Q3 2025 KLA Corp Earnings Call

April 30, 2025

Margo and I'll be your conference operator today at this time I'd like to welcome everyone to the KLA Corporation March quarter, 2025 earnings conference call and webcast. All participants lines have been placed in a listen only mode to prevent any background noise. After the speakers' remarks, there will be a question and answer.

Answer session. If you would like to ask a question at that time. Please press star one on your telephone keypad, if you wish to remove yourself from the queue. Please press star to please limit yourself to one question and one follow up lastly, if you should need operator assistance. Please press star zero.

Speaker Change: I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and market analytics. Please go ahead.

Speaker Change: Welcome to our earnings call.

Speaker Change: March quarter, and our June quarter outlook, joining me is our CEO, Rick Wallace and our CFO, Brian Higgins will discuss today's results released released after the market closed and available on our website along with supplemental materials. We are presenting today's discussion and metrics on a non-GAAP financial basis, unless otherwise specified.

Speaker Change: All for your references made refer to calendar years the earnings materials contain a detailed reconciliation of GAAP to non-GAAP results.

Speaker Change: KLA IR website also contains future investor events.

Speaker Change: <unk> corporate governance information and links to our SEC filings.

Speaker Change: Our comments today are subject to risks and uncertainties reflected in the disclosure risk factors.

Speaker Change: Filings.

Speaker Change: Any forward looking statements, including those we make on the call today are also subject to those risks.

Speaker Change: While I cannot guarantee those forward looking statements will come true.

Our actual results may differ significantly from those projected in our forward looking statements.

Greg: Greg will begin with some introductory comments on the business environment.

Brent: In the quarter, followed by Brent with financial highlights and our outlook now over to Rick.

Kevin I will start our March quarter results and talking about some comments about the current business environment, followed by some recent market share reports and finish up with some business highlights.

Brent: <unk> March quarter.

Brent: <unk> were above the midpoint of all the guidance range with revenue of $3 6 billion.

Brent: non-GAAP diluted EPS of $8 41.

Brent: And GAAP diluted EPS of $8 16.

Brent: <unk> results continue to be fueled by strong demand in leading edge logic and high bandwidth memory KLA is growing advanced packaging business also made another strong contribution in the quarter.

Brent: These drivers demonstrate the critical investments required for building out the infrastructure, which is supporting AI.

Brent: While there is a notable macro uncertainty across many sectors globally KLA has not seen any change in demand or indication from our customers of any adjustment to their announced investment plans.

Brent: That said the current unprecedented global trade uncertainty and potential second order effects on macro demand in the future are far from clear given.

Brent: Given this fluid business operating environment and potential implications for KLA, we've decided to postpone our investor day June 18th to early to mid calendar 2026.

Brent: It's our hope that the macro environment will stabilize by that and we look forward to expanding on the story of <unk> growth strategy and increasing market relevance.

Capital return announcements today reflect not only our commitment to assertive and explicit capital allocation, but also our confidence in the business opportunities for KLA over the foreseeable future.

Brent: Moving along to market share reports this quarter marks the annual release of industry Research reports showing <unk> maintain a strong global share of WMC and process control markets in calendar 2024 <unk>.

Brent: <unk> continued share leadership was highlighted by persistently strong customer adoption.

Brent: Nickel pattern wafer inspection and share gains in advanced wafer to wafer level packaging.

Brent: Over the past five years KLA share of process control has grown by nearly 250 basis points, notably Kla's process control share of advanced wafer level packaging market has grown from being in third position in 2019 to being on track to assume leading position in 2025.

Brent: Turning to highlights for the quarter tailing delivered a 30% year over year increase in revenue in the March quarter due to increased investment in leading edge logic and HBM.

Brent: AI continues to be a key catalyst driving KLA is consistent consistently strong performance.

Brent: As AI continues to advance the semiconductor industry is experiencing more complex design.

Brent: Accelerating product cycles high value wafer volumes and growing advanced packaging demand.

Brent: These trends underscore the increased value of process control and assisting our customers in managing that dynamic production environment.

Brent: As investments and complexity increase which uniquely benefits KLA.

Brent: As a further demonstration of this the March quarter captured another period of strong momentum for our advanced packaging portfolio cut.

Brent: Customers adoption of Kla's advanced packaging portfolio of products demonstrate the success of our market diversification product technology roadmap and growth strategies <unk> advanced packaging revenue grew to over $500 million in calendar 2024, and is now expected to exceed $850 million.

Brent: <unk> 2025.

Brent: For the <unk> services business grew to $669 million March quarter up modestly sequentially and up 13% year over year.

Brent: Newly announced market access restrictions in early December 2024 from the U S government export controls impacted service revenue growth in the March quarter still as a sign of its predictability and resiliency our service business main markets 52nd consecutive quarter of growth on a year over year basis.

Brent: Finally, the March quarter was another solid quarter for us from a cash flow and capital returns perspective.

Brent: The free cash flow was $990 million over the past 12 months free cash flow was $3 5 billion.

Brent: The free cash flow margin of 30% over the same period.

Brent: Free cash flow margin ranks amongst the top 10% of companies in the S&P 500.

Brent: Total capital returns in the March quarter was $733 million.

Brent: Comprised of $507 million in share repurchases $226 million in dividend total capital returned over the past 12 months was $3 billion.

Brent: <unk> results once again demonstrated process leadership and the success of our broad portfolio and competitive differentiation.

Brent: Our consistent performance further demonstrates the critical nature of <unk> products and services, which are uniquely positioned to enable growth at the leading edge, including the ongoing build out of AI infrastructure.

Brand: With that ill pass the call over to brand to cover financial highlights and our outlook.

Speaker Change: Thanks, Rick Haley's March quarter results demonstrate our leadership combined with the consistent execution and dedication of our global team to meet customer commitments and driving strong results, which fueled double digit year over year growth and profitability improvement.

Finally, the March quarter was another solid quarter for them from a cash flow and capital returns perspective.

Brand: Revenue was $3 6 billion above the guidance midpoint of $3 billion.

Quarterly free cash flow was $990 million over the past 12 months free cash flow was $3 $5 billion, the free cash flow margin of 30% over the same period.

Brand: non-GAAP diluted EPS was $8 41.

Brand: GAAP diluted EPS was $8 16.

Brand: Each finishing at the upper end of their respective guidance ranges at the guided tax rate of 13, 5% non-GAAP diluted earnings per share would have been $8 55.

This free cash flow margin ranks amongst the top 10% of companies in the S&P 500 total.

Total capital returns in the March quarter was $733 million comprised of $507 million in share repurchases $226 million in dividends.

Brand: Gross margin was 63% about 50 basis points higher than the midpoint of guidance as product mix within our process control segment stronger than modeled for the quarter.

Capital returns over the past 12 months was $3 billion.

Brand: Operating expenses were $575 million about $10 million below the guidance midpoint.

Haley's results once again demonstrated process control leadership and the success of our broad portfolio and competitive differentiation.

Brand: As the timing of prototype material expenses were lower than expected.

Brand: Operating expenses were comprised of $338 million in R&D and $237 million in SG&A.

Our consistent performance further demonstrates the critical nature of <unk> products and services, which are uniquely positioned to enable growth at the leading edge, including the ongoing build out of AI infrastructure.

Brand: Operating margin was 44, 2%.

Brand: Other income and expense net was $36 million expense quarterly effective tax rate 15%.

With that I'll pass the call over to Brad to cover financial highlights and our outlook.

Brand: Net income was $1. One 2 billion GAAP net income was $1 9 billion cash flow from operations was $1 1 billion and free cash flow was $990 million.

Speaker Change: Thanks, Rick Kelly's March quarter results demonstrate <unk> leadership combined with the consistent execution and dedication of our global team to meet customer commitments and driving strong results, which fueled double digit year over year growth and profitability improvement.

Brand: The breakdown of record our revenue by reportable segments and end markets, our major products and regions can be found within the shareholder letter and slides.

Speaker Change: Revenue was $3 6 billion above the guidance midpoint of $3 billion.

Brand: Moving to the balance sheet KLA ended the quarter with $4 billion in total cash cash equivalents in marketable securities.

Speaker Change: non-GAAP diluted EPS was $8 41.

Speaker Change: GAAP diluted EPS was $8 16 sets each finishing at the upper end of their respective guidance ranges.

Brand: Debt of $5 9 billion and a flexible and attractive bond maturity profile supported by strong investment grade ratings from all three major rating agencies.

Speaker Change: The guided tax rate of 13, 5% non-GAAP diluted earnings per share would have been $8 55.

Brand: <unk> balance sheet provides the ability to fund our growth strategies organic and inorganic and offer attractive capital returns to shareholders.

Speaker Change: Gross margin was 63% about 50 basis points higher than the midpoint of guidance as product mix within our process control segment stronger than model for the quarter.

Brand: A cornerstone of Kla's business are consistently generate strong free cash flow driven by one of the best operating models in the industry and a predictable and highly differentiated service business, which helps drive our capital return strategy that includes consistent dividend growth and increasing share repurchases over the long term the.

Speaker Change: Operating expenses were $575 million about $10 million below the guidance midpoint.

Speaker Change: As the timing of prototype material expenses were lower than expected.

Speaker Change: Operating expenses were comprised of $338 million in R&D and $237 million in SG&A.

Brand: This strategy supports a strong track record of predictable and assertive capital deployment remains an important differentiating element of the KLA investment thesis.

Speaker Change: Operating margin was 44, 2%.

Speaker Change: Other income and expense net was $36 million expense.

Brand: To further underscore our commitment to capital returns and our confidence in the long term value accretion of KLA today, we announced the 16th consecutive annual dividend increase.

Speaker Change: <unk> effective tax rate was 15%.

Speaker Change: Net income was $1, one 2 billion GAAP net income was $1 9 billion.

Speaker Change: Cash flow from operations was $1 1 billion and free cash flow was $990 million.

Brand: Which is up 12% to $1 90, a share per quarter or an annualized dividend of $7 60.

Speaker Change: The breakdown of record revenue by reportable segments and end markets, our major products and regions can be found within the shareholder letter and slides.

Brand: Along with this action, we also announced a new $5 billion share repurchase authorization, raising our total repurchase authorization to $5 46 billion.

Speaker Change: Moving to the balance sheet KLA ended the quarter with $4 billion in total cash cash equivalents in marketable securities.

Turning to the outlook the industry outlook continues to be driven by increasing investment in leading edge logic high bandwidth memory and advanced packaging.

Debt of $5 9 billion and a flexible and attractive bond maturity profile supported by strong investment grade ratings from all three major rating agencies.

Brand: For <unk> in 2025, our outlook remains the same as in late January we forecast WMC to grow by a mid single digit percentage from approximately 99% to $100 billion level in calendar.

Speaker Change: <unk> balance sheet provides the ability to fund our growth strategies.

Speaker Change: <unk>, an inorganic and offer attractive capital returns to shareholders.

Brand: Calendar 2024.

Brand: Growth is expected to be driven principally by increasing investments in both leading edge foundry and logic.

Speaker Change: A cornerstone of Kla's business consistently generates strong free cash flow driven by one of the best operating models in the industry and a predictable and highly differentiated services.

Brand: In memory to support growing AI and premium mobile demand.

Brand: Actually offset by lower overall demand from China.

Speaker Change: Which helps drive our capital return strategy that includes consistent dividend growth and increasing share repurchases over the long term.

Brand: Given kla's business momentum market share opportunities.

Brand: The higher expected process control intensity at the leading edge across all segments. We are confident we will continue to deliver growth outperformance compared with the Wi Fi market in 2025.

Speaker Change: This strategy supports a strong track record of predictable and assertive capital deployment.

Speaker Change: <unk> is an important differentiating element of the KLA investment thesis.

Speaker Change: To further underscore our commitment to capital returns and our confidence in the long term value accretion of KLA today, we announced the 16th consecutive annual dividend increase.

Brand: <unk> unique product portfolio differentiation and value proposition are focused on enabling technology transitions accelerating process node capacity ramps and ensuring yield entitlement high volume production.

Speaker Change: Which is up 12% to $1 90, a share per quarter or an annualized dividend of $7 60.

Brand: We remain encouraged that our customer discussions have not changed and are working hard to align shipments slots with their requirements.

Speaker Change: Along with this action, we also announced a new $5 billion share repurchase authorization, raising our total repurchase authorization to $5 46 billion.

Brand: And this industry environment KLA will continue to focus on supporting our customers executing on product roadmaps and driving productivity across the enterprise.

Speaker Change: Turning to the outlook the industry outlook continues to be driven by increasing investment in leading edge logic high bandwidth memory and advanced packaging.

Brand: Alea June quarter guidance is as follows total revenue is expected to be $3 75 billion plus or minus $150 million.

Speaker Change: For <unk> in 2025, our outlook remains the same as in late January we forecast WNBA to grow by a mid single digit percentage from approximately 99% to $100 billion level in calendar 2024.

Brand: Foundry logic revenue from semiconductor customers is forecasted to be approximately 69%.

Brand: Memory is expected to be approximately 31% of semiconductor process control systems revenue to semiconductor customers.

Speaker Change: Growth is expected to be driven principally by increasing investments in both leading edge foundry and logic.

Speaker Change: And memory to support growing AI and premium mobile demand.

Brand: Within memory DRAM is expected to be about 76% of the revenue mix and NAND the remaining 24%.

Speaker Change: Actually offset by lower overall demand from China.

Speaker Change: Given kla's business momentum market share opportunities.

Brand: Gross margin is forecasted to be 63% plus or minus one percentage point inclusive of the impact of recently announced global tariffs.

Speaker Change: The higher expected process control intensity at the leading edge across all segments. We are confident we will continue to deliver growth outperformance compared with the Wi Fi market in 2025.

Brand: This estimate as to the best of our ability given the complexity and fluidity of the <unk>.

Brand: Regulations, how they align with our global processes.

Speaker Change: KLA has unique product portfolio differentiation and value proposition are focused on enabling technology transitions accelerating process node capacity ramps and ensuring yield entitlement high volume production.

Brand: Consistent with this assessment, we expect global tariffs to have a roughly 100 basis point headwind to gross margin per quarter, assuming relatively stable quarterly revenue expectations for the remainder of the calendar year.

Speaker Change: We remain encouraged that our customer discussions have not changed and are working hard to align shipment slots with their requirements.

Brand: Yeah.

Of course, this environment is changing rapidly and we will continue our assessment and evaluate mitigation opportunities within our operational processes and pricing strategies.

Speaker Change: And this industry environment KLA will continue to focus on supporting our customers executing on our product roadmaps and driving productivity across the enterprise.

Brand: For calendar 2025 based on our results for the March quarter guidance for the June quarter, and our expectations for business mix across systems and services systems product mix and factory utilization.

Speaker Change: Yeah.

Speaker Change: Dailies June quarter guidance is as follows.

Speaker Change: Total revenue is expected to be $3 75 billion, plus or minus $150 million.

Brand: Gross margins for the year to be approximately 62, 5% plus or minus 50 basis points.

Speaker Change: Foundry logic revenue from semiconductor customers is forecasted to be approximately 69%.

Brand: Other model assumptions include other income and expense net of approximately $35 million expense for the June quarter and expect this to be roughly consistent throughout the calendar year.

Speaker Change: Memory is expected to be approximately 31% of semiconductor process control systems revenue to semiconductor customers.

Speaker Change: Within memory DRAM is expected to be about 76% of the revenue mix and then the remaining 24%.

Brand: The effective tax rate assumption for June is 13, 5%.

Brand: Beginning in the September quarter, which is the first quarter of our fiscal year, our effective tax rate will reflect the adoption of global taxation pillar, two which is expected to increase the rate to approximately 14% in the second half of the calendar year.

