: From the perspective of the most impactful change year-on-year, I think for us it's NAND.

Nan's starting to come back.

Speaker Change: And again, the very strong position we have within every dollar spent on a NAND upgrade. And that's kind of across the board, you know, the edge tools and such that need to be upgraded.

Speaker Change: But at the same time, on the last call I mentioned this point that about two-thirds of the bits are still being manufactured on nodes below 200 layers.

And what happens as you move above 200 layers is...

Speaker Change: Not only do you have to upgrade the existing tools, but you have to start adding additional tools.

to deal with the complexity of that transition.

Speaker Change: And so that's what we talked about, like the new carbon gap fill tool.

Speaker Change: which is key to multi-tier stacking, which you start to see in the 200, 300 layer generations.

Speaker Change: And as you get to 300 layers and beyond, you start seeing new tools get added, like MOLLE, that transition.

Speaker Change: You know, it depends on which customer and exactly which transitions they're switching to, but NAM, from both an upgrade and new tool shipment, is probably our largest year-on-year.

Difference?

Speaker Change: but there's no doubt that our strong position in advanced packaging and the strength that Doug alluded to within leading-edge foundry and what that means for advanced packaging continues to show growth there. And so I feel like, as I said, there's a nice setup here where...

Speaker Change: Many of the areas we've been investing in really are starting to come together this year.

Speaker Change: That's very helpful. I guess as a follow-up, and Doug I'm not sure you're going to want to answer this, but if I were to annualize implied shipments

Speaker Change: for March. That would suggest pretty meaningful top-line growth year-on-year relative to the WFP growth that you outlined. So, should we be thinking about revenues lower in the second half or are you really highlighting tremendous outperformance in 2025?

Speaker Change: Yeah, I don't know CJ, you know I'm not going to answer that question. So you kind of answered your own question. I'm not going to get into giving you a quarter by quarter guidance. Listen, WFP is going to grow a little bit. We're going to outperform WFP. We're confident about making those statements. We've been making it for a little bit of time now. The rest of it will depend on profile of spending.

Speaker Change: You've got to do a little of your own pencil work. Don't lose sight of what I did say, though, about the second half weighting of some of that China customer that all of a sudden we can't ship to any longer. That would have been a little bit second half weighted.

Thank you.

Comprehend that as you build your model for the year.

Great. Thank you.

Thanks C.J.

Speaker Change: The next question is from Harlan Sir with J.P. Morgan. Please go ahead.

Harlan Sir: Good afternoon. Thanks for taking my question. On advanced packaging and high bandwidth memory, I know you guys started last year with the view that your advanced packaging...

Harlan Sir: Business would do about $700-$800 million in revenues on the April earnings call.

Harlan Sir: You upped that to a billion dollars, and then that number was further upped to over a billion dollars.

Speaker Change: Can you guys just chew us up, what was the actual revenue you drove in calendar 24 on advanced packaging and then with bid demand growth for HBM targeted to grow 50-70% per year over the next couple of years?

Speaker Change: The move from 8 high to 12 high, you've got the move...

Speaker Change: in Advanced Packaging from 2.5D to 3D SOIC. Like, how should we think about your Advanced Packaging slash HBM growth profile for this year? And in general, over the next few years, sort of, how do we think about the mid- to longer-term growth profile?

Doug Bettinger: Yeah, Harlan, maybe I'll chime in and let Tim add on. Yeah, I mean, I'm not going to give you a precise number, but in 2024, we finished above a billion dollars. I don't think that surprises you.

Doug Bettinger: And I'm not going to give you a precise number for this year, but it is certainly going to grow again in 2025. And it's being driven by all those things you talked about, right? HBM3 going to 3E to potentially go into 4 at the end of the year. 8 going to 12, going to 16 die.

Doug Bettinger: We do all that TSP, so we're set up to do...

Doug Bettinger: really well. We're pretty excited about it. I don't know, Tim, do you want to... Yeah, no, I think, Carlin, the only thing I'd add is that, you know, we've been saying for a while that, and I think you've been hearing it in the marketplace, advanced packaging and, you know, getting the yield and productivity right on these buses isn't easy. And so...

Speaker Change: This is where Lamb, as a critical process supplier with expertise in things like copper plating and etching, we're delivering value there. So we feel very good about our positions.

Doug Bettinger: We're going to continue to grow with that market and do very well. We can't put an exact number on it, but again, we did indicate we will grow again this year.

Thank you for your time. Thank you.

That's about all we can say.

Speaker Change: on the guidance for the March quarter, right? The overall sustainability and growth of your gross margins...

Doug Bettinger: has been very very solid. I've actually been surprised at how rapidly you've ramped your Malaysia manufacturing facility.

Doug Bettinger: Low-cost geography, you've got strategically aligned supplier base in this region.

Doug Bettinger: At the same time, you guys have also, I think, consolidated a significant part of the higher cost manufacturing base.

Speaker Change: Is it fair to assume that on incremental revenue growth going forward, most of this is flowing through Malaysia, and so better incremental gross margin flow through, and maybe any way to help us kind of quantify that?

Speaker Change: Yeah, I'm not going to quantify it. I mean, I just gave you a number, right, that we've delivered over 100 basis points from the strategy already. There's a little bit more to go for sure. You know, don't lose sight of the fact, though, that we're going to have the headwind from customer mix that we've been talking about for a while. So I'm trying to telegraph that to you as well.

Speaker Change: I guess, yeah, listen, we're pretty pleased with our performance on Gross Margin. Frankly, this was all done by us, right? This was a proactive strategy. Things turned down in early 23. We jumped on the horse and started riding down the trail.

Speaker Change: And frankly, the guys and gals in our global operations organization have done a phenomenal job here. So, super happy with what's going on. We're going to keep driving this.

Speaker Change: But don't run away with it too much right now because like I said, we've got that customer concentration headwind that we've got to deal with here. You know, and Harlan, the only thing I would add is that, you know, I think that you should take away from this, that Lam is committed to make investments.

to see a sustainable step up in performance.

Speaker Change: And that's what we did. Doug, for many quarters, was talking about how Malaysia was a headwind. You know, that investment we were making as we ramped it, it wasn't yet up and going. And, you know, now you're seeing a little bit of the same thing with the investment we keep talking about with digital transformation.

Speaker Change: You know, there's going to be a period here where we're investing, but long term, you know, we have a view that this company and the semiconductor industry in general is going to be bigger, and we want to have fundamental improvements in our operations and in our cost structure.

Speaker Change: And so, you know, I think Malaysia is a great sign of what we've done and I think the digital transformation is something that's still yet to come and it just shows that we have a very, you know, long-term commitment to improving the financials of this company.

Yeah. Thanks, Tim. Thanks, Doug.

Thanks, Charlie.

Speaker Change: The next question is from Toshia Hari with Goldman Sachs. Please go ahead.

Toshia Hari: Hi, good afternoon. Thank you so much for taking the question. I had two as well. The first one, the outperformance relative to WFE you guys expect to deliver this year, is that mostly a function of Deponetch growing as a percentage of the overall WFE market, or is it that plus?

Toshia Hari: you guys winning share within Deponetch, and if it's both, on the latter, which applications do you guys have the highest expectations from a market share gains perspective?

Thank you.

Toshia Hari: Well, it is both but as we've described in the past that often the way we look at market share gains is the wins of new applications some of which didn't exist before and so

Toshia Hari: It's not always a head-to-head fight that results in one winner for an application. I gave an example of that with the carbon gap fill, a new application that gets created simply because of the growing complexity of...

tear stacking in Nant.

Toshia Hari: Ultimately, that results in share gain as measured by our share of our sand and also our share of the market itself.

Toshia Hari: Edged in Deposition are becoming incredibly more important to the building of these complex structures, whether it's Gate All Around, it's the Advanced Packaging 3D Structures, it's the new architectures in VRAM, it's the Multi-Tier Stacking in NAND, all of those are accomplished through new, very complex etch-in-depth processes that LAM is leading in.

Toshia Hari: Got it. That's great. Thank you. And then for CSBG, maybe for Doug, I know you're not going to guide the full year. The spares part of the business, upgrade part of the business, historically it's been obviously correlated with your Chamber account, which continues to grow. Is there a way to think about reliance in 25 on a year-over-year basis?

Toshia Hari: Reliance is probably going to be down year over year, Tushia, as I think about puts and takes. I don't think that's surprising, right? If you look at what's going on in specialty note investment, mature note investment, in areas like analog microcontrollers, there's not a lot of spending occurring outside of China.

Toshia Hari: And then I think China WFE is going to be softer year over year, 24 to 25, and we lost a handful of customers as well, so that will contribute to all of that relative to reliance. Offsetting that though, I think it's going to be a good upgrade year, we've been talking about that.

Toshia Hari: such that right now if I was giving you a little bit of color to think about CPCG, we're probably flat-ish, again plus or minus, and we'll keep giving you updates as we go through the year as things change.