Speaker Change: Gross margin is forecasted to be 63% plus or minus one percentage point inclusive of the impact of recently announced global tariffs.

Speaker Change: This estimate as to the best of our ability given the complexity and fluidity of the regulations, how they align with our global processes.

Brand: For the June quarter, GAAP diluted EPS is expected to be $8 28.

Brand: Plus or minus <unk> 78.

Speaker Change: Consistent with this assessment, we expect global tariffs to have a roughly 100 basis point headwind to gross margin per quarter, assuming relatively stable quarterly revenue expectations for the remainder of the calendar year.

Brand: And non-GAAP diluted EPS of $8 53.

Brand: Plus or minus 78 cents.

Brand: A quick update on our remaining performance obligations or <unk> disclosure in our SEC filings.

Speaker Change: Of course, this environment is changing rapidly and we will continue our assessment and evaluate mitigation opportunities within our operational processes and pricing strategies.

Brand: As a reminder, <unk> is primarily a systems only metric for KLA.

Brand: Do not report RP O during earnings as it is disclosed on our subsequently filed SEC 10-Q, and 10-K reports.

Speaker Change: For calendar 2025 based on results for the March quarter guidance for the June quarter, and our expectations for business mix across systems and services systems product mix and factory utilization do you expect gross margins for the year to be approximately 62, 5% plus or minus 50 basis points.

Brand: There is significant divergence in practice.

Brand: Companies have different definitions and disclosure practices on RPM.

Brand: The lack of consistency among companies reporting can be a source of confusion for investors and make the disclosure difficult to compare across industries and peer companies.

Speaker Change: Other model assumptions include other income and expense net of approximately $35 million expense for the June quarter and expect this to be roughly consistent throughout the calendar year.

Brand: We will continue to provide our backlog balance annually in our 10-K report.

Brand: We will update our quarterly disclosures for RPM, starting in the first quarter of fiscal 2026.

Brand: Which is the quarter ending September 32025.

Speaker Change: The effective tax rate assumption for June is 13, 5% bigger.

Brand: It can be a transaction price for contracts and have not yet been recognized as revenue.

Speaker Change: Beginning in the September quarter, which is the first quarter of our fiscal year, our effective tax rate will reflect the adoption of global taxation pillar, two which is expected to increase the rate to approximately 14% from the second half of the calendar year.

Brand: As of the end of the quarter.

Brand: Disclosure of RVO would be consistent with the disclosure of our industry peers.

Brand: In conclusion, our near term revenue guidance continues to point to relative stability around current business levels. Despite the increased uncertainty from changes to global trade.

Speaker Change: So the June quarter, GAAP diluted EPS is expected to be $8 28.

Speaker Change: Plus or minus <unk> 78.

Speaker Change: And non-GAAP diluted EPS of $8 53.

Brand: We are staying close to customers as they also navigate this challenging environment.

Speaker Change: Plus or minus 78 cents.

Brand: We continue to see solid growth in calendar 2025, and expect to outperform the mid single digit WSB growth rate by several points.

Speaker Change: A quick update on our remaining performance obligations, our RP O disclosure in our SEC filings.

Speaker Change: As a reminder, <unk> is primarily a systems only metric for KLA.

Speaker Change: Kelly's focus on delivering a differentiated product portfolio that addresses customers' technology roadmap requirements.

Speaker Change: Do not report RP O during earnings as it is disclosed on our subsequently filed SEC 10-Q, and 10-K reports.

Brand: Drives our longer term relevancy and growth expectations.

Brand: But the KLA operating model guiding our best in class execution, Kelly's focus on implementing our strategic objectives designed to drive outperformance.

Speaker Change: There is significant divergence in practice.

Speaker Change: Companies have different definitions and disclosure practices on RP O.

Speaker Change: This lack of consistency among companies reporting can be a source of confusion for investors and make the disclosure difficult to compare across industries and peer companies.

Daily focus on customer success innovative solutions and operational excellence driving industry, leading financial performance allows us to return capital consistent.

Speaker Change: We will continue to provide our backlog balance annually in our 10-K report.

Brand: That concludes the prepared remarks, let's begin the Q&A.

Speaker Change: We will update our quarterly disclosures for <unk>, starting in the first quarter of fiscal 2026, which.

Brand: Thank you Brian operator can you please provide the instructions again.

Speaker Change: Which is the quarter ending September 32025.

Again the Q.

Speaker Change: Thank you at this time, if you'd like to ask a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue. You may do so by pressing star two we remind you to please UN mute your line when introduced and if possible pick up your handset for optimal sound quality and the interest of time, we ask that you. Please limit yourself to one question and one follow up.

Speaker Change: The transaction price for contracts and have not yet been recognized as revenue.

Speaker Change: As of the end of the quarter. This disclosure of <unk> would be consistent with the disclosure of our industry peers.

Speaker Change: In conclusion, our near term revenue guidance continues to point to relative stability around current business levels. Despite the increased uncertainty from changes to global trade.

Speaker Change: We will now take our first question from Harlan sur with Jpmorgan. Please go ahead.

Speaker Change: We are staying close to customers as they also navigate this challenging environment.

Harlan Sur: Good afternoon, and great job on another solid quarter of execution displayed.

Speaker Change: We continue to see solid growth in calendar 2025, and expect to outperform the mid single digit WSB growth rate by several points.

Speaker Change: Display.

New that the team is still going to drive 3 billion plus per quarter throughout the year.

Speaker Change: Kelly's focus on delivering a differentiated product portfolio that addresses customers' technology roadmap requirements and drives our longer term relevancy and growth expectations.

Speaker Change: Youre holding your Wi Fi view of up mid single digits percentage year over year, you said youre not seeing any major changes to your customer spending plans.

Speaker Change: But the KLA operating model guiding our best in class execution Haley's focused on implementing our strategic objectives designed to drive outperformance.

Speaker Change: You did highlight the 100 basis points hit to gross margin due to tariffs, but at the same time you did also take up your full year guidance on gross margins.

Speaker Change: <unk> focus on customer success.

Speaker Change: But you are postponing analyst day by nine months to a year on the potential.

Native solutions and operational excellence drives and industry, leading financial performance allows us to return capital consistent.

Speaker Change: Trade and tariff uncertainty I understand the direct impact concerns and we're strong global demand for electronics, but is there also a significant tariff related risk on your equipment and systems pulse, let's say the 90 day with cyclical tariff of Queens I mean, the team I thought was fairly geographically diversified across our manufacturing base.

That concludes our prepared remarks, let's begin the Q&A.

Speaker Change: Thank you Brian operator can you please provide the instructions in.

Speaker Change: Again the Q.

Speaker Change: So I wouldn't think so maybe just take us through some of the puts and takes around tariffs and trade and your ability to modulate your global manufacturing operations under different tariff related scenarios to minimize the impact on your system is shipping to different geographies.

Speaker Change: We'll now take our first question from Harlan sur with Jpmorgan. Please go ahead.

Speaker Change: Hey, Harlan it's Bren thanks for the comment there's a lot in there. The first thing I'll say is our decision to push the Investor day. It was really just related to the current uncertainty obviously global trade.

Harlan Sur: Good afternoon, and great job on another solid quarter of execution.

Speaker Change: Despite the.

Speaker Change: Are you that the team is still going to drive 3 billion plus per quarter throughout the year you.

Speaker Change: The structure and construct that's being discussed today is really unprecedented and we'll have to see how that settles out I did talk a little bit about our our view on on tariff impact of KLA and of course, that's very fluid and could change, but we do see a little bit of a headwind in our gross margin.

Speaker Change: We're holding nwfp view.

Speaker Change: Mid single digits percentage year over year, you are not seeing any major changes to your customer spending plans.

Speaker Change: You did highlight the 100 basis points hit to gross margin due to tariffs, but at the same time you did also take up your full year guidance on gross margins.

Speaker Change: As it relates to mostly our service business and having such a strong contract stream, particularly in places like China, where you have some reciprocal impact of parts going in that can have an effect on our business. So you have that exposure. You also have whatever we bring into the U S factory. So some of that has been.

Speaker Change: But you are postponing analyst day by nine months to a year on the potential.

Speaker Change: Trade and tariff uncertainty I understand the direct impact concerns and with strong global demand for electronics, but is there also a significant tariff related risk on your equipment and systems pulse, let's say the 90 day with cyclical tariff for creative team I thought was fairly geographically diversified across our manufacturing base.

Speaker Change: Mitigated through different exemptions and so I think there is some fluidity on that so we'll see how that plays out over time.

Speaker Change: And there is also some mitigation steps we can take from a process point of view in terms of how we manage and our network move parts around the world and so on obviously when you do things like that you are going to focus on.

Speaker Change: What's the right thing for the business operationally and certainly in a higher structural tariff environment, you might consider doing things, where our return on investment might be higher. So we have to go and evaluate those things. We're looking at that we're also looking at longer term pricing strategies as well in terms of mitigation effects. So when we thought about the Investor day, We said look there is theirs.

Speaker Change: Hey, Harlan it's Bren. Thanks for the comments there is a lot in there. The first thing I'll say is our decision to push the Investor day. It was really just related to the current uncertainty obviously global trade.

Speaker Change: Tariff concern what it does to in terms of second order impact of the macro.

Some unknowns associated with that so we thought it was prudent for us to just move it into early 'twenty six where we feel like we hopefully have a more stable environment. So we're looking forward to it we're pretty excited about what's happening in the business you pointed out a lot of.

Speaker Change: Our strength in our results and what we've seen over the last few years in terms of our relative growth in share of WSB. So we think we're pretty well positioned.

Speaker Change: <unk> and core Wi Fi, but also opportunities in advanced packaging.

Speaker Change: And our service business performed extremely well despite some of the challenges with export controls. So we think the business has been a pretty good place and we're just reacting to.

Speaker Change: Mitigated through different exemptions and so I think there is some fluidity on that so we'll see how that plays out over time.

Speaker Change: And Theres also some mitigation steps, we can take from a process point of view in terms of how we manage and our network move parts around the world and so on obviously when you do things like that Youre going to focus on.

Speaker Change: To different locations I'd say again that you start with where it makes sense to do things operationally, whether it's cost or execution talent.

Speaker Change: And so on and then you optimize as it relates to taxes or incentives or are other potential regulations. So those things can change and so you have to make sure that the operational considerations are first and foremost. So we have a global footprint will assess the situation and we will do what we think is right for the business over time.

Speaker Change: Tariff concern what it does to in terms of second order impact of the macro.

Speaker Change: Some unknowns associated with that so we thought it was prudent for us to just move it into early 'twenty six where we feel like we hopefully have a more stable environment. So we're looking forward to it we're pretty excited about what's happening in the business you pointed out a lot of.

Speaker Change: And that's pretty much all I have to say about it.

Speaker Change: I appreciate that and then maybe on a bright note.

Speaker Change: Because you mentioned in your shareholder letter you know calendar 'twenty for sure rankings are out for process control.

Speaker Change: Our strength in our results and what we've seen over the last few years in terms of our relative growth in share of WSB. So we think we're pretty well positioned.

Speaker Change: The team and the process control segment outgrew overall <unk> last year and despite your dominant number one position euro six five times larger than your number two competitor in the space, you're still gaining 50 basis points of share.

Speaker Change: Both in core Wi Fi, but also opportunities in advanced packaging and our service business performing extremely well. Despite some of the challenges with export controls. So we think the business is in a pretty good place and we're just reacting to.

Speaker Change: Strong number one position I think by my colleagues in five out of the six major sub segments within the process control I think the one area, where it was a bit of a surprise, where you've made significant progress with an E beam pattern wafer inspection and.

Speaker Change: Global macro environment, that's changed a lot in the last three months as it relates to the footprint, we have a pretty diverse footprint around the world. We've established over the past two decades, we've moved products to different locations I'd say again that you start with where it makes sense to do things operationally whether it's.

Speaker Change: Despite optical continuing to dominate at our seven X larger market versus he being the KLA team did double their E beam inspection revenues last year, you gained about 700 basis points of share. There. So the team's strategy has always been to introduce new solutions. When the market is ready to adopt so what's driving.

Speaker Change: Coster execution talent.

Speaker Change: And so on and then you optimize as it relates to taxes or incentives or are other potential regulation. So those things can change and so you have to make sure that the operational considerations are first and foremost. So we have a global footprint will assess the situation and we'll do what we think is right for the business over time.

Speaker Change: The incremental opportunity in E beam.

Speaker Change: How is the KLA is eating platform sort of differentiate it.

Alright, Thanks, Harlan, yes, I think that the.

Speaker Change: We made an E beam has been long in coming I mean, we've been investing in.

Speaker Change: And that's pretty much all I have to say about it.

Speaker Change: Our platforms for many years in terms of getting the E beam products.

Speaker Change: I appreciate that and then maybe on a bright note.

Speaker Change: Because you mentioned in your shareholder letter you know calendar 'twenty for sure rankings are out for process control.

Speaker Change: To where we thought they could really be supplemental to the optical and work in concert and I think a lot of the.

Speaker Change: The team and the process control segment outgrew overall WOTC last year and despite your dominant number one position you are six five times larger than your number two competitor in the space, you're still gaining 50 basis points of share.

Speaker Change: Success that we're now seeing as we got those platforms to start performing at a high level and customers have now had a chance to evaluate them and I think what we're finding especially on the very high end of the.

Speaker Change: And strong number one position I think by my count in five out of the six major sub segments within the process control I think the one area, where it was a bit of a surprise, where you've made significant progress with an E beam pattern wafer inspection and display.

Speaker Change: The most challenging layers is the most challenging nodes is that people are actually doing both are doing optical MTV months layers.

Speaker Change: And the synergy between the two tools I mean, one of the things we always look for for the interoperability between the two so that you can leverage the strength of E beam with optical so we're seeing those results I think more importantly, our customers are seeing I mean, we felt good about it because as you know often this takes months or quarter.

Speaker Change: Despite optical continuing to dominate at seven X larger market versus he being the KLA team did double their E beam inspection revenues last year, you gained about 700 basis points of share. There. So the team's strategy has always been to introduce new solutions. When the market is ready to adopt so what's driving.

Speaker Change: Orders for customers to really test out.

Speaker Change: The capability. So we're confident that we're on a trajectory where we're going to keep growing that business.

Speaker Change: The incremental opportunity in E beam and how is the <unk> E beam platform sort of differentiated.

Speaker Change: And we're at this point, we're really glad we invested for so many years I think there was a time where we.

Speaker Change: Alright, Thanks, Carlin, yes, I think that the progress we made in E beam has been long in coming I mean, we've been investing in.

Speaker Change: We're spending a lot of money on E beam.

Speaker Change: A long time to get these results, but we're really thrilled with where we are now and our customers are telling us we.

Speaker Change: Our platforms for many years in terms of getting the E beam products.

Speaker Change: We need more and so from that standpoint, we're excited about.

To where we thought they could really be supplemental to the optical and work in concert and I think a lot of the success that we're now seeing as we got those platforms to start performing at a high level and customers have now had a chance to evaluate them and I think what we're finding especially on the very.

Speaker Change: Forecast, we ran into a problem last year, where as we started getting demand we didn't even have capacity. So brandon the ops team have to ramp it up to be able to support it. So we're in good shape with that we're getting great customer feedback and very excited about the progress we've made in EV.

Speaker Change: Yeah. Thanks, Rick Thanks, Brent.

Speaker Change: High end of the.

Thanks and.

Speaker Change: The most challenging layers is the most challenging nodes is that people are actually doing both are doing optical MTV months.