Toshia Hari: And Toshi, the only thing I'd add on CSBG is, you know, obviously we recognize that each of the different components of CSBG sort of move around, so maybe it's helpful to think about the areas that

Toshia Hari: you know, ultimately are long-term future growers and the one we've highlighted recently that I talked about today is

Toshia Hari: how you use equipment intelligence and co-bots and other things to disrupt the way in which service is done inside the fab and therefore capture some of that value while still delivering a lot of value.

Toshia Hari: Productivity to the customer. So, you know, I think that's an area that

Toshia Hari: still is less tapped, I would say, than our spares and upgrades and reliant business that we talked about so much. And so there's still a lot a lot of opportunity to come there as we start to roll out these these new products onto new platforms and into fabs.

Very helpful. Thank you.

Thank you, Tushar.

Speaker Change: The next question is from Srini Pajuri with Raymond James. Please go ahead.

Srini Pajuri: Thank you. Doug, I just want to clarify the previous answer you gave on CSBG. So when you say flattish, are we talking calendar 24 being flattish, or is it fiscal – I'm sorry, calendar 25 being flattish, or is it fiscal, or are you talking sequentially for the next few quarters, I guess?

Srini Pajuri: Calendar 25. I never talk about fiscal years. Almost never. It's year over year. You should think of CSBG in total as flattish.

Got it.

Speaker Change: Thank you for that. And then my question, maybe for Tim, is on MOLI-B, I know you said several hundred million dollars of contribution.

Speaker Change: I'm just trying to reconcile, you know, what we are hearing from your customers, Tim, obviously.

Speaker Change: you know, demand is not great and the utilization levels are, you know, lower and some customers are actually lowering there.

Speaker Change: Is it like a handful of customers, or I know there are only a handful of customers, but if you could give us some additional color as to, you know, how do you feel about the sustainability of MOLI-B as we go through the year, that would be helpful. Thank you.

Speaker Change: Now, those are all nodes, those are all bits being manufactured without MOLLE. And so, over time, and we've said this is a multi, multi-year transition, as you start to move this million plus wafer starts per month capacity that exists towards higher layer counts.

Speaker Change: Now, how do we reconcile the fact that customers are spending to go to higher layer counts and introduce new technologies like Mali and carbon gas cell with their statements as well that they've

Speaker Change: You know might be wanting to cut spending. Well, first of all, I mean upgrades are a very efficient way to move forward with technology And so that's a reduced WFE means by which to get bits to higher layer counts and frankly higher layer counts

Speaker Change: results in lower bid cost for manufacturing and higher performance. For certain end applications you need higher performance.

to meet those requirements. And so, I think that...

Speaker Change: You know, this is not a broad, a very broad and large upgrade move.

Speaker Change: but it's the early signs and that's why we're starting to see improvement in our numbers. Over the next several years you'll continue to see MOLLE contribute more and more as the number of wafers at those higher layer counts continues to increase.

Got it. Thank you.

Thank you.

Thanks for your time.

Speaker Change: Thanks for taking my question. Dan, just one or two clarifications. Why will CSBG be flat this year? And then how should we think about OPEX growth in Calendar 25?

Speaker Change: Yeah, Vic, it's what I described. We're coming off a pretty strong year for the Reliant product line. That's probably going to be less strong next year. Offsetting that, I believe, will be the spending on upgrades.

Speaker Change: kind of based on what Tim just told you right there's an aging set of equipment in band there's upgrades other places too so that's the up and the down I guess is the way to think about it that make sense

And the op-eds are done.

Speaker Change: Listen, we're going to increase spending this year, right? I talked about we're growing R&D, we're investing in a digital transformation project that's going to deliver future financial benefit, but...

Speaker Change: Also, listen to what I said in the scripted remarks. We plan to deliver some of the leverage this year, too, right? We're going to deliver leverage to the P&L, so, you know, revenue should grow faster than OPEX is the way to think about it.

Speaker Change: So last year OPEX was up mid-teens. Should we assume a similar kind of OPEX growth given the digital transformation projects or would it be you know very different from that run rate?

Speaker Change: Yeah, Vivek, I'm going to guide you one quarter at a time. You'll get a little bit of leverage from us this year, so that's as much as I'm going to give you right now.

Okay, thank you.

Speaker Change: The next question is from Atif Malik with Citi. Please go ahead.

Speaker Change: Hi, thank you for taking my question. First, a quick clarification that 100 billion WFP number is unrestricted WFP, meaning it includes your expectations, what your indigenous competitors are going to earn in sales as well. That's the first question.

Speaker Change: It's all in. It's everything, right? There were restricted customers in 24, there's restricted customers in 25. We're describing it all in to the best of our ability.