Speaker Change: And we will go next to <unk> Malik with Citi. Please go ahead.

Malik: Thank you for taking my questions I have a question on the services growth I understand it's a bit.

Speaker Change: Yes.

Malik: Pressured this year because of the loss of Fabs in China can you talk about your full year outlook on the services for this year.

Malik: Sure.

Malik: So yes, the the biggest impact we felt it was in Q1.

Malik: Growth quarter to quarter was was fairly limited it was despite losing access to put up our 52nd quarter of year over year growth consecutive quarters year over year growth was I.

Speaker Change: As for customers to really test out there.

Speaker Change: The capability. So we're confident that we're on a trajectory where we're going to keep growing that business and we are.

Malik: I think pretty impressive and the team did very well with that.

Speaker Change: At this point, we're really glad we invested for so many years I think there was a time where.

Malik: Last year and when I think about just the.

Speaker Change: We're spending a lot of money on E beam.

Malik: The semi piece a part of the business now Theres also are our EPC part of service, but semi PC grew in 2024 grew.

Speaker Change: Took a long time to get these results, but we're really thrilled with where we are now and our customers are telling us.

Speaker Change: Need more and so from that standpoint, we're excited about.

Malik: Above trend line about mid mid teens about 16%. This year I think it'll be low double digits. So if you look at in total service growth our expectations for the year are trending right around 10% or so so a little bit below the long term target, but given the impact of those.

Speaker Change: <unk> forecast, we ran into a problem last year, where as we started getting demand we didn't even have capacity. So brandon the ops team have to ramp it up to be able to support it. So we're in good shape with that we are getting great customer feedback and very excited about the progress we've made in evening.

Speaker Change: Yeah, Thanks, Rick Thanks, Brian.

Malik: <unk>, where you lose access to those tools now as those tools are providing or are limited in what kind of supply. They can provide to the broader market to meet demand you would expect some capacity to potentially get added another places that offset that so we would think over the long term that you use.

Speaker Change: Thanks Luca.

Speaker Change: And we will go next to <unk> Malik with Citi. Please go ahead.

Malik: Thank you for taking my questions I have a question on the services group I understand it's a bit pressured this year because of the loss of Fabs in China can you talk about your full year outlook on the services for this year.

Malik: You get that business back as we model our service growth over the long run really based on long term growth expectations for internal in terms of useful life rising asps.

Speaker Change: Sure.

Speaker Change: So yes, the the biggest impact we felt it was in Q1.

Speaker Change: Growth quarter to quarter was was fairly limited it was despite losing access to sub adds to put up our 52nd quarter of year over year growth consecutive quarters of year over year growth was.

Asps, but also growth in semi revenue so.

Malik: Long term, we feel very good about the long term target.

Malik: 2025, we're going to be slightly below at around 10%.

Malik: Great and then just follow up on advanced packaging momentum good to see you guys raising the bar to $850 million and number one market share this year.

Speaker Change: I think pretty impressive and the team did very well with that.

Speaker Change: Last year and when I think about just the semi piece a part of the business now there is also our our EPC part of service, but semi PC grew in 2024 grew.

Malik: Rick if you can just pull a cushion there.

Malik: On your kind of competitive.

Speaker Change: Positioning in advanced packaging.

Speaker Change: Are you stronger on the logic or the cost side or the SPM side and what are your thoughts about hybrid bonding adoption.

Speaker Change: Above trend line about mid mid teens about 16%. This year I think it'll be low double digits. So if you look at in total service growth our expectations for the year are trending right around 10% or so so a little bit below the long term target, but given the impact of those controls where you lose acts.

Speaker Change: So I think I've mentioned this before out of that what we've really seen is the market in many ways has come to us and this really.

Speaker Change: A couple of years ago, mainly around packaging.

Speaker Change: But we've seen pushed for AI applications in just the very the.

Speaker Change: First to those tools now as those tools are providing or are limited in what kind of supply. They can provide to the broader market to meet demand you would expect some capacity to potentially get added another places that offset that so we would think over the long term that it.

Speaker Change: The high cost of that entire package and therefore, it can support the kind of cost per inspection.

Speaker Change: You Couldnt support on frankly, lower cost solutions in terms of the packages. So these packages as you know if you have a you.

Speaker Change: You get that business back as we model our service growth over the long run really based on long term growth expectations for internal in terms of useful life rising.

Speaker Change: You haven't.

Speaker Change: Large chip combined with a number of memory chips that are stacked the value that is very high. So it's in both inspection and measurement, but also some of the process capability that we haven't S. Pts that's really the differentiation is in the solution and in many ways. What we've done is we've taken the.

Speaker Change: ASP.

Speaker Change: But also growth in semi revenue so.

Speaker Change: Long term, we feel very good about the long term target.

Speaker Change: In 2025, we're going to be slightly below at around 10%.

Speaker Change: Great and then just a follow up.

Speaker Change: On advanced packaging momentum good to see you guys raising the bar to $850 million and number one market share this year.

Speaker Change: <unk>.

Speaker Change: Products that we have for the front end and adapted.

Speaker Change: For the backend and that's what's getting traction now and mainly with <unk> and we've seen a lot of applications driving and we see big growth. So we talked about going to 500 million $8 50, and frankly that growth trend continues and that's the message we're getting from our customers. So one of the.

Speaker Change: Rick if you can just pull a cooked into that based.

Speaker Change: On your kind of competitive positioning in advanced packaging.

Speaker Change: Are you stronger on the logic or the cost side or the HBM side and what are your thoughts about hybrid bonding adoption.

Speaker Change: So I think I mentioned this before but what we've really seen is the market in many ways has come to us and this really kicked off a couple of years ago, mainly around packaging.

Speaker Change: The things that we're still sorting through.

Speaker Change: What the available market is for KLA, because we think about how much of WMC do we talk about but there's also all this investment not necessarily included that in packaging and so we're still sorting through what that looks like and thats going to help us outperform the overall industry.

Speaker Change: But we've seen pushed for AI applications in just the very the.

Speaker Change: The high cost of that entire package and therefore, it can support the kind of cost per inspection.

Speaker Change: So I think one other point on this is to Rick's point about being able to adapt our front end solutions. The backend is there are some incremental engineering requirements as it relates to handling of substrates and so on and different environmental conditions is is that that's a lot of engineering at least from a sensitivity and performance point of view in the systems that has already been.

Speaker Change: Couldnt support on frankly, lower cost solutions in terms of the packages. So these packages as you know if you have a you.

Speaker Change: You haven't.

Speaker Change: Large chip combined with a number of memory chips that are stacked the value of that is very high. So it's in both inspection and measurement, but also some of the process capability that we have an Sps that's really the differentiation is in the solutions and in many ways. What we've done is we've taken the.

Speaker Change: Done so the ability to take that also brings a nice incremental profit stream to the company.

Speaker Change: As we leverage some of the some of that capability and as that market starts to move to the needing more capability. Then you move up the value stack in terms of KLA solutions.

Speaker Change: Products that we have for the front end and adapted for.

Speaker Change: The backend and that's what's getting traction now and mainly with <unk> and we've seen a lot of applications driving and we see big growth. So we talked about going to $500 million 850, and frankly that growth trend continues and that's the message we're getting from our customers. So one of the.

Speaker Change: To address those challenges for our customers. So it's a great opportunity from a growth point of view, but it's also an opportunity from a margin point of view something that was a bit of a headwind given the nature of what was required that turns into a tailwind is as customers demand more capability from us. So we're really excited about that opportunity moving forward.

Speaker Change: Things that we're still sorting through what the.

Speaker Change: Particularly given the growth rates of advanced wafer level packaging is likely faster than overall Wi Fi growth over the next several years.

Speaker Change: Billable market is for KLA, because we think about.

Speaker Change: How much of WMC do we talk about but there's also all this investment not necessarily included that in packaging and so we're still sorting through what that looks like and thats going to help us outperform the overall industry.

Speaker Change: Thank you.

Speaker Change: Thank you and next we'll go to Vivek Arya with Bank of America Securities. Please go ahead.

Speaker Change: Thank you I had the near and longer term question on the near term.

Speaker Change: One other point on this is to Rick's point about being able to adapt our front end solutions. The backend is there are some incremental engineering requirements as it relates to handling of substrate.

Speaker Change: I saw that China, I think came in at about 26%.

Speaker Change: March.

Speaker Change: So on and different environmental conditions is is that that's a lot of engineering at least from a sensitivity and performance point of view in the systems that has already been done so the ability to take that also brings a nice incremental.

Speaker Change: I think you had estimated closer to 29, so does it go up.

Speaker Change: And then kind of a flattish top line here and related to that the 500 million impact that you had mentioned for the year. How much did you see in calendar Q1, how much more is.

Speaker Change: Profit stream to the company as we leverage some of the some of that capability and as that market starts to move to needing more capability. Then you move up the value stack in terms of Kla's solutions.

Speaker Change: Left to go.

Speaker Change: <unk> on the map, where China and Europe.

Speaker Change: We spent some time on it last quarter.

Speaker Change: And we thought that for 2025, the business would be somewhere overall, our percent of business in China would be somewhere.

Speaker Change: High <unk>, maybe 30% and our view is still consistent with that now I think it'll be lumpy over the course of the year in terms of what shows up in any given quarter. So it was 26% in Q1.

Speaker Change: We'll see I'm not going to guide Q2, we'll see what ends up coming in from a revenue recognition point of view, but over the course of the year right around 30% and I think when you look at that relative to our expectations for the year with some of the soft guidance. We've given about second half revenue then that translates into China being down about $15.

Speaker Change: Particularly given the growth rates of advanced wafer level packaging is likely faster than overall Wi Fi growth over the next several years.

Speaker Change: Thank you.

Speaker Change: Thank you and next we'll go to Vivek Arya with Bank of America Securities. Please go ahead.

Vivek Arya: Thank you I had the near and longer term question on the near term I saw that China I think came in at about 26% in March.

Speaker Change: 20% or so for the year or for the overall company as far as the export control impact, we really size that based on the impact that we add through the month of December and some of the juggling of shipments as it related to certain other customers that might have taken tools through 300.

Vivek Arya: I think you had estimated closer to 29, so does it go up.

Vivek Arya: And then kind of a flattish top line.

Vivek Arya: And related to that.

Vivek Arya: 500 million impact that you had mentioned for the year how much did you see in calendar Q1, how much more is left.

2025, and I didn't really focus on what happened in given quarters, our business is pretty fluid so things move around.

Vivek Arya: Two to go.

Speaker Change: Our view of the impact is still consistent with what I said last quarter at 500 million of revenue plus or minus 100 million with roughly 70% of that pain.

Vivek Arya: Vivek on the map, where China and Youre right. We spent some time on it last quarter.

Vivek Arya: And we thought that for 2025, the business would be somewhere overall, our percent of business in China would be somewhere.

Speaker Change: Six 5% to 70% of that being systems.

Speaker Change: Still the same.

Speaker Change: But I'm not going to bridge back to what happened in Q1 versus other quarters, we've looked at that.

Vivek Arya: <unk>, maybe 30% and our view is still consistent with that now I think it'll be lumpy over the course of the year in terms of what shows up in any given quarter. So it was 26% in Q1, it will see I'm not going to guide Q2, we'll see what ends up coming in from a revenue recognition point of view, but over the core.

Speaker Change: The total impact over the next you know at.

Speaker Change: At the time, roughly four plus quarters, and that's how we size the impact.

Speaker Change: Alright and for my.

Speaker Change: A follow up I know a little early but I'm curious like what what's on your dashboard to gauge whether 2026 W. A fee could be up or down.

Vivek Arya: For the year right around 30% and I think when you look at that relative to our expectations for the year with some of the soft guidance. We've given about second half revenue then that translates into China being down about 15% to 20% or so for the year or for the overall company as far as the export control impact.

Speaker Change: Non flat how does China figured into it in terms of opportunity and just because a lot of long term investors in N K L. A they're always looking out.

Speaker Change: So how would you want them to think about whats your opportunity set is in 26. Thank you.

Vivek Arya: We really size that based on the impact that we add through the month of December.

Speaker Change: Right So <unk>.

Speaker Change: Six for US right now, but that was obviously a big question earlier this year as we thought about some of the macro uncertainty.

Vivek Arya: And some of the juggling of shipments as it related to certain other customers that might have taken tools through through 2025, and I didn't really focus on what happened in given quarters, our business is pretty fluid so things move around.

Speaker Change: The feedback we're getting for the AI build out I think it's really important for everybody to understand what our customers are telling us is that they are still building for capacity that is less than the stated demand out there for capability. So if you think about how many wafer starts are being started.

Vivek Arya: Our view of the impact is still consistent with what I said last quarter at 500 million of revenue plus or minus $100 million with roughly 70% of that being <unk> or <unk>.

Speaker Change: And what the implications on some of the Hyperscale or Capex would be it's still understated and so we think that that will continue to grow and that's the feedback, we're giving and part of the thing Thats So hard to handicap.

Vivek Arya: 65% to 70% of that being systems.

Vivek Arya: Still the same.

Vivek Arya: But I'm not going to bridge back to what happened in Q1 versus other quarters, we've looked at that.

Vivek Arya: The total impact over the next you know.

Speaker Change: How does this get impacted by some of the macro stuff. So the driver for US we said at the beginning of the year clearly was bleeding edge and its the three things we talked about its advanced logic in support of all the design starts the bigger die everything in support of AI, whether it's the training or the inference chips and more custom silicon and then.

Vivek Arya: At the time, roughly four plus quarters, and that's how we size the impact.

Vivek Arya: Alright and for my.

Vivek Arya: Follow up I know a little early but I'm curious like what what's on your dashboard to gauge whether 'twenty 'twenty six WMC would be up down down flat, how does China figured into it in terms of opportunity and that's because there's a lot of long term investors and clearly theyre always looking out.

Speaker Change: The HBM and there are multiple players in that and that's a more inspection intense technology than we've had for memory for a long time and then this really strong growth in packaging I think we're still early days and all of those areas in terms of the amount of silicon that's being brought online. So I think in support of that.

Vivek Arya: How would you want them to think about what's your opportunity set is in 26. Thank you.

Vivek Arya: Right so.

Vivek Arya: Six for US right now, but that was obviously a big question earlier this year as we thought about some of the macro uncertainty.

Speaker Change: We're going to see continued growth at the leading edge, primarily driving those other sectors. The thing thats been slow has been we just haven't seen much come back in terms of handsets or Pcs and those are the markets that as you know consume a lot of the silicon. So I think we'll know a lot more about 26.

Vivek Arya: The feedback we're getting for the AI buildup I think it's really important for everybody to understand what our customers are telling us is that they're still building for capacity that is less than the stated demand out there for capability. So if you think about how many wafer starts are being started.

Speaker Change: This build out for 25 continues but the conversations we're having right now absent any other macro Joel I think looks pretty encouraging in terms of what the overall forecast looks like as we go out and really as we go out towards 2030 and so that's the we think we're early.

Vivek Arya: And what the implications on some of the Hyperscale on Capex would be it's still understated and so we think that that will continue to grow and that's the feedback, we're giving and part of the thing Thats So hard to handicap. This.

Vivek Arya: How does this get impacted by some of the macro stuff. So the driver for US we said at the beginning of the year clearly was bleeding edge and its the three things we talked about is the advanced logic in support of all the design starts the bigger die everything in support of AI, whether it's the training or the inference chips.

Speaker Change: On and today as you know aftermarket there were some hyperscale or is that announced continued and sometimes even increased investment in the AI infrastructure. So we think we're in a great position right now.

Speaker Change: Thank you. Thank you very much.