Speaker Change: Okay, and then Doug, you made a comment that you're expecting similar customer concentration in the March quarter and I was wondering if you're expecting similar regional concentration as well and just trying to see if China's sales are going to come down again in the March quarter after the drop in the December quarter?

Speaker Change: You gotta listen to my euphemisms when I describe stuff. Customer concentration actually is pretty tied to geographic concentration when I talk about it right now, so you should expect that to be roughly consistent December to March, roughly.

Speaker Change: I do believe that, again, we said this on the last call, again, China concentration for a year will be down versus 24 in 25.

Go ahead. Thanks, guys.

Okay. Thanks, Ben. ?

Thank you.

Speaker Change: The next question is from Stacy Raskon with Bernstein Research. Please go ahead.

Speaker Change: Hi guys, thanks for taking my questions. Doug, I don't mean to harp on it, but I want to go back to the CSBG outlet flat. So just on a run rate basis, you'd be down like $100 million a quarter versus where you ran in December. And I'm just confused.

Speaker Change: given like the NAND strength that's upgrade driven, presumably a lot of that would be CSNG. So I wasn't aware that

Speaker Change: I mean, we're falling by a huge amount year over year.

Speaker Change: for me to just fit that out like I mean I'm just trying what am I getting wrong or is it just some conservatism built in there or like why such a No, no there's not conservatism. Reliant is going to be down right we just lost a bunch of customers in China that largely purchase Reliant systems so that's part of what's going on too.

Speaker Change: okay so that was the said like did you have 700 million in you know calendar 24 in CSBP for reliant in China that that goes away in 2025

Speaker Change: Stacey, $700 million was our forecasted revenue for that set of customers, what they would have spent in 2025, but now they're not spending, and a lot of that would have been reliant, Stacey.

Speaker Change: okay okay all right I guess maybe along those lines again to go back to the China mix I mean you said customer mix it sounds like the customer mix had

Speaker Change: increase as we go through the year? Did I get that right? And if that's true again does that imply that China percentage ought to be going down as we go like into the second half?

Speaker Change: I said the China revenue percentage should be down in 25 versus 24.

Speaker Change: I'm talking about versus the current run rate because you talked about the customer headwinds sort of increasing and it sounds like the rest of the business will grow and you're missing trying to revenue in the back half so does that percentage go down in the back half versus where you're running now?

Speaker Change: Yeah, listen, I'm not going to guide more than one quarter at a time because stuff changes. Year over year, Stacey, though, it's going to go down.

[inaudible]

All right, guys. Thank you.

Thanks. Bye. Thanks.

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

Joe Moore: Great, thank you. In terms of NAND being the strongest growth business, can you kind of characterize where we are from a NAND perspective?

Joe Moore: Yeah, well I think that one we would characterize demand spending today very much is technology migration.

Joe Moore: and also improve device performance. And so there are customers that are looking to make some changes there on certain lines they have.

Joe Moore: Now when we talk about the growth, we haven't obviously given a number for what NMWFC will be in 2025.

Joe Moore: but it's coming off of, as you know, a very low base and it's primarily all of the spending this year is on upgrades.

Joe Moore: Again, the strength in lambs, you know, we spoke specifically about that being a strong grower for lamb, our strongest growing segment, then we would say that that is because of our very high capture rate of WFE spent on upgrades.

Joe Moore: You know, I can't speak to every customer and what they're going to be spending this year, but what we can say is that there is still a strong desire to move certain lines forward to higher levels of technology, and that's what we're seeing.

That's very helpful. Thank you.

Thanks Joe.

Speaker Change: The next question is from Vijay Rakesh with Mizzou Hope, please go ahead.

Vijay Rakesh: Yeah hi, just a quick question on the NAND side. Sorry if somebody asked this question already, I joined late. Nice rebounds there, but as you look at the full year, given how much NAND has come down, any thoughts on how much you see NAND growing this year in 2025?

Vijay Rakesh: We're not going to give you a number, Vijay. It's going to be up though.

Vijay Rakesh: Got it, okay. And then on the, can you talk to what you're seeing on the cryo side? I think you guys have talked about an opportunity with QLC and how do you see that for 2025, I guess.

Vijay Rakesh: Yeah, I mentioned in my prepared remarks and we had a release late last year on what we call our cryo 3.0 technology, which really is a breakthrough in terms of performance for being able to etch

Vijay Rakesh: Those that same technology can be used for other devices like DRAM that also need a higher spectra should dielectric etch And so we're very happy with the progress that's been made

Vijay Rakesh: What makes it very attractive is that our Cryo technology can also, not only be sold on new tools going forward, but also be used to upgrade existing systems we have in the install base, which is very attractive for our customers financially.

Great, thank you.

Thank you.

Speaker Change: The next question is from Joe Quattrochi with Wells Fargo. Please go ahead.

Joe Quattrochi: Yeah, thanks for taking the questions. For the December quarter, the strength that you saw in NAN revenue, just wanted to clarify, was there anything in there from the Chinese customer that you can no longer ship to? I just want to kind of understand that the strength that you saw is really the core NAN customer upgrades.

Joe Quattrochi: No, there's nothing from a Chinese man, indigenous Chinese man customer, nothing.

Joe Quattrochi: Okay, as a follow-up as we just think about like you know the two-thirds of NAN capacity below 200 layers, I mean how should we think about like that trajectory exiting this calendar year in terms of that change of NAICS?

Joe Quattrochi: Well, I think that's the question that we've been hearing quite a number of times on the call, which is, can we predict the rate and pace? I think you have to look, the one thing we're certain of is over time, more and more of that installed base will continue to be upgraded to higher levels of technology.

Joe Quattrochi: Yeah, I think you have to look at the state of the man market, the requirements of each individual end application and what device requirements it holds, and that'll tell us a little bit more about the rate and pace. But at this point, we can't really detail that in any way for you right now.

Okay, thank you.

Yep, yep, that's true.

Speaker Change: The next question is from Tom O'Malley with Barclays. Please go ahead

Tom O'malley: Hey, thanks for taking the question, guys. Doug, I'll test you with one more, man. One, forgive me. I know you've gotten a lot here. So in terms of the upgrades really coming in strong, I think it's actually very impressive that you're able to guide CSBG kind of flattish for the year.

Tom O'malley: I was under the assumption that Reliant was a bigger portion of that mix of the bucket. So to totally offset that is surprising and I guess very good. But when I look back at the last three years with where NAND spend has been kind of in the high single digit billions, I think people are give or take that. But you've seen the market struggle and you really haven't seen this take off in terms of spend.

Tom O'malley: What's driving this above 200 layer upgrade this year? I guess I'm asking the question a bit differently, like why the urgency just because the numbers you're describing for this next year need to be pretty robust. Just want to understand why that's happening so quickly. It's obviously a really good thing for you.

Speaker Change: Yeah, Tom, I guess it's really what Tim described. The technology out there, two-thirds of it is sub-200 layer. It needs to get upgraded. Listen, it's not like we're back to the races at peak NAND spending. It's nowhere close to that. But you got enterprise SSDs.

Speaker Change: evolving to need QLC, which needs the capability of structures that are beyond 200 layer, right? You got to get the circuit under the array, you need to have wafer bonding capability, and these technologies that are sub 200 layer don't enable that.

Speaker Change: That's what's going on. In addition to what Tim mentioned earlier, right, when you upgrade you get a lower cost per bit. And so there's still economics that makes sense there to a certain extent. And that's largely what we see going on this year. I don't know, Tim, if you'd add anything? No, no, I think that's right.

That make sense, Tom?

It does.

Okay.

Do you have a follow-up, Tom?

Speaker Change: Yeah, I guess I'll pivot over to the Foundry Logic side. Obviously, a smaller percentage of the business view, we haven't really focused on it much this call. You're kind of pointing to the NAND business being a leader in your growth outlook for this coming year. But just given the CapEx guide that we saw from TSMC, any view of the change in market share dynamics and how that may impact you in the next year, obviously, the view is that some of the other leaders are losing out to TSMC.

Speaker Change: see how does that impact you? You've been asked this question previously, but wanted to get your update after the print there.

Speaker Change: Yeah, I'll let Jim talk about leading-edge founder. Yeah, yeah, sure. No, in fact, we would hate for people to walk away

Speaker Change: thinking we're back to focused only on NAND. It's just that it's been many years we've been waiting for the...

Speaker Change: The NAND recovery to start, and so we're able to talk about the fact that through these upgrades that's kind of begun and is showing up in our numbers.

But the reality is...

Speaker Change: You know, I mentioned the strategy we had to pivot more of our R&D and our new product expansion into DRAM and Foundry logic. That is paying off. We gave a number on gate all around nodes.

Speaker Change: We have a number of tools that play very well into that inflection, plus our strength in advanced packaging shows up very prominently in leading-edge foundry logic, since nearly all leading-edge foundry logic right now is driving and being driven by

Speaker Change: the advanced packaging capabilities and so we're participating in that way so you know as you see leading-edge foundry logic customers spending I would say that is a share those are share gain opportunities for lamb at this point

Speaker Change: Thanks, Tom. Operator, we're going to take one more call. Yeah, thanks, Tom. Operator, we're going to take one more call. And that question is from Brian Chin with Stifel. Please go ahead.