Speaker Change: We'll go next to Joe <unk> with Wells Fargo. Please go ahead.

Vivek Arya: Okay.

Vivek Arya: Yeah.

Speaker Change: Yes, thanks for taking the question, maybe just to follow up on that Rick.

Vivek Arya: Yes.

Vivek Arya: Okay.

Vivek Arya: Inspection.

Speaker Change: Is cleaner space, a potential kind of gating factor as you look into 'twenty six or how do you think about that aspect of it.

Vivek Arya: Okay.

Vivek Arya: Great.

Vivek Arya: Definitely.

Speaker Change: No I don't think so I mean, I think the question is going to be.

Vivek Arya: Yes.

Vivek Arya: Okay.

Speaker Change: I think they can build and depending on where they're building they can get the <unk>.

Vivek Arya: Thank you.

Vivek Arya: Okay.

Vivek Arya: Yes.

Speaker Change: Charles up and get them positioned to invest so no I don't think for the plans that we see I mean, I say I've always felt that.

Vivek Arya: Hey.

Vivek Arya: Okay.

Vivek Arya: Alright.

Vivek Arya: Thank you.

Okay.

Speaker Change: The connection that one would draw from all of the Hyperscale and the concern that people had about is AI overheated.

Vivek Arya: Yes.

Vivek Arya: Okay.

Vivek Arya: Alright.

Vivek Arya: Okay.

Okay.

Speaker Change: Would look to the silicon at the leading edge being the governing factor and the good news on that is I don't think theyre going to overbuild.

Vivek Arya: Yes.

Vivek Arya: Got it.

Vivek Arya: Yes.

And then the good news is theres going to be steady growth in the next several years to support it. So that's why we're a little more sanguine about.

Vivek Arya: Okay.

Vivek Arya: Great.

Vivek Arya: Okay.

Vivek Arya: Thanks.

Vivek Arya: Alright.

Speaker Change: What are people, saying about the the overbuilt, but I don't think Theres overbuilt and I think there is going to be additional capacity when needed. We are in a lot of conversations with our leading edge customers about that and we have a pretty good insight into what their needs are going to be down to specific products and in some areas. Just mentioned the E beam one earlier, we're getting heads up.

Vivek Arya: Thanks.

Vivek Arya: Okay.

Yes.

Vivek Arya: Okay.

Vivek Arya: Thank you.

Vivek Arya: No.

Vivek Arya: Yes.

Vivek Arya: Okay.

Vivek Arya: It seems like Wells Fargo. Please go ahead.

We got to add capacity and for US It takes a while to be able to support that so I think I think we're in good shape for as we look out in 2000, the rest of the year and I think as we look into 2006.

Speaker Change: Yes, thanks for taking the question, maybe just to follow up on that Rick.

Speaker Change: It is cleaner space, a potential kind of gating factor as you look into 'twenty six or how do you think about that aspect of it.

Speaker Change: We're feeling pretty excited about the opportunity.

Speaker Change: No I don't think so I mean, I think the question is gonna be.

Speaker Change: That's really helpful and maybe one for Brian just I wanted to kind of better understand just the uptick in the full year gross margin just given the fact that the dynamics around tariffs that you talked about.

Speaker Change: I think they can build and depending on where their melting they can get the shelves up and get them positioned to invest so no I don't think for the plans that we see I mean, I think I've always felt that the.

Speaker Change: Maybe can you just help us understand kind of what's giving you the confidence to increase it.

Speaker Change: Yes.

Speaker Change: The connection that one would draw from all of the Hyperscale and the concern that people had about is AI overheated.

Speaker Change: I appreciate the question Joe.

Speaker Change: I think what we're seeing is from a mix point of view, we've had a bit of a headwind over the last few years as it relates to some of the cost dynamics.

Speaker Change: I would look to the silicon at the leading edge being the governing factor and the good news on that is I don't think they're going to overbuild.

Speaker Change: With the.

Speaker Change: Inflation that we experienced and what that meant to product cost and as we're shipping new platforms the opportunity for KLA generally to reset that as we deliver more.

Speaker Change: And then the good news is theres going to be steady growth in the next several years to support it. So that's why we're a little more sanguine about.

Speaker Change: Favorable cost of ownership to our customers.

But then reset that and the capability that exists in the next generation of product that comes to market. So that's certainly been a factor I mentioned earlier that we're starting to see some scale benefits as it relates to advanced packaging, which we're encouraged by as well. So there's a number of factors I'd say most of it is in product mix, but there's been certainly some.

Speaker Change: How much of it.

Speaker Change: Okay.

Speaker Change: It takes a while.

Speaker Change: Some opportunities for us to to deal with some of the cost pressures we felt over the last few years. So yes, we've got the tariff impact, but despite that I feel that we are trending more or less in line with this this expectation.

Speaker Change: I think.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Okay.

Margin somewhere around 62, 5% as we finished the year plus.

Speaker Change: Okay.

Speaker Change: Take care.

Speaker Change: Plus or minus 50 basis points. So 63 in March and then the guidance, 6% to three plus or minus one for June.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: And then as you look forward, we're going to be somewhere even with a full quarter of potential tariff impact is roughly 100 basis points, we're still somewhere in and around that 62% range given expectations for revenue levels that are relatively stable.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Thanks, sure I'll take it.

Speaker Change: Yes.

Speaker Change: Take our next question from Tim Shoals Me lender with Redburn Atlantic. Please go ahead.

Speaker Change: Yes.

Speaker Change: Okay.

Tim Shoals: Yes, hi.

Speaker Change: Okay.

Tim Shoals: Much for taking my questions, maybe the first one just on the sequential.

Speaker Change: Right.

Speaker Change: Q on Q could you just help us maybe with a bit of the gross profit bridge I'm pretty flat revenues, but a really decent impact on gross margin maybe you could just go back.

Speaker Change: Okay.

Speaker Change: On the next generation of product that comes to market. So that's certainly been a factor I mentioned earlier that we're starting to see some scale benefits as it relates to advanced packaging, which we're encouraged by as well. So there's a number of factors I'd say most of it is in product mix, but there's been certainly some some opportunities for us to to deal with.

Tim Shoals: Some of the moving costs that'd be really helpful. Thank you.

Tim Shoals: Well I think the gross margins roughly flat.

Tim Shoals: As you look at the cars were 63% and then were guiding in March and we're guiding 63% at a roughly flat revenue number so.

Speaker Change: Some of the cost pressures, we felt over the last few years. So yes, we've got the tariff impact, but despite that I feel that we are trending more or less in line with this you know this.

Tim Shoals: So there's some puts and takes.

Tim Shoals: There's some puts and takes in there as it relates to the different products that are revenue in the quarter, but in general our expectation is pretty consistent for the company overall.

Speaker Change: Expectations.

Speaker Change: Arjun somewhere around 62, 5% as we finished the year plus or minus 50 basis points. So 63 in March and then the guidance, 6% to three plus or minus one for June.

Tim Shoals: Yes.

Tim Shoals: Thinking more about the March quarter compared to the December quarter.

Tim Shoals: Oh, Oh March compared to December okay.

Tim Shoals: Well that's a great question. So so if you look at March overall.

Tim Shoals: It was mostly related to you know typically for KLA, our biggest issues tend to be really around the product mix of our business.

Speaker Change: Thank you.

Tim Shoals: And so we had some some higher value systems not every product in KLA portfolio carry the same margin so the margin.

Speaker Change: Okay.

Tim Shoals: Was more weighted to some of our higher value products.

Speaker Change: Yes.

Speaker Change: Taking my questions maybe the first one just on the sequential.

Tim Shoals: Okay.

Tim Shoals: And maybe just as a quick follow up.

Speaker Change: <unk> could you just help us maybe with a bit of it.

Tim Shoals: If a coded correctly you talked about the service business basically.

Speaker Change: Gross profit bridge I'm pretty flat revenues, but have a pretty decent impact on gross margin maybe.

Tim Shoals: Sort of source of potential.

Tim Shoals: Tariff impact to margins, maybe if you could just give us a bit of color about that.

Speaker Change: Maybe you could just peel back some of the moving post that'd be really helpful. Thank you.

Tim Shoals: Maybe just kind of how youre thinking about how you might respond to that pressure kind of on a medium to longer term basis. Thank you.

Speaker Change: Well I think the gross margins roughly flat.

Speaker Change: As you look at the cars were 63% and then were guiding in March and we're guiding 63% at a roughly flat revenue number.

Tim Shoals: One thing that's unique about Kla's service business is it's a high percentage of our revenue is contract revenue and so we deliver.

Speaker Change: So there's some puts and takes.

Speaker Change: There's some puts and takes in there as it relates to the different products that are revenue in the quarter, but in general our expectation is pretty consistent for the company overall.

Tim Shoals: Customers pay a service by service contract and we support the system and make commitments.

Tim Shoals: For for service and support uptime and performance availability and so on as it relates to those systems. So as part of that then we have to then also ensure that we've got the parts whenever there are failures. So typically in a particular region. We are we are importing those parts to support the tools and given it's a contract stream where.

Speaker Change: Yes, I was thinking more about the march quarter compared to the December quarter.

Speaker Change: Oh, Oh March compared to December okay.

Speaker Change: Well that's a great question. So so if you look at March overall.

Speaker Change: It was mostly related to you know typically for KLA are our biggest issues tend to be really around the product mix of our business and so we had some some higher value systems not every product in KLA portfolio carry the same margin.

Tim Shoals: We're the importer, so potentially carry some exposure depending on where those parts might be coming from.

Tim Shoals: And so there had been some exemptions that have come through as it relates to that particularly as it relates to parts going into China, but thats been where we do have some exposure. So we'll see how that plays out. So that's the aspect that type of service. Obviously, you have tariffs potentially on on parts that are coming from.

Speaker Change: So the margin.

Speaker Change: Was more weighted to some of our higher value products.

Speaker Change: Okay.

Speaker Change: Maybe just as a quick follow up.

Speaker Change: If a coded correctly you talked about the service business basically.

Tim Shoals: Outside the country into the U S. Four four tools that we're building in our factory in the U S. That then ultimately those tools stay in the U S. If they round trip out of the US Then you can then drawback some of that but as it relates to the service piece.

Speaker Change: Being the sort of sources.

Speaker Change: Central.

Speaker Change: Tariff impact the margins, maybe if you could just give us a bit of color about that and maybe just kind of how you're thinking about how you might respond to that pressure kind of on a medium to longer term basis. Thank you.

Tim Shoals: The issue is as I talked about now if you're in a billable situations you could potentially just the.

Speaker Change: One thing Thats unique about KLA surface.

Tim Shoals: The customer because some of the networks type transaction the customer potentially then have to be the importer and then have the tariff liability, but because of the contract structure.

Speaker Change: Hi.

Speaker Change: Okay.

Tim Shoals: A little bit different for us now ultimately over time, if you're ending up with a structural cost increase you have to.

Speaker Change: Just a minute.

Speaker Change: Sure.

Speaker Change: Okay.

Come up with ways to pass costs, along and so there are different pricing strategies that we need to consider in our business based on what the long term implications are.

Speaker Change: Okay.

Speaker Change: Sorry.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: I think in the region.

Tim Shoals: Thank you Tim.

Speaker Change: Yes.

Speaker Change: We'll go next to C J Muse with Cantor Fitzgerald. Please go ahead.

Speaker Change: Okay.

Speaker Change: Yeah. Good afternoon. Thank you for taking the question I guess, Brian just trying to dig into your kind of relatively stable at one <unk>.

Speaker Change: Okay.

Speaker Change: Right.

Speaker Change: So.

Speaker Change: [laughter].

Speaker Change: If revenue outlook.

Speaker Change: Yes.

Speaker Change: Better than some of your peers. So curious is that a function of perhaps less memory exposure.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: So, let's see how that plays out so that's the aspect that type of service. Obviously, you have tariffs potentially on on parts that are coming from.

Speaker Change: Sustainable foundry.

Speaker Change: Sure.

Speaker Change: Greater seasonality from PCB in the second half or.

Speaker Change: Outside the country into the U S. Four four tools that we're building in our factory in the U S. That then ultimately those tools stay in the U S. If they round trip out of the US Then you can then drawback some of that but as it relates to the service piece that the issue is as I talked about during our billable situations you could potentially just the.

Speaker Change: <unk> kind of taken off.

Speaker Change: I guess what are the key drivers of driving sustainability.

Speaker Change: Yeah, I'm, taking a quick look here C J.

Speaker Change: As I look at it it looks on a half to half point of view it looks.

Speaker Change: It's fairly stable I would say memory potentially could tick up a bit.

Speaker Change: The customer because some of the next work stripe transaction the customer potentially then have to be the importer and then have the tariff liability, but because of the contract structure.

Speaker Change: In foundry logic looks like it is.

Speaker Change: Probably make it ticked down a little bit, but I don't see a lot of moving parts here as I look at it moving forward I'd say the percent of businesses at least as it relates to our semiconductor customers, it's pretty pretty consistent.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Great and then I guess as my follow up.

Speaker Change: Yes.

Speaker Change: You highlighted grid growth in advanced packaging, we will learn and ensure that was co ops can you speak to kind of work you're doing on H B M. How youre thinking about insertions.

Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Is it <unk>.

Speaker Change: And.

Speaker Change: Thank you.

Speaker Change: Is there a way to kind of size the opportunity sitting here today or is it too early thank you.

Speaker Change: Thanks.

Speaker Change: Alright.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yes, so I would say that we have certainly seen increasing momentum most of our exposure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: The share that we've seen the share gain we've seen has been on the logic side, but but in high bandwidth memory as the customers are going to increase stacks of chips is creating incremental opportunity. So we feel like we're getting more traction it's driving the need for more capability and we're getting more traction with certain customers. So.

Speaker Change: Okay.

Speaker Change: All right.

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: We think over time as you see a selection process as the customer transitions that creates an opportunity.

Speaker Change: Yes.

Speaker Change: Okay, your memory potentially could tick up a bit.

Speaker Change: For us to compete for some business as you know.

Speaker Change: In foundry logic looks like it is.

Speaker Change: Those customers are running at pretty aggressive.

Speaker Change: Capacity levels in terms of delivering for their customers. So when you are in that environment, you don't necessarily want to change. It. So I think we have to wait for a selection as you move into higher stacks and then obviously ultimately as you think about technology changes the hybrid bonding down the road creates another incremental opportunity. So we're seeing increasing momentum on the memory side.

Speaker Change: Great and then I guess as my follow up.

Speaker Change: You highlighted grid growth in advanced packaging, we will want to ensure that <unk> can you speak to kind of work you're doing on H B M. How youre thinking about insertions.

Speaker Change: And we'd expect that to continue as we go through really you know as we continue through this year and into next year.

Speaker Change: It was at ACM for 40%.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Next we'll go to Krish Shankar with TD Cowen. Please go ahead.

Speaker Change: Okay.

Speaker Change: Alright, thank you.

Krish Shankar: Yeah, Hi, Thanks for taking my question two of them first one brand and you know when I look at the U S revenues is a pure Q, but the dollar figure is still pretty low.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thanks.

Krish Shankar: And I'm, just trying to reconcile that with what TSMC said about enlisting in Arizona.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Right.

Krish Shankar: Do you think the Broncos control being an early cyclical some of the early purchases.

Speaker Change: Okay.

Speaker Change: Yeah.

Krish Shankar: <unk> done what do you think there's still potential for the rest of the year I wanted to follow up.

Speaker Change: Thank you.

Speaker Change: Okay.

Krish Shankar: Most of our business with when their video customers been more into centric so that isn't.

Speaker Change: Okay.