Brian Chin: Hi there, good afternoon. Thanks for letting us ask a few questions. For trying to resist deposition and development, can you remind us of the SAM or maybe revenue potential per 10k wafer start per month and then

Brian Chin: tied to that. What is the timing and magnitude of your revenue opportunity and this win and where are you with other DRM players?

Brian Chin: We're in good position. We've talked about previously a DQR position. We've got hardware in everybody's...

Brian Chin: We're super excited about this one because it's a production to a record decision, right? It's going around. It's not going to be huge dollars this year.

Speaker Change: Brian, it is going to certainly be generating revenue, but it was a real important milestone for us.

Okay, that's great. Maybe for the quick follow-up...

Speaker Change: What factor does the introduction of wafer bonding on NAN roadmaps, I guess, have on your capture rate of NAN spending?

Oh, it's an upgrade. I mean, primarily...

Speaker Change: You know, we do a lot of things mostly related to the stack, is what we've been talking about. There are other elements of our...

Thank you very much.

Speaker Change: And that's primarily, you know, as you stack to, you know, we talked about carbon gap fill, we talked about the, you know, the need to upgrade other tools to do higher aspect ratio metrics, etc. We haven't even talked about the fact that...

Speaker Change: for many years we've been selling tools that also help offset stress of higher layer counts. And so really the complexity of these devices, now adding wafer bonding as well, it opens up a lot of opportunities for a critical process supplier like LAMB to participate.

You're great. Thank you.

Speaker Change: Awesome. Thank you, Brian. With that, Operator, we're going to wrap the call up. Listen, Tim and I and the Breslin Metis team are super excited to see you guys on February 19th in New York at our Investor Day. I hope you are all going to be able to make it.

Speaker Change: We'll have some interesting new products to talk about, and like I said, we're going to update the financial model. So operator, with that, let's close off the call.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Speaker Change: Good afternoon, and welcome to the LAM Research December 2024 Earnings Conference Call. All participants will be in listen-only mode.

Speaker Change: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.

Please note, this event is being recorded.

Speaker Change: I would now like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead.

Speaker Change: Thank you and good afternoon everyone. Welcome to the LAM Research Quarterly Earnings Conference Call. With me today are Tim Archer, President and Chief Executive Officer and Doug Bettinger, Executive Vice President and Chief Financial Officer.

Speaker Change: During today's call, we will share our overview on the business environment, and we will review our financial results for the December 2024 quarter and our outlook for the March 2025 quarter.

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

Please see accompanying slides in the presentation for additional information.

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

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

Jeff: Thank you, Ram, and thank you all for joining the call today. LAM closed out 2024 with another solid performance. December quarter revenue, gross margin, operating margin, and EPS were all above our guidance midpoints, reflecting strong and consistent operational execution.

Jeff: Wafer Fabrication Equipment Spending for 2024 finished in line with the mid 90 billion dollar range we guided earlier in the year.

Jeff: Overall, 2024 was a good year for LAM, even as NAN spending remained at muted levels.

Jeff: System revenues in both DRAM and Foundry Logic grew to record highs and the size of our installed base increased to approximately 96,000 chambers.

Jeff: Our results show that we are making good progress on our strategy of broadening lambs exposure across end market device segments.

Jeff: It also demonstrates the increasing strength of our product portfolio as semiconductors move into the AI era.

Jeff: For example, gate-all-around and advanced packaging technologies are critical enablers for AI device manufacturing, including GPUs and high-bandwidth memory.

Jeff: They are also highly deposition and etch-intensive, and as a result, we saw LAM's shipments for gate-all-around nodes and advanced packaging each grow to exceed $1 billion in 2024.

Jeff: In calendar 2025, we see WFE spending rising slightly to approximately $100 billion.

Jeff: Again, we expect technology inflections to lead to faster growth for land.

as AI applications demand greater device and package level performance.

Jeff: In 2025, LAM shipments to gate all-around nodes and advanced packaging combined should be well over $3 billion.

Jeff: Customer migration towards backside power distribution and dry resist processing technologies will add further opportunity in the coming year.

Jeff: As we look forward, we view the increasing importance of deposition and etch technology as a differentiator for LAM and an opportunity to outperform.

Jeff: With this in mind, we have made strategic investments over the past few years to expand our R&D infrastructure, scale our organization, and transform our innovation process for greater speed. We are now seeing these investments yield important product advances.

are recently introduced Cryo 3.0 technology.

Jeff: is winning at the leading edge, delivering best-in-class results for high-aspect ratio dielectric etch applications on our latest Vantex CX Plus product, and also helping extend the capabilities of our large flex install base through cryo upgrades.