Krish Shankar: Most of that is going to Taiwan, and not into Arizona, Arizona has been a slow a slow investment cycle over the last few years. So theres been a level of business that we've had that's been kind of low levels lower levels consistently over over the course of a longer period of time, but given the focus on.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: You may now are running at pretty aggressive.

Speaker Change: Capacity levels in terms of delivering for their customers. So.

Speaker Change: Are you in that environment, you don't necessarily want to change anything. So I think we have to wait for a selection as you move into higher stacks and then obviously ultimately as you think about technology changes the hybrid bonding down the road creates another incremental opportunity. So we're seeing increasing momentum on the memory side.

Krish Shankar: The drive on into that's driving most of our business into Taiwan.

Krish Shankar: Got it got it and then a quick follow up on the toddlers and thanks for the color on the <unk>, but from the data.

Krish Shankar: I understand there's a lot of moving parts, but I'm just wondering if it ever comes to it can you meet non U as demand from your non U S manufacturing facilities.

Speaker Change: And we'd expect that to continue as we go through really you know as we continued into this year and into next year.

Speaker Change: Thank you.

Krish Shankar: And you as demand from U S. A.

Speaker Change: Next we'll go to Krish Shankar with TD Cowen. Please go ahead.

Krish Shankar: Or is it not as simple as that.

Krish Shankar: As it relates to service.

Krish Shankar: Yeah, Hi, Thanks for taking my question I had two of them first one brand and you know when I look at the U S revenues is a pure Q, but the dollar figure is still pretty low.

Krish Shankar: As it relates to systems.

Krish Shankar: Well look as I said in the first question I think it was carlin's question at the beginning.

Krish Shankar: And I'm, just trying to reconcile that with what TSMC said about enlisting in Arizona.

Krish Shankar: We have a global footprint and we've established it over over the last couple of decades.

Krish Shankar: Do you think the Broncos control being an only cyclical and some of the early posters or somebody's gonna have done what do you think there's still potential for the rest of the year I wanted to follow up.

Krish Shankar: We move products around the world, depending on what makes sense operationally for us.

Krish Shankar: You can't do anything in a short period of time and a longer period of time you'd have to consider I think it'd be very hard for us to have complete duplicative capability across factories, we certainly arent in a position necessarily to do that today, but could do over time increase your flexibility you would have to make some investments to be able to do.

Krish Shankar: Most of our business with when their video customers been more into centric.

So that isn't.

Krish Shankar: That you potentially could do those things, but you have to be comfortable that you are facing an environment that is not going to change because of the significant investments you have to make.

Krish Shankar: The drive on into that's driving most of our business into Taiwan.

Speaker Change: Got it. Thank you very much that's very helpful.

Krish Shankar: Got it got it and then a quick follow up on the toddlers and thanks for the color on the <unk>, but from the Dod is.

Speaker Change: Next we'll go to Tom O'malley with Barclays. Please go ahead.

Krish Shankar: I understand a lot of moving parts, but I'm just wondering if it ever comes to it can you meet non U as demand from your non U S manufacturing facilities and view as demand from U S.

Tom O'malley: Hey, guys. Thanks for taking my questions. My first one just in regards to C. J's question earlier, just on the second half and whether it's weighted memory or foundry logic and it sounded like memory was up a little bit from geography, maybe down a little bit.

Krish Shankar: Is it not as simple as that.

Tom O'malley: You look at the mix of memory. Some of your peers have already talked about like a sharper falloff in the second half when it comes to Nandan I fully appreciate that your business is very small there but is the correct interpretation of that that the DRAM side gets a little bit stronger and you see a little weakness on it or are you seeing anything different just given the pick up or.

Krish Shankar:

Krish Shankar: As it relates to service.

Krish Shankar: As it relates to systems.

Krish Shankar: Well look as I said in the first question I think it was carlin's question at the beginning we.

Krish Shankar: We have a global footprint and we've established it over over the last couple of decades.

Tom O'malley: The timing of your NAND business.

Krish Shankar: We move products around the world, depending on what makes sense operationally for us.

Tom O'malley: I'm, saying the DRAM is the biggest driver of what Youre seeing in NAND is more technology investments and some upgrades. So theres some activity there, but its fairly limited most of what's driving our businesses as investments supporting high bandwidth memory.

Tom O'malley: Helpful. And then I think it's obviously a.

Have you guys to go out there and kind of talk about tariff impacts already well. Many of your peers have kind of said Hey don't look at the second half and you guys are being pretty prescriptive when it comes to the gross margin. So.

Krish Shankar: Okay.

Krish Shankar: Yeah.

Krish Shankar: Okay.

Krish Shankar: Thank you.

Tom O'malley: Maybe it's helpful can you guys talk about.

Matt.

Tom O'malley: What you guys did in order to get to that 100 basis points per quarter, but did you look at different facilities that you take everything as a whole like any kind of description or color as to how you got to that number would be super helpful. Thank you.

Krish Shankar: Okay.

Krish Shankar: Thank you.

Krish Shankar: Okay.

Krish Shankar: Sure.

Krish Shankar: Okay.

Tom O'malley: Well, so Tom what I didn't do was.

Krish Shankar: Okay.

Krish Shankar: Yeah.

Krish Shankar: [noise].

Tom O'malley: We had to do was really just drill through all of our business right and there's a fair amount of unknowns, what I didn't say early on was the various caveat right that as things could change and certainly we're in a pretty fluid dynamic and who knows something could change and a <unk>.

Krish Shankar: Sure.

Krish Shankar: And when I say that memory or foundry logic and it sounded like memory was up a little bit from Joseph maybe down a little bit.

Speaker Change: Look at the mix of memory. Some of your peers have already talked about like a sharper falloff in the second half when it comes to Nandan I fully appreciate that your business is very small there but is the correct interpretation of that that the DRAM side gets a little bit stronger and you see a little weakness on it or are you seeing anything different just given the pick up or.

Tom O'malley: Short period of time, we'll see what happens in 90 days and so on.

Tom O'malley: But we know what we're shipping what we're bringing in with our our build plans and given our lead times, what's coming into our factories around the world. Obviously, we have visibility into the contract streams from a service point of view, given how unique that businesses in the industry and how our customers our percent of businesses that's contract basis.

Krish Shankar: Timing of your NAND business.

Krish Shankar: I will say that DRAM is the biggest driver of what Youre seeing in NAND is more technology investments and some upgrades. So theres some activity there, but its fairly limited most of what's driving our businesses.

Tom O'malley: Much higher than what other companies might have and.

Krish Shankar: Divestments supported.

Tom O'malley: We'll see I said roughly around 100 basis points, we'll see if things change, but at the end of the day I can look at what's in service I can look at what's in the factories. There are some potential unknowns as you think about what what might come from suppliers, but we think we we.

Krish Shankar: Okay.

Okay.

Krish Shankar: Thank you.

Krish Shankar: Okay.

Krish Shankar: [noise] perspective.

Krish Shankar: Okay.

Tom O'malley: Handicap that as best we could and then Theres, obviously mitigation steps that will take over time too.

Krish Shankar: Thank you.

Krish Shankar: Yes.

Speaker Change: Okay points per quarter like if you look at different facilities that you take everything as a whole like any kind of description or color as to how you got to that number would be super helpful. Thank you.

To offset whatever whatever pressures we might feel so.

Tom O'malley: Let me now unless we can do because it reports the brand, but we have a really strong logistics team and the same team that got us through COVID-19 without missing deliveries and without lifting guidance was the team that drilled through all of this so I would say that brands team was all over that.

Speaker Change: Well, so Tom what I didn't do was.

Speaker Change: Well, we had to do was really just drilled through all of our business right and there's a fair amount of unknowns, what I didn't say early on was the various caveat right that as things change and certainly we're in a pretty fluid dynamic and who knows something could change and a <unk>.

Tom O'malley: And Thats why we were able to assess the impact and then change even during the week, we are doing it or a few days.

Speaker Change: Short period of time, we'll see what happens in 90 days and so on.

Tom O'malley: The rules change so.

Speaker Change: But we know what we're shipping what we're bringing in with our our build plans and given our lead times, what's coming into our factories around the world. Obviously, we have visibility into the contracts.

Tom O'malley: I don't think it was luck and we're not guessing we did a lot of detailed work the assumptions could change over time and that's part of the concern we have about.

Tom O'malley: Having everybody together for an Investor day is something could change the morning of that day, and so we're kind of waiting for things to settle out but it was a lot of hard work, we know where our parts come we understand the rules and we applied them. That's how we got there.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [laughter].

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yes.

Tom O'malley: Thank you Tom.

Speaker Change: Okay.

Speaker Change: Next we'll go to <unk> <unk> with Raymond James. Please go ahead.

Speaker Change: Right.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: The factory there are some potential unknowns as you think about what what might come from suppliers, but we think we.

Tom O'malley: Thank you.

Speaker Change: Sorry, guys I have a follow up.

Speaker Change: The second half comments that you made.

Speaker Change: Particular about the foundry logic.

Speaker Change: Handicap that as best we could and then Theres, obviously mitigation steps that will take over time too.

Speaker Change: I think the comment was that it's going to tick down a little bit.

Speaker Change: No.

Speaker Change: It was down a bit and then youre guiding kind of flattish for this quarter.

Speaker Change: To offset whatever whatever pressures we might feel so.

I'm guessing most of it is China I'm, just curious as to you.

Speaker Change: And as we can do it.

Speaker Change: Because it reports the brand, but we have a really strong logistics team and the same team that got us through COVID-19 without missing deliveries and without lifting guidance was the team that drilled through all of this so I would say that brands team was all over that.

Speaker Change: How you were expecting them to demand to kind of fair and if we can talk about where we are in the N. Two cycle and then I guess as we go into next year. When do we expect a 1.4 to kind of kick in.

Speaker Change: Yeah.

Speaker Change: And Thats why we were able to assess the impact and then change even during the week, we are doing it or a few days as the rules change so.

Speaker Change: So I think around into the investment cycle, we're seeing this year looks pretty strong.

Speaker Change: And we feel pretty good about its continuation of next year and our customers are going to add.

Speaker Change: I don't think it was luck and we're not guessing we did a lot of detailed work the assumptions could change over time and that's part of the concern we have about.

Speaker Change: This first year somewhere around 40 to 50, K wafer starts and we think that you'll.

Speaker Change: Youll see.

Speaker Change: At least a doubling of that into next year, maybe more so so we feel pretty good about some of the moving parts.

Speaker Change: Yeah.

Speaker Change: Thanks, Dave.

Speaker Change: Okay.

Speaker Change: Not our only customer that's that's investing here and so.

Speaker Change: That's right.

Speaker Change: Alright.

Speaker Change: Like I said earlier, I think half to half.

Speaker Change: Things pick up a little bit things ticked down a little bit, but but more or less our mix of business expectations from where we started the year.

Speaker Change: Thank you Tom.

Speaker Change: Next we will go to screening for jewelry with Raymond James. Please go ahead.

Speaker Change: Is more or less about the same.

Speaker Change: Thank you.

Speaker Change: Sorry, guys I have a follow up.

Speaker Change: Got it and then more of a longer term question.

Speaker Change: The second half comments that you made.

Speaker Change: About the foundry logic.

Speaker Change: I'm, just curious to understand a little better what the implications from heightened may I know, it's early days, but you know as we go to <unk>.

Speaker Change: I think the comment was that it's going to tick down a little bit.

Speaker Change: It was down a bit and then you're guiding kind of flattish for this quarter.

Speaker Change: I'm reading the theoretical besides this will come down I'm guessing the complexity will increase quite a bit and of course packaging complexity will go up but if political side has come down. So just curious to understand what the implications for semi P. C intensities with the high end there. Thank you.

Speaker Change: I'm guessing most of that is China I'm, just curious as to.

Speaker Change: How you were expecting them to demand to kind of fair and if we can talk about where we are in the end to cycle and then it goes.

Speaker Change: As we go into next year when do we expect a 1.4 to kind of kick in.

Speaker Change: I think those are those are exactly some of the issues better.

Speaker Change: Our customers are considering as they think about when to insert and how much to ensure.

Speaker Change: Well, so I think around into the investment cycle, we're seeing this year looks pretty strong and as we said and we feel pretty good about its continuation of next year and our customers are going to add.

Speaker Change: I think that the one thing that is definitely true is the reason you want high N. A as because you want to print smaller features and that's always been a driver for our business because the same thing that allows you to sprint print smaller features means that smaller defects matter more so our customers when they go when they incur.

Speaker Change: First year somewhere around 40% to 50, K wafer starts and we think that you'll.

Speaker Change: You'll see.

Speaker Change: At least a doubling of that into next year, maybe more so so we feel pretty good about some of the moving barges.

Speaker Change: Not our only customer that's that's investing here and so.

Speaker Change: A resolution on their lithography after increase their sensitivity on their inspection.

Speaker Change: Like I said earlier, I think half to half.

Speaker Change: The good thing.

Speaker Change: And things pick up a little bit thanks, ticked down a little bit.

Speaker Change: And also at the same time it means that we've got to drive our capability to have.

Speaker Change: Okay.

Speaker Change: More and more.

Speaker Change: Yeah.

Speaker Change: <unk> detection on those advanced devices, the reticle quality and the verification of radicals has been a huge driver in <unk> in general and that created a whole separate category of what we call print check which is where people take the wafers.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Got it.

Speaker Change: Two questions.

Speaker Change: Okay.

Speaker Change: <unk> are being printed by <unk> and they inspect the wafer to verify the design, even though there are tools for radical there is also that additional we wouldn't expect especially in the early days of <unk> that there would be more radical cheque required so from our standpoint.

Speaker Change: Okay.

Speaker Change: It drives increased percent of inspection and measurement because of the continued scaling but also we're working very closely with our customers who are considering that because one of the decision points. They have is do they have the metrology and inspection to make those nodes work. So that's.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Yes.

Speaker Change: Right.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: That's the kind of deal.

Speaker Change: Okay.

Speaker Change: Big part of the conversation so I would say that the most likely scenario for high and a as when it gets introduced and it'll be at a limited number of layers on whatever.

Speaker Change: Same thing.

Speaker Change: Okay.

Speaker Change: So.

Speaker Change: Thank you.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: Device or node that is introduced and our customers because they have to be thoughtful we will have a backup plan in terms of whether it's multi patterning or other ways to achieve their objectives. So it's in the and good for us as <unk> has been good for driving relevance.

Speaker Change: Yeah.

Okay.

Speaker Change: Okay.

Speaker Change: Yeah.

Okay.

Speaker Change: Okay.

Speaker Change: <unk> of inspection, but I think it remains to be seen when that timing actually happening and what devices and I'm quite sure because our customers keep telling us its going to be based on their economics, not just on the performance, but on the total cost of implementation.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Right.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Alright.

Speaker Change: Got it thank you.

Speaker Change: Yeah.

Speaker Change: We'll next go to Timothy occurring with UBS. Please go ahead.

Speaker Change: Okay.

Speaker Change: Yes.

Hi.

Speaker Change: Yeah.

Timothy: Thanks, a lot Bryan I wanted to ask you about <unk> systems have on have you quantified in the presentation, you actually quantify the outgrowth relative to this mid single digit there'll be a fiduciary you said you're going to outgrow by several points.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Increases.

Yes.

Speaker Change: Like I said that.

Speaker Change: Continued scaling but also we're working.

<unk> is up five I take several to mean for me so that means systems will grow like.

Speaker Change: You did $7 five incentives last year, so that puts you at eight one for the year. So if we know what youre doing in the first half it implies back half systems is down like 15% half on half that's a lot.