Jeff: Our breakthrough dry resist capability for EUV is enabling patterning of extremely fine devices by features with greater precision, reduced effectivity, higher productivity, and reduced environmental impact.

Jeff: You may have seen that earlier today we announced that our Ether dry resist solution has achieved a major milestone, having just been selected as the production tool of record for high bandwidth DRAM at a leading memory customer.

Jeff: Technology inflections in DRAM and Foundry logic combined with an upgrade focused NAND environment create what we believe is a unique setup for LAM to outgrow WFP spending and strengthen our bottom line in calendar 2025.

Jeff: In NAND, the industry is looking to transition the current installed capacity to higher layer counts to achieve better device performance at lower bit cost.

Here, several trends play to our favor.

Jeff: One is the transition to molybdenum, or moly. LAM's patented multi-station sequential deposition technology allows us to employ a differentiated liner and fill process sequence that is proving to be a winner with customers. The momentum for our new moly product is strong.

Jeff: A second trend is the adoption of carbon gap fill to enable higher bit density and lower cost through multi-tier stacking.

Jeff: Our innovative PCB-based pure carbon gap fill process provides high etch selectivity, superior mechanical properties, and simplified dry process removability.

Jeff: While we are in the early innings of these transitions and early in the industry upgrade cycle overall, we expect adoption of MOLLE and Carbon Gap Bill to drive several hundred million dollars in NAN shipments for LAM in calendar 2025.

Jeff: LAM's opportunity will grow even further in future years as more of the million-plus wafer starts per month installed capacity converts to higher layer counts.

Jeff: The differentiation we're delivering for customers runs deeper than the process technology itself.

Jeff: Our SEMIVERSE solutions capabilities apply advanced modeling, simulation, data science, analytics, machine learning, and artificial intelligence to further enhance our equipment performance and reduce the time needed for process optimization.

Jeff: This is strengthening our competitiveness, and most recently, we used our SEMIVERSE solutions capabilities to successfully defend a key dielectric etch application at a major memory manufacturer.

Jeff: Furthermore, we are leveraging these capabilities to help address the semiconductor industry's global workforce shortage.

Jeff: Through collaborations with universities in the United States, India, and Korea, SEMIVERSE solution software is already being used to educate the next generation of semiconductor industry innovators.

Jeff: And our goal is to provide access to LAMS semiconductor simulation technology to tens of thousands of aspiring engineering students through the rest of the decade.

Jeff: In CSBG, our Equipment Intelligence and Infab Service Automation solutions are seeing significant traction with customers.

Last month, we announced the industry's first collaborative maintenance robot.

Jeff: Since then, we have shipped our Dextro Cobot to a third major memory manufacturer and it is being installed in their fab as part of a multi-year services agreement.

Jeff: Over the next decade, the semiconductor industry is expected to witness a strong expansion of fab capacity globally, and our Cobot technology offers an important and cost-effective solution to enable precise and repeatable maintenance beyond what human workers alone can achieve.

Jeff: Lastly, our strategic investments in scaling our operations are paying off.

Jeff: Our Asia operations continue to ramp very efficiently and in 2024 help drive meaningful improvement in both our responsiveness to rising customer demand and our gross margin.

Speaker Change: Doug will provide some additional detail in his prepared remarks, but as a headline, I am pleased we delivered, in calendar 2024, approximately 160 basis points of operating margin expansion, even as we invested heavily in new products and infrastructure to fuel future growth.

Speaker Change: So to wrap up, Lamb is in a strong position as we enter the new year.

Speaker Change: Deposition and etch are becoming increasingly vital to semiconductor manufacturing and we have made key investments to strengthen LAM's product portfolio. I look forward to sharing more on this at our upcoming investor day.

Thank you and I'll now pass it on to Doug.

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

Speaker Change: We delivered strong financial results in calendar year 2024 with revenue of $16.2 billion in diluted earnings per share of $3.36.

We're obviously pleased with the company's continued strong execution.

Speaker Change: For calendar year 2024, CSBG revenue increased 11% to $6.6 billion, exceeding our expectations.

Speaker Change: Gross margin came in at 48.2% which was the highest annual result since lamb were merged with novellus in 2013.

Speaker Change: Let's look at the details of our December quarter financial results.

Speaker Change: Revenue for the December quarter was $4.38 billion, which was an increase of 5% from the prior quarter.

Speaker Change: Our deferred revenue balance at quarter end was $2 billion, essentially flat with the September quarter.