Speaker Change: So do you take issue with that math, because I thought systems, we're going to be more like flattish half on half did something change. Thanks.

Speaker Change: Yeah.

Speaker Change: Hey, Tim I'm looking at the numbers here.

Speaker Change: Ism revenue expectations, I think semi PC systems, theyre going to be roughly flat in the second half of the year.

Speaker Change: Okay.

Speaker Change: Outgrow by.

Speaker Change: A lot more than that.

Speaker Change: Several points relative to the to the WPS up mid single digits, I said, we'd do several points better than that.

Speaker Change: Yes, well.

Speaker Change: So that's like a lot more of them several but anyway, okay. So.

Speaker Change: Then on <unk>.

Speaker Change: So why why stop reporting RP O midyear was it like causing the problem.

Speaker Change: And then I guess.

Speaker Change: You said that Youre going to include it to be the transaction price for contracts that have not yet been recognized at.

Speaker Change: At the end of the quarter. So how is the new practice is different from our current practice.

Speaker Change: Yes.

Speaker Change: So we're not going to stop at mid fiscal year. We're just giving you a heads up that weren't going to make a change going into our new fiscal year, which begins on July one. So the September 30, ending quarter. If you look at the quarter, we just completed and Youll see the actual numbers based on the historical practice and the 10-Q that profile.

Speaker Change: End of this week.

Speaker Change: Is the RP O came down to about $8 nine changed a couple of hundred couple hundred million dollars. So so not really much change in it.

Speaker Change: Our view moving forward was one of the things that was and it's something that we spent a significant amount of time on over the last several months is that companies.

Speaker Change: Closure practices across companies vary wildly here about what <unk> really is and so what we're really trying to do here is converge.

Speaker Change: <unk>, where we think the majority of companies are I mean, the whole point of disclosures is to be able to make adequate comparisons cross companies across industries and you certainly can't do that with this metric given the the wide divergence in practices that people have related to it. So we think our view is a good balanced view moving forward.

Actually.

Speaker Change: The obligation is something that has shipped to customers and hasnt FPA, whether it's that or whether it's a service contract thats been signed and so our RPI guidance will converge to that which is more of a deferred revenue.

Speaker Change: That hurt deferred revenue disclosure across our systems and service and we will provide a backlog assessment, which is more or less of what we were doing before.

Speaker Change: And our <unk> going forward. So good we're going to continue doing is to complete this year and then we're going to make some changes moving next year. So we can be consistent a little bit more consistent with what the rest of industry.

Speaker Change: Good morning.

Speaker Change: And so I think you can look across large caps youll see that that the three large gaps do it had been doing it all differently.

Speaker Change: It's a source of confusion I get it a lot. So what we're trying to do is align more closely with what some of our peers are doing.

Speaker Change: Okay awesome. Thanks.

Speaker Change: I can tell you when we have we have time for one more question. We will go next to Melissa Weathers with Deutsche Bank. Please go ahead.

Melissa Weathers: Hello. Thank you for letting me ask a question and squeezing me in I wanted to ask on the high volume manufacturing side. This is a big thing that you guys talked about at your last analyst day as you shift from more of like R&D type spending to H.

Melissa Weathers: H B M spending and being a bigger part of the next there. So how are you seeing this play out in the current leading edge nodes and maybe future nodes like is there any way you can help us contextualize how much the H me an opportunity is for Kelly.

Customers and Hasnt FPA, whether it's that or whether it's a service contract thats been signed and so our RP O guidance will converge to that which is more of a deferred revenue.

Deferred revenue disclosure across our systems and service and we will provide a backlog assessment, which is more or less than what we were doing before.

Melissa Weathers: Historically, KLA was more levered towards R&D, and fab ramp and as it is a fab move to entitlement yield levels.

In our case going forward. So we're going to continue doing is to complete this year and then we're going to make some changes moving next year. So we can be consistent a little bit more consistent with what the the rest of industry.

Melissa Weathers: There was a reduction in process control intensity and a shift in our customers' strategy to focusing and driving productivity in the fab as a design start environment has picked up over the last several nodes. It is driven more challenges into high volume production as customers are trying to manage yield across different process flows.

Isn't it.

And so I think you can look across large caps youll see that that the three large gaps have been doing it all differently.

Melissa Weathers: In a very different a robust design mix and so as a result of that you end up with different designs that test design rules and different ways. Our customers don't want to start any more wafers and they have to as they delivered type market windows and so youre seeing the adoption of more process control and a high mix foundry and.

It's a source of confusion I get it a lot. So what we're trying to do is align more closely with what some of our peers are doing.

Okay awesome. Thanks.

Melissa Weathers: I think it's something we have we have time for one more question. We'll go next to Melissa Weathers with Deutsche Bank. Please go ahead.

Melissa Weathers: In high volume production.

Melissa Weathers: Hello. Thank you for letting me ask a question and squeezing me in I wanted to ask on the high volume manufacturing side. This is a big theme that you guys talked about at your last analyst day as he said for more like R&D type spending to H.

Melissa Weathers: So it is changing and we're also seeing even back boarding where they're seeing a change in mix, where our fab and in <unk>. For example had a certain tools that expectation based on unexpected type of mix, but as you've seen more and more <unk> products move through those fabs is driven the need for different and more capable.

Speaker Change: H B M spending and being a bigger part of the mix. There. So how are you seeing this play out in the current leading edge nodes and maybe future nodes like is there any way you can help us contextualize, how much the HB and opportunity is for KLA.

Melissa Weathers: <unk>, so youre seeing a lot more adoption in production than than what you used to see if you go back 10.

Melissa Weathers: 20 years in the industry and so I think it's just really reflective of.

Speaker Change: You know historically KLA was more levered towards R&D and fab ramp and as it is a fab move to entitlement yield levels.

Melissa Weathers: The dynamic environment, our customers are trying to manage too with process windows that are extremely tight with leading edge node.

Speaker Change: There was a reduction in process control intensity and a shift in our customers' strategy to focusing and driving productivity in the fab as a design start environment has picked up over the last several nodes. It is driven more challenges into high volume production as customers are trying to manage yield across different process flows and in a very.

Melissa Weathers: Thank you.

Melissa Weathers: Thank you and I'd like to turn the call back over to Kevin Kessel for any additional and closing remarks.

Great. Thank you everyone for your time and your attention your interest in KLA. We appreciate it I know its busy earnings day, we will be catching up with all of you at the upcoming conferences and meetings about I'll turn it back to the operator for any final closing instructions.

Speaker Change: Different Oh robust design mix and so as a result of that you end up with different designs of test design rules and different ways. Our customers don't want to start any more wafers and they have to what they delivered type market windows and so you're seeing the adoption of more process control and a high mix foundry in high volume production. So it is changing and where.

Melissa Weathers: Thank you and this concludes the KLA Corporation March quarter, 2025 earnings call and webcast. Please disconnect. Your line at this time and have a wonderful day.

Speaker Change: We're also seeing even back boarding where theyre seeing a change in mix.

Speaker Change: There are bad and five for example had a certain tools that expectation based on unexpected type of mix, but as you've seen more and more H P. C products move through those fabs is driven the need for different and more capability. So you're seeing a lot more adoption in production than than what you used to see if you go.

Speaker Change: Back to.

Speaker Change: 20 years in the industry and so I think it's just really reflective of the dynamic environment. Our customers are trying to manage too with process windows that are extremely tight with leading edge nodes.

Speaker Change: Thank you.

Speaker Change: Thank you and I'd like to turn the call back over to Kevin Kessel for any additional or closing remarks.

Speaker Change: Great. Thank you everyone for your time and your attention and your interest in KLA. We appreciate it I know its busy earnings day, we will be catching up with all of you at the upcoming conferences and meetings.

Now I'll turn it back to the operator for any final closing instructions.

Speaker Change: Thank you and this concludes the KLA Corporation March quarter, 2025 earnings call and webcast. Please disconnect. Your line at this time and have a wonderful day.

Speaker Change: Hum.

Speaker Change: [music].

Margo: My name is Margo, and I'll be your conference operator today.

Margo: At this time, I'd like to welcome everyone to the KLA Corporation March quarter 2025 earnings conference call and webcast. All participants lines have been placed in a listen only mode to prevent any background noise.

Margo: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, please press star two. Please limit yourself to one question and one follow up. Lastly, if you should need operator assistance, please press star zero.

Margo: Thank you.

Kevin Kessel: I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead. Welcome to our earnings call to discuss the March quarter and our June quarter outlook.

Kevin Kessel: Joining me is our CEO Rick Wallace and our CFO Bren Higgins. We will discuss today's results released after the market closed and available on our website along with supplemental materials. We are presenting today's discussion and metrics on a non-GAAP financial basis unless otherwise specified. All full year references made refer to calendar years. The earnings materials contain a detailed reconciliation of GAAP to non-GAAP results. KLA's IR website also contains future investor events, presentations, corporate governance information, and links to our SEC filings.

Kevin Kessel: Our comments today are subject to risks and uncertainties reflected in the disclosure of risk factors in our SEC filings. Any forward-looking statements, including those we make on the call today, are also subject to those risks. Mkale cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements.

Kevin Kessel: Rick will begin with some introductory comments on the business environment and the quarter, followed by Bren with financial highlights and our outlook.

Rick Wallace: Now, over to Rick. Thanks, Kevin. I will start our March quarter results and talk about some comments about the current business environment, followed by some recent market share reports, and finish up with some business highlights.

Rick Wallace: TLA's March quarter results were above the midpoint of all the guidance range, with revenue of $3.06 billion, non-GAAP diluted EPS of $8.41, and GAAP diluted EPS of $8.16. Haley's results continue to be fueled by strong demand and leading edge logic and high bandwidth memory. Haley's growing advanced packaging business also made another strong contribution in the quarter. These drivers demonstrate the critical investment required for building out the infrastructure, which is supporting AI. While there is notable macro uncertainty across many sectors globally, KLA has not seen any change in demand or indication from our customers of any adjustment to their announced investment plan.

Rick Wallace: That said, the current unprecedented global trade uncertainty...

Rick Wallace: and potential second order effects on macro demand in the future are far from Given this fluid business operating environment and potential implications for KLA, we've decided to postpone our Investor Day from June 8th . to early to mid-calendar 2026. It's our hope that the macro environment will stabilize by then, and we look forward to expanding on the story of Calais' growth strategy and increasing market relevance.

Rick Wallace: Our capital return announcements today reflect not only our commitment to assertive and explicit capital allocation, but also our confidence in the business opportunities for KLA over the foreseeable future.

Rick Wallace: Moving along to market share reports. This quarter marks the annual release of industry research report showing KLA maintain a strong global share of WFE and process control markets in calendar 2024. KLA's continued share leadership was highlighted by persistently strong customer adoption of optical pattern wafer inspection, and share gain and advanced wafer wafer level pack Over the past five years, KLA's share of process control has grown by nearly 250 bases. Notably, KLA's process control share of advanced wafer level packaging market has grown from being in third position in 2019 to being on track to assume the leading position in 2025.

Rick Wallace: Turning to highlights for the quarter, KLA delivered a 30% year-over-year increase in revenue in the March quarter due to increased investment in leading-edge logic and HVM. Second, AI continues to be a key catalyst driving KLA's consistently strong performance. As AI continues to advance the semiconductor industry is experiencing more complex design, accelerating product cycles, high value wafer volumes and growing advanced packaging These trends underscore the increased value of process control and assisting our customers in managing a dynamic production environment as investments and complexity increase, which uniquely benefits KLA. The further demonstration of this, the March quarter captured another period of strong momentum for our advanced packaging portfolio.

Rick Wallace: Customers' adoption of KLA's advanced packaging portfolio of products demonstrate the success of our market diversification, product technology roadmap, and growth strategy. KLA's advanced packaging revenue grew to over $500 million in calendar 2024 and is now expected to exceed $850 million in calendar 2025. Fourth, the KLA services business grew to $669 million in March quarter, up modestly sequentially and up 13% year over year. Newly announced market access restrictions in early December 2024 from the U.S. government export controls impacted service revenue growth in the March Still, as a sign of its predictability and resiliency, our service business marked its 52nd consecutive quarter of growth on a year-over-year basis.

Rick Wallace: Finally, the March quarter was another solid quarter from a cash flow and capital returns perspective. Quarterly free cash flow was $990 million. Over the past 12 months, free cash flow was $3.5 billion, with a free cash flow margin of 30% over the same period. This free cash flow margin ranks amongst the top 10% of companies in the S&P 500. Total capital returns in the March quarter was $733 million, comprised of $507 million in share repurchases, $226 million in dividends. Total capital returns of the past 12 months was $3 billion. Kalei's results once again demonstrated process control leadership and the success of our broad portfolio and competitive differentiation.

Rick Wallace: Our consistent performance further demonstrates the critical nature of Kalei's products and services, which are uniquely positioned to enable growth at the leading edge, including the ongoing build out of AI infrastructure.

Bren Higgins: With that, I'll pass the call over to Bren to cover financial highlights and our outline. Thanks, Rick. Kayleigh's March quarter results demonstrate market leadership, combined with the consistent execution and dedication of our global team to meet customer commitments, and driving strong results which fuel double digit year over year growth and profitability improvement. Revenue is $3.06 billion, above the guidance midpoint of $3 billion, non-gap diluted EPS was $8.41, and gap diluted EPS was $8.16, each finishing at the upper end of the respective guidance range. At the guided tax rate of 13.5%, non-gap diluted earnings per share would have been $8.55.

Bren Higgins: grows margin with 63% about 50 basis points higher than the midpoint of guidance as product mix within our process control segment, the stronger than model for the quarter. Operating expenses were $575 million, about $10 million below the guidance. as the timing of prototype material expenses were lower than expected. Operating expenses were comprised of $338 million in R&D and $237 million in SG&A. Operating margin was 44.2%. Other income and expense net was a $36 million expense, the quarterly affected tax rate is 15%. Debt income was $1.12 billion. Gap net income was $1.09. Cash flow from operations was $1.1 billion and free cash flow was $990 million.

Bren Higgins: The breakdown of record of revenue by reportable segments and in markets and major products and regions can be found within the shareholder letter and slide. Moving to the balance sheet, KLA ended the quarter with $4 billion in total cash, cash equivalents, and marketable securities. debt of $5.9 billion and a flexible and attractive bond maturity profile supported by strong investment grade ratings from all three major rating agencies. KLA's balance sheet provides the ability to fund our growth strategies, organic and inorganic, and offer attractive capital returns to shareholders. The cornerstone of KLA's business is how consistently it generates strong free cash flow, driven by one of the best operating models in the industry.

Bren Higgins: and a predictable and highly differentiated service. which helps drive a capital return strategy that includes consistent dividend growth and increasing share repurchases over the long term. This strategy sports a strong track record of predictable and assertive capitalism. and remains an important differentiating element of the KLA investment season.

Bren Higgins: To further underscore our commitment to capital returns and our confidence in the long-term value accretion of KLA, today we announce the 16th consecutive annual dividend which is up 12% to $1.90 a share per quarter or an annualized dividend of $7.60.

Bren Higgins: Along with this action, we also announced a new $5 billion share repurchase offer. Raising our total repurchase authorization to $5.46 billion.

Bren Higgins: Turning to the outlook, the industry outlook continues to be driven by increasing investment and leading edge logic, high bandwidth memory, and advanced packaging. For WFE in 2025, our outlook remains the same as in late January. We forecast WFE to grow by a mid-single-digit percentage from approximately $99 to $100 billion level in calendar 2024. Growth is expected to be driven principally by increasing investments in both leading-edge foundry and lodging. and Memory to support growing AI and premium mobile demand. partially offset by lower overall demand from China.

Bren Higgins: Given KLA's business momentum, market share opportunities, and higher expected process control intensity at the leading edge across all segments, we are confident we will continue to deliver growth outperformance compared with the WFE market in 2025. KLA's unique product portfolio differentiation and value proposition are focused on enabling technology transition. Accelerating process node capacity ramps and ensuring yield entitlement and high volume production. We remain encouraged that our customer discussions have not changed and are working hard to align shipment slots with their requirements.

Bren Higgins: In this industry environment, KLA will continue to focus on supporting our customers, executing on product roadmaps, and driving productivity across the enterprise.

Bren Higgins: Haley's June quarter guidance is as follows, total revenue is expected to be $3.075 billion, plus or minus $150 million. Foundry logic revenue from semiconductor customers is forecasted to be approximately 69% and memory is expected to be approximately 31% of semiconductor process control systems revenue to semiconductor customers. Within memory, DRAM is expected to be about 76% of the revenue mix and NAND the remaining 24%. Gross margin is forecasted to be 63% plus or minus one percentage point inclusive of the impact of recently announced global tariffs. This estimate is to the best of our ability, given the complexity and fluidity of the regulations and how they align with our global process.

Bren Higgins: Consistent with this assessment, we expect global tariffs to have a roughly 100 basis point headwind to gross margin per quarter, assuming relatively stable quarterly revenue expectations for the remainder of the calendar year. Of course, this environment is changing rapidly, and we will continue our assessment and evaluate mitigation opportunities within our operational processes and pricing strategy. For calendar 2025, based on results for the March quarter, guidance for the June quarter, and our expectations for business mix across systems and services, systems product mix and factory utilization, we expect gross margins for the year to be approximately 62.5% plus or minus 50 basis points.

Bren Higgins: Other model assumptions include how their income and expense net of approximately a $35 million expense for the June quarter and expect this to be roughly consistent throughout the calendar year. The effected tax rate assumption for June is 13.5%. Beginning in the September quarter, which is the first quarter of our fiscal year, our affected tax rate will reflect the adoption of Global Taxation Pillar 2, which is expected to increase the rate to approximately 14% for the second half of the calendar year. For the June quarter, GAAP diluted EPS is expected to be $8.28, plus or minus $0.78.

Bren Higgins: and Nongaffa with a DPS of $8.53 plus or minus $0.78.

Bren Higgins: A quick update on our remaining performance obligations, our RPO disclosure, and our SEC filing. As a reminder, RPO is primarily a systems-only metric for KLA. Do not report RPO during earnings as it is disclosed on our subsequently filed SEC 10-Q and 10-K reports. There is significant divergence in practice. Companies have different definitions and disclosure practices on RPO. The lack of consistency among companies reporting can be a source of confusion for investors and make the disclosure difficult to compare across industries and peer companies.

Bren Higgins: We will continue to provide our backlog balance annually in our 10K report. We will update our quarterly disclosures for RPOs starting in the first quarter of fiscal 2026. which is the quarter ending September 30th, 2025, to be a transaction price for contracts that have not yet been recognized as revenue as of the end of the quarter. This disclosure of RPO would be consistent with the disclosure of our industry peers.

Bren Higgins: In conclusion, our near-term revenue guidance continues to point to relative stability around current business levels despite the increased uncertainty from changes to global trade. We are staying close to customers as they also navigate this challenging environment. We continue to see solid growth in calendar 2025 and expect to outperform the mid-single-digit WFP growth rate by several points. KLE's focus on delivering a differentiated product portfolio that addresses customers' technology roadmap requirements and drives our longer-term relevancy and growth expectations. With the KLA operating model guiding our best-in-class execution, KLA is focused on implementing our strategic objectives designed to drive out performance.

Bren Higgins: KLA's focus on customer success, innovative solutions, and operational excellence drives industry-leading financial performance and allows us to return capital consistently.

Bren Higgins: That concludes the prepared remarks.

Bren Higgins: Let's begin the Q&A. Thank you, Bren.

Margo: Operator, can you please provide the instructions and begin the queue? Thank you. At this time, if you'd like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star two.

Margo: We remind you to please unmute your line when introduced, and if possible, pick up your handset for optimal sound quality. In the interest of time, we ask that you please limit yourself to one question and one follow up.

Harlan Sur: We'll now take our first question from Harlan Sur with JP Morgan. Please go ahead. Good afternoon and great job on another solid quarter of execution. You know, despite the view that the team is still going to drive $3 billion plus per quarter throughout the year, you're holding your WFE view of up mid-single digits percentage year-over-year, you're not seeing any major changes to your customer spending plans. Yeah, you did highlight the 100 basis points hit the gross margin due to tariffs, but at the same time, you did also take up your full year guidance on gross margins.

Bren Higgins: But you're postponing your analyst day by nine months to a year on the potential trade and tariff uncertainty. I understand the direct impact concerns and risk on global demand for electronics, but is there also a significant tariff-related risk on your equipment and systems post, let's say, the 90-day reciprocal tariff reprieve? I mean, the team, I thought, was fairly geographically diversified across your manufacturing base, so I wouldn't think so. Maybe just take us through some of the puts and takes around tariffs and trade and your ability to modulate your global manufacturing operations under different tariff-related scenarios to minimize the impact on your system shipping to different geographies.

Bren Higgins: Hey Harlan, it's Bren. Thanks for the comments. And there's a lot in there.

Bren Higgins: The first thing I'll say is, yeah, our decision to push the investor date was really just related to the current uncertainty, obviously, global trade, the structure and construct that's being discussed today is really unprecedented. And we'll have to see how that settles out. I did talk a little bit about our view on tariff impact to KLA. And of course, that's very fluid and could change. But we do see a lot a little bit of a headwind in our gross margin, as it relates to mostly our service business and having such a strong contract stream, particularly in places like China, where you have some reciprocal impact of parts going in, that can have an effect on our business.

Bren Higgins: So you have that exposure, you also have whatever we bring into the US factory. So some of that is being mitigated through different exemptions. And so I think there's some fluidity on that. So we'll see how that plays out over time. But and there's also some mitigation steps we can take from a process point of view in terms of how we manage and our network move parts around the world and so on. Obviously, when when you do things like that, you're going to focus on what's the right thing for the business operationally. And certainly in a higher structural tariff environment, you might consider doing things where return on investment might be higher.

Bren Higgins: So we have to go and evaluate those things. We're looking at that. We're also looking at longer term pricing strategies as well in terms of mitigation effects.

Bren Higgins: So when we thought about the investor day, we said, Look, there's there's this tariff concern, what it does to in terms of second order impact to the macro. Some unknowns associated with that.

Bren Higgins: So we thought it was prudent for us to just move it into early 26, where we feel like we will hopefully have a more stable environment. So we're looking forward to it. We're pretty excited about what's happening in the business. You pointed out a lot of our strength and our results and what we've seen over the last few years in terms of our relative growth and share of WFE. So we think we're pretty well positioned both in core WFE, but also opportunities in advanced packaging and our service business performing extremely well, despite some of the challenges with export controls.

Bren Higgins: So we think the business is in a pretty good place and we're just reacting to a global macro environment that's changed a lot in the last three months.

Bren Higgins: As it relates to the footprint, we have a pretty diverse footprint around the world. We've established it over the past two decades. We've moved products to different locations. I'd say again that you start with where it makes sense to do things operationally, whether it's cost or execution, talent, and so on. And then you optimize as it relates to taxes or incentives or other potential regulations. So those things can change. And so you have to make sure that the operational considerations are first and So we have a global footprint. We'll assess the situation and we'll do what we think is right for the business over time.

Bren Higgins: And that's pretty much all I have to say about it. I appreciate that.

Harlan Sur: And then maybe on a bright note, as you as Rick, as you mentioned in your shareholder letter, you know, calendar 24 share rankings are out for process control. The team and the process control segment outgrew overall WSE last year. And despite your dominant number one position, you're six and a half times larger than your number two competitor in the space, you still gain 50 basis points of share and strong number one position, I think by my count in five out of the six major sub segments within process control. I think the one area where it was a bit of a surprise where you made significant progress was in E-Beam pattern wafer inspection.

Harlan Sur: And, you know, despite Optical continuing to dominate at a 7x larger market versus E-Beam, the KLA team did double their E-Beam inspection revenues last year, you gained about 700 basis points of share there. So the team strategy has always been to introduce new solutions when the market is ready to adopt.

Rick Wallace: So what's driving the incremental opportunity in E-Beam? And how's the KLA's E-Beam platform sort of differentiated? Right. Thanks, Harlan. Yes, I think that the progress we made in eBeam has been long and coming. I mean, we've been investing in our platforms for many years in terms of getting the eBeam products to where we thought they could really be supplemental to the optical and work in concert. And I think a lot of the success that we're now seeing is we got those platforms to start performing at a high level, and customers have now had a chance to evaluate them.

Rick Wallace: And I think what we're finding, especially on the very high end of the, you know, the most challenging layers, the most challenging nodes, is that people are actually doing both. They're doing optical and eBeam on some of those layers. And the synergy between the two tools, I mean, one of the things we always look for, for the interoperability between the two so that you can leverage the strength of eBeam with optical. So we're seeing those results. I think more importantly, our customers are seeing them. And we felt good about it because, as you know, often this takes months or quarters for customers to really test out the capability.

Rick Wallace: So we're confident that we're on a trajectory where we're going to keep growing that business. And we're, you know, at this point, we're really glad we invested for so many years. I think there was a time where we're spending a lot of money on eBeam, and it took a long time to get these results. But we're really thrilled with where we are now. And our customers are telling us we need more. And so from that standpoint, we're excited about the forecast. We ran into a problem last year where, as we started getting demand, we didn't even have capacity.

Rick Wallace: So Brandon and the ops team had to ramp it up to be able to support it. So we're in good shape with that. We're getting great customer feedback and very excited about the progress we've made in eBeam. Yeah, thanks, Rick.

Rick Wallace: Thanks, friend. Thanks.

Rick Wallace: We'll go and we'll go next to Atif Malik with Citi. Please go ahead. Thank you for taking my questions. I have a question on the services growth. I understand it's a bit pressured this year because of the loss of fabs in China. Can you talk about your full year outlook on the services for this year? Sure, Atif. So yes, the biggest impact we felt was was in Q1, where growth quarter to quarter was, was fairly limited. It was, despite losing access to some paths to put up our 52nd quarter of year of year growth, consecutive quarter of year of year growth was, I think, pretty impressive.

Atif Malik: And the team did very well with that. Last year, and when I think about just the semi PC part of the now there's also our EPC part of service, but semi PC grew in 2024 grew Above trend line about mid-teens, about 16%. This year, I think it'll be low double digits. So if you look at total service growth, our expectations for the year are trending right around 10% or so. So a little bit below the long-term target, but given the impact of those controls where you lose access to those tools. Now, as those tools are providing or are limited in what kind of supply they can provide to the broader market to meet demand, you would expect some capacity to potentially get added in other places that offsets that.

Atif Malik: So we would think over the long-term that it You get that business back as we model our service growth over the long run, really based on long-term growth expectations for internal in terms of useful life, rising ASP, but also growth in semi-revenue. So long-term, we feel very good about the long-term target.

Atif Malik: In 2025, we're gonna be slightly below it around.

Atif Malik: Great. And as a follow up, on advanced packaging momentum, good to see you guys raising the bar to 850 million and number one market share this year. Rick, if you can just pull the curtain a little bit on your kind of competitive positioning advanced packaging, you know, are you stronger on the logic or the COVA side or the HPM side? And, and what are your thoughts about hybrid bonding adoption? So, I think I mentioned this before, Atif, that what we've really seen is the market in many ways has come to us, and this really kicked off a couple years ago, mainly around packaging that we've seen pushed for AI applications, and just the very, you know, the high cost of that entire package, and therefore, it can support the kind of cost per inspection that you couldn't support on, frankly, lower cost solutions in terms of the packages.

Atif Malik: So, these packages, as you know, if you have a, you have a large chip combined with a number of memory chips that are stacked, the value of that's very high. So it's both inspection and measurement, but also some of the process capability that we have in SPTS. That's really the differentiation is in the solution. In many ways, what we've done is we've taken the products that we had for the front end and adapted them for the back end. And that's what's getting traction now. And, you know, mainly it's with co-ops and we've seen a lot of applications driving and we see big growth.

Atif Malik: So, you know, we talked about going to 500 million, 850. And frankly, that growth trend continues. And that's the message we're getting from our customers. So one of the things that we're still sorting through is what the available market is for KLA, because we think about, you know, how much of WFE do we talk about, but there's also all this investment that's not necessarily included that in packaging. And so we're still sorting through what that looks like, and that's going to help us outperform the overall industry. So I think one other point on this is to Rick's point about being able to adapt our front end solutions to the back end is there are some incremental engineering requirements as it relates to handling of substrate, and so on, and different environmental conditions is is that that's a lot of engineering, at least from a sensitivity and performance point of view in the systems that has already been done.

Atif Malik: So the ability to take that also brings a nice incremental profit stream to the company. As we leverage some of the some of that capability. And as that market starts to move to needing more capability, then you move up the value stack in terms of KLA solutions to address those those challenges for our customers. So it's, it's a great opportunity from a growth point of view, but it's also an opportunity from a margin point of view of something that was a bit of a headwind given the nature of what was required, that turns into a tailwind as, as customers demand more capability from us.

Atif Malik: So we're really excited about that opportunity moving forward, particularly given the growth rates of advanced wafer level packaging is likely faster than overall WFE growth over the next several years.

Atif Malik: Thank you, Atif.

Atif Malik: Thank you.

Vivek Arya: Next we'll go to Vivek Arya with Bank of America Securities. Please go ahead. Thank you. I had a near and longer term question. On the near term, I saw that China, I think, came in at about 26% in March. I think you had estimated closer to 29. So does it go up, you know, in a kind of a flattish top line year? And related to that, the 500 million impact that you had mentioned for the year, how much did you see in calendar 2.1? You know, how much more is left to go?

Vivek Arya: Yeah, Vivek, on the map for China, and you're right, we spent some time on it last quarter. And we thought that for 2025, the business would be somewhere overall, our percent of business in China would be somewhere, you know, in high 20s, maybe 30%. And our view is still consistent with that. Now, I think it'll be lumpy over the course of the year in terms of what shows up in any given quarter. So it was 26% in Q1. We'll see, I'm not going to guide Q2, we'll see what ends up coming in from a revenue recognition point of view.

Vivek Arya: But over the course of the year, right around 30%. And I think when you look at that relative to our expectations for the year, with some of the soft guidance we've given about second half revenue, then that translates into China being down about 15% to 20% or so for the year for the overall company. As far as the export control impact, we really size that based on the impact that we add through the month of December, and some of the juggling of shipments as it related to certain other customers that might have taken tools through 2025.

Vivek Arya: And I didn't really focus on what happened in the given quarters, our business is pretty fluid, so things move around. Our view of the impact is still consistent with what I said last quarter at 500 million of revenue plus or minus 100 million, with roughly 70% of that being or 65 to 70% of that being just Still the same. But I'm not going to bridge back to what happened in Q1 versus other quarters. We looked at the total impact over the next, you know, at the time, roughly four plus quarters. And that's how we size the impact.

Vivek Arya: And for my follow up, I know a little early, but I'm curious, Rick, what's on your dashboard to gauge whether 2026 WFE could be up, you know, down, down flat? How does China figure into it in terms of opportunity and risk? Because a lot of, you know, long term investors in KLA, they're always looking out. So how would you want them to think about what your opportunity set is in 26? Thank you. Right, so, you know, 26 for us right now, that was obviously a big question earlier this year, as we thought about some of the macro uncertainty.