Speaker Change: I do believe our Deferred Revenue Balance will trim lower into calendar year 2025, but will likely fluctuate from quarter to quarter.

Speaker Change: From a market segment perspective, December quarter systems revenue in memory was 50 percent, up from 35 percent in the prior quarter.

Speaker Change: Within memory, non-volatile memory increased, coming in at 24% of our system's revenue, up from 11% in the prior quarter.

Speaker Change: This market segment has reached the high point since the end of 2022 driven by NAN spending on tech conversions from 1xx layer class devices to 256 layer.

We expect these conversions to continue in calendar year 2025.

Speaker Change: ERAM represented 26% of systems revenue compared with 24% in the September quarter.

Speaker Change: DRAM spending was focused on tech upgrades to the 1Alpha, 1Beta, and some initial ramp of 1GaN nodes to enable DDR5 and high bandwidth memory.

Speaker Change: HBM Investments and our tools enabling through silicon via capability continues to be strong.

Thank you.

Speaker Change: Growth for data around node spending partially offset the decline in mature node spending.

Now we'll discuss the regional composition of our total revenue.

Speaker Change: The China region accounted for 31%, which was down from 37% in the prior quarter.

Speaker Change: Most of our China revenue continued to come from domestic Chinese customers.

Speaker Change: The next largest geographic concentration was Korea at 25% of revenue in December quarter, an increase compared with the September quarter level of 18%.

Speaker Change: And finally, Taiwan and the United States rounded out the remainder of the top four regions.

Thank you.

Speaker Change: The Customer Support Business Group generated almost $1.8 billion in revenue for the December quarter, consistent with the September quarter, and 20% higher than the same period in 2023.

Thank you for watching.

Speaker Change: sequentially growth in upgrade revenue largely upset the decline that we saw in reliant systems.

Speaker Change: All spares on the Reliant product line continue to be the two largest components of CSBG revenue generation.

Speaker Change: We achieved record upgrade revenue, demonstrating the strength of that growing install base.

Speaker Change: During the gross margin performance, the December quarter came in at 47.5 percent, which was above the midpoint of our guided range, but was down from the September quarter level of 48.2 percent.

Speaker Change: This was primarily a result of unfavorable customer mix, which we foreshadowed in the last earnings call.

Speaker Change: We've improved elements of our cost structure during the past two years.

Speaker Change: and expanded the gross margin contribution from our Asia operations strategies by a little more than 100 basis points as we exited calendar year 2024.

Speaker Change: We expect incremental benefit to gross margins as we continue to scale production on a go-forward basis from this strategy.

Speaker Change: Operating expenses for December were in line with our expectations at 735 million dollars, up from the prior quarter amount of 722 million dollars.

Speaker Change: The increase was primarily due to higher incentive compensation tied to the company's increased profitability.

[inaudible]

R&D accounted for 67% of total operating expenses.

Speaker Change: Operating margin in the current quarter was 30.7%, a little bit below the September quarter level of 30.9%, and near the high end of our guidance range, primarily because of that higher revenue and the stronger gross margin performance.

Speaker Change: And I just reiterate what Tim mentioned, that we delivered 160 basis point improvement in operating margin for calendar year 2024.

Speaker Change: And our net tax rate for the quarter was 13.2% within range of our expectations.

Speaker Change: Our estimate for the March 2025 quarter is for the tax rate to be in the low to mid-teens range.

Speaker Change: Other income and expense for the December quarter came in at $11 million in income compared with $13 million in income in the September quarter.

Speaker Change: The slight fluctuation in OI&E was due to lower interest income, which was somewhat offset by lower foreign exchange losses and a little bit of gain in equity investments.

Speaker Change: And as we sit here today, I do believe OI&E will have a slight negative bias in the March quarter.

Speaker Change: On the capital return side of things, we've allocated approximately $650 million to open market share repurchases, and we paid $298 million in dividends in the December quarter.

Speaker Change: For the 2024 calendar year, we returned 98% of free cash flow, totaling $4 billion, which was at the high end of our long-term capital return plans of 75 to 100% of free cash flow.

Speaker Change: The diluted share count was roughly 1.29 billion shares, which was a reduction from the September quarter.

Speaker Change: During 2024, we repurchased nearly 34 million shares through our Share Buyback Program.

Speaker Change: And we have $9.2 billion remaining on our board-authorized share repurchase plan.

Speaker Change: Let me tip into the balance sheet. Our cash and short-term investments totaled 5.7 billion dollars at the end of the December quarter.

Speaker Change: down from $6.1 billion at the end of the September quarter.

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

Speaker Change: The sales outstanding was 69 days in the December quarter, an increase from 64 days in the September quarter.