Rick Wallace: The feedback we're getting for the AI build out, I think it's really important for everybody to understand what our customers are telling us is that they're still building for capacity that is less than the stated demand out there for the capability. So if you think about how many wafer starts are being started, and what the implications on some of the hyperscaler capex would be, it's still understated. And so we think that that will continue to grow. And that's the feedback we're giving. And part of the thing that's so hard to handicap is, you know, how does this get impacted by some of the macro stuff.

Rick Wallace: So the driver for us, we said the beginning of the year clearly was leading edge. And it's the three things we talked about is advanced logic, in support of all the design starts, the bigger die, everything in support of AI, whether it's the training or the inference chips, and more custom silicon, and then it's the HBM. And there are multiple players in that. And that's a more inspection intense technology than we've had in memory for a long time. And then this really strong growth in packaging. I think we're still early days in all of those areas in terms of the amount of silicon that's being brought online.

Rick Wallace: So I think in support of that, you're going to see continued growth at the leading edge, primarily driving those other sectors. The thing that's been slow has been, you know, we just haven't seen much come back in terms of handsets or PCs. And those are the markets that, as you know, consume a lot of the silicon. So I think we'll know a lot more about 26, as this build out for 25 continues. But the conversations we're having right now, absent any other macro jolts, I think looks pretty encouraging in terms of what the overall forecast looks like, as we go out and really as we go out toward 2030.

Rick Wallace: And so that's the we think we're early on. And today, as you know, after market, there was some hyperscalers that announced continued and sometimes even increased investment in the AI infrastructure. So we think we're in a great position right now.

Rick Wallace: Thank you. Thank you very much.

Joe Quatrochi: We'll go next to Joe Quatrochi with Wells Fargo. Please go ahead. Yeah, thanks for taking the question.

Joe Quatrochi: Maybe just to follow up on that, Rick, I mean, is clean room space a potential kind of gating factor as you look into 26? Or how do you think about that aspect of it? No, I don't think so. I mean, I think the question is going to be, I think they can build, depending on where they're building, they can get the shells up and get them positioned to invest. So no, I don't think for the plans that we see, I mean, I think I've always felt that the connection that one would draw from all the hyperscalers and the concern that people had about is AI overheated, I would look to the silicon at the leading edge being the governing factor.

Rick Wallace: And the good news on that is I don't think they're going to overbuild. And then the good news is there's going to be steady growth in the next several years to support it. So that's why we're a little more sanguine about, you know, what are people saying about the overbuild, but I don't think there's overbuild. And I think there is going to be additional capacity when needed. We're in a lot of conversations with our leading edge customers about that, and we have pretty good insight into what their needs are going to be down to specific products.

Rick Wallace: And in some areas, just I mentioned the E-beam one earlier, we're getting heads up that we've got to add capacity. And for us, it takes a while to be able to support that. So I think we're in good shape for, you know, as we look out in 20, the rest of the year. And I think as we look into 26, we're feeling pretty excited about the opportunity.

Rick Wallace: That's really helpful.

Bren Higgins: Maybe one for Bren. Just I wanted to kind of better understand just the uptick in the full year gross margin, just given the fact of the dynamics around tariffs that you talked about. Maybe can you just help us like understand kind of what's giving you the confidence there to increase it?

Bren Higgins: Yeah, no, it's a, I appreciate the question, Joe. And I think what we're seeing is from a mixed point of view, we've had a bit of a headwind over the last few years, as it relates to some of the cost dynamics, as with the inflation that we experienced and what that meant to product cost. And as we're shipping new platforms, the opportunity for KLA generally to reset that as we deliver more favorable cost of ownership to our customers, but then reset that and the capability that exists in the next generation of product that comes to market.

Bren Higgins: So that's certainly been a factor. I mentioned earlier that we're starting to see some scale benefits as it relates to advanced packaging, which we're encouraged by as well. So there's a number of factors that say most of it is in product mix. But there's been certainly some opportunities for us to deal with some of the cost pressures we've felt over the last few years. So yes, we've got the tariff impact. But despite that, I feel that we are trending more or less in line with this, you know, this expectation of margin somewhere around 62.5% as we finish the year, plus or minus 50 basis points.

Bren Higgins: So 63 in March, and then the guidance 63 plus or minus one for June. And then as you look forward, we're going to be somewhere even with a full quarter of potential tariff impact is roughly 100 basis points. We're still somewhere in and around that 62% range, given expectations for revenue levels that are relatively stable. Thank you.

Timm Schulze: We'll take our next question from Timm Schulze, MeLander with Redburn Atlantic. Please go ahead. Yeah, hi, thank you so much for taking my questions. Maybe the first one, just on the sequential, you know, queue on queue, could you help us maybe with a bit of the gross profit bridge, pretty flat revenues, but a really decent impact on gross margin? Maybe if you just peel back some of the moving parts, that'd be really helpful. Thank you. Well, I think the gross margin is roughly flat. As you look at the, because we're 63%, and then we're guiding in March, and we're guiding 63% at a roughly flat revenue number.

Bren Higgins: So there's some put and take. You know, there's some puts and takes in there as it relates to the different products that are revenue in the quarter, but in general, our expectation is pretty consistent for the company overall.

Bren Higgins: Yes, I was thinking more about the March quarter compared to the December quarter. Oh, oh, March compared to December. Okay. Um, well, that's a great question. So so if you look at at March overall, It was, you know, mostly related to, you know, typically for KLA, our biggest issues tend to be really around the product mix of our business. And so we had some higher value systems, not every product in KLA portfolio carries the same margin. So the margin was more weighted to some of our higher value products.

Bren Higgins: Okay, maybe just as a quick follow up. I think if I caught it correctly, you talked about the service business basically, being the sort of source of potential tariff impact and margins. Maybe if you could just give us a bit of color about that. And also, maybe just kind of how you're thinking about how you might respond to that pressure kind of on a medium to longer term basis. Thank you. Yeah, well, one thing that's unique about KLA service business is it's a high percentage of our revenue is contract revenue. And so we deliver, and customers pay a service by service contract, and we support the system and make commitments for service and support uptime and performance availability and so on, as it relates to those systems. So as part of that, then we have to then also ensure that we've got the parts whenever there are failures.

Bren Higgins: So typically, in a particular region, we are we are importing those parts to support the tools. And given it's a contract stream, we're the importer. So potentially carry some exposure depending on where those parts might be coming from. And so there have been some exemptions that have come through as it relates to that, particularly as it relates to parts going into China. But that's been where we do have some exposure, so we'll see how that plays out. So that's the aspect that's tied to service. Obviously, you have tariffs potentially on parts that are coming from outside the country into the U.S.

Bren Higgins: for tools that we're building in our factory in the U.S. that then ultimately those tools stay in the U.S. If they roundtrip out of the U.S., then you can then draw back some of that. But as it relates to the service piece, the issue is, as I talked about, now if you're in a billable situation, you could potentially just the customer because it comes in an Ex Works type transaction, the customer would potentially then have to be the importer and then have the tariff liability. But because of the contract structure, it's a little bit different for us.

Bren Higgins: Now, ultimately, over time, if you're ending up with a structural cost increase, you have to come up with ways to pass that cost along. And so there are different pricing strategies that we need to consider in our business based on what the long term implications are. Thank you, Jim.

CJ Muse: We'll go next to CJ Muse with Cantor Fitzgerald, please go ahead. Yeah, good afternoon. Thank you for taking the question. I guess, Brian, I'm just trying to dig into your kind of relatively stable, half on half revenue outlook, you know, better than, you know, some of your peers. So curious, is that a function of perhaps less memory exposure, sustainable foundry, or, you know, greater seasonality from PCB in the second half, or, you know, SPTS kind of taken off? You know, I guess, what are the key drivers of driving that sustainability? Yeah, I'm taking a quick look here, CJ.

Bren Higgins: As I look at it, it looks, you know, on a half to half point of view, it looks fairly stable, I would say, you know, memory potentially could tick up a bit. And foundry logic looks like it is, you know, probably make it tick down a little bit. But I don't see a lot of moving parts here as I look at it moving forward. I'd say the percent of businesses at least as it relates to our semiconductor customers is pretty, pretty consistent.

CJ Muse: Great.

Atif Malik: And then I guess as my follow up, you know, you highlighted great growth in advanced packaging, the lion's share that is CoWAS. Can you speak to kind of the work you're doing on HBM? How you're thinking about insertions? You know, is it HBM 4 or 4E? And you know, is, is there a way to kind of size the opportunity sitting here today? Or is it too early?

Atif Malik: Thank you. Yeah, so I would say that we have, we're certainly seeing increasing momentum, most of our exposure and the share that we've seen, the share game we've seen has been on the logic side. But in high bandwidth memory, as the customers are going to increase stacks of chips, it's creating incremental opportunities. So we feel like we're getting more traction, it's driving the need for more capability, and we're getting more traction with certain customers. So we think over time, as you see a selection process, as the customer transitions, it creates an opportunity for us to compete.

Atif Malik: For some business, as you know, those customers are running at pretty aggressive capacity levels in terms of delivering for their customers. So when you're in that environment, you don't necessarily want to change anything. So I think we have to wait for a selection as you move into higher stacks. And then obviously, ultimately, as you think about technology changes, the hybrid bonding down the road creates another incremental opportunity. So we're seeing increasing momentum on the memory side, and would expect that to continue as we go through, really, you know, as we continue this year and into next year.

Atif Malik: Thank you.

Krish Sankar: Next we'll go to Krish Sankar with T.D. Cowan. Please go ahead. Yeah, hi, thanks for doing my question. I have two of them.

Krish Sankar: First one, Bren, you know, when I look at your US revenues, it's up to your Q, but the dollar figures are still pretty low. And I'm just trying to reconcile that with what TSN said about, you know, investing in Arizona. Do you think the, you know, process control being an early cyclical, some of the early purchases for Arizona are done? Or do you think there's still potential for the rest of the year? I'm going to follow up. Well, most of our business with our customers has been more into centric. So that isn't most of that is going to Taiwan and not into Arizona.

Bren Higgins: Arizona has been a slow, a slow investment cycle over the last few years. So there's been a level of business that we've had that's been, you know, at kind of low levels, lower levels consistently over over the course of of a longer period of time. But given the focus and the drive on into that's driving most of our business into Taiwan. Got it, got it.

Bren Higgins: And then a quick follow up on the tariffs and thanks for the color on the service impact from the tariffs. I understand a lot of moving parts, but I'm just wondering if it ever comes to it, can you meet non-U.S. demand from your non-U.S. manufacturing facilities and U.S. demand from U.S.? Or is it not as simple as that? As it relates to service. Now, as it relates to systems. Well, look, as I said in the first question, I think it was Harlan's question at the beginning, we have a global footprint. And, you know, we've we've established it over over the last couple of decades.

Bren Higgins: We've moved products around the world, depending on what makes sense, operationally for us. You can't do anything in a short period of time. In a longer period of time, you'd have to consider I think it'd be very hard for us to to have complete duplicative capability across factories. We certainly aren't in a position necessarily to do that today. But could you over time, increase your flexibility, you'd have to make some investments to be able to do that you potentially could could do those things. But you have to be comfortable that you're facing an environment that is not going to change because those are significant investments you'd have to make.

Bren Higgins: Got it.

Bren Higgins: Thank you very much.

Bren Higgins: That's very helpful.

Tom O'malley: Next, we'll go to Tom O'Malley with Barclays. Please go ahead. Hey, guys, thanks for taking my questions. My first was just in regards to CJ's question earlier, just on the second half, and whether it's weighted memory or FoundryLogic, and it sounded like memory was up a little bit, FoundryLogic maybe down a little bit. If you look at the mix of memory, some of your peers have already talked about like a sharper fall off in the second half when it comes to NAND, and I fully appreciate that your business is very small there. But is the correct interpretation of that, that the DRAM side gets a little bit stronger, and you see a little weakness on NAND?

Rick Wallace: Are you seeing anything different, just given the makeup or the timing of your NAND? I'm saying the DRAM is the biggest driver. What you're seeing in NAND is more technology investments and some upgrades. So there's some activity there, but it's fairly limited. Most of what's driving our business is investment supporting high bandwidth memory.

Bren Higgins: helpful. And then I think that it's, it's obviously brave of you guys to go out there and kind of talk about tariff impacts already, or many of your peers have kind of said, Hey, don't look at the second half. And you guys are being pretty prescriptive when it comes to the gross margin. So maybe it's helpful.

Bren Higgins: Can you guys talk about, you know, what you guys did in order to get to that 100 basis points per quarter? Like, did you look at different facilities? Did you take everything as a whole, like any kind of description or color as to how you got to that number would be super helpful. Thank you. Well, so Tom, what I didn't do was, you know, what we had to do was, was really just drill through all of our business, right? And there's, there's a fair amount of unknowns. What I didn't say early on was the various caveats, right, that if things could change, and certainly we're in a pretty fluid dynamic, and who knows, something could change in a short period of time, we'll see what happens in 90 days, and so on.

Bren Higgins: But we know, you know, what we're shipping, what we're bringing in with our, our bill plans, and given our lead times, what's coming into our factories around the world, obviously, we have visibility into the contract streams, from a service point of view, given how unique that business is in the industry, and how our customers, you know, our percent of businesses, that's contract basis, is much higher than than what other companies might have. And, you know, look, we'll see, I said, roughly around 100 basis points, we'll see if things change. But at the end of the day, I can look at what's in service, I can look at what's in the factories, there are some potential unknowns, as you think about what what might come from suppliers, but we think we, we handicapped that as best we could.

Bren Higgins: And then there's obviously mitigation steps that will take over time to, to offset whatever, whatever pressures we might feel so.

Rick Wallace: And let me add, because it reports to Brad, but we have a really strong legitimacy. and the same team that got us through COVID without missing deliveries and without lifting guidance was the team that drilled through all this. So I would say that Bren's team was all over this and that's why we were able to like assess the impact and then change even during the week we were doing it or a few days as the rules change. So I don't think it was luck and we're not guessing. We did a lot of detailed work.

Rick Wallace: The assumptions could change over time and that's part of the concern we have about having everybody together for an investor day is something could change the morning of that day and so we're kind of waiting for things to settle out. But it was a lot of hard work. We know where our parts come. We understand the rules and we applied them. That's how we got there.

Srinivas Pajjuri: Thank you, Tom. Next we'll go to Srinivas Pajjuri with Raymond James. Please go ahead. Thank you. Sorry, guys. I have a follow up about the second half comments that you made, in particular about the foundry logic. I think the comment was that it's going to take down a little bit. You know, it's, it was down a bit, and then you're guiding kind of flattish for this quarter. I'm guessing most of that is China. I'm just curious as to, you know, how you're expecting N2 demand to kind of fare and if you can talk about where we are in the N2 cycle.

Rick Wallace: And then, you know, I guess, as we go to the next year, when do we expect, you know, 1.4 to kind of kick in? Well, so I think around N2, the investment cycle we're seeing this year looks pretty strong, as we've said, and we feel pretty good about its continuation next year, our customers are going to add, you know, in this first year, somewhere around 40 to 50k wafer starts. And we think that, you know, you'll see at least a doubling of that in the next year, maybe more so. So we feel pretty good about some of the moving parts is, you know, it's not our only customer that's that's investing here.

Rick Wallace: And so, like I said earlier, I think half the half is You know, things tick up a little bit, things tick down a little bit, but more or less our mix of business expectations from where we started the year. is more or less about the same.

Rick Wallace: Got it. And then more of a longer term question. I'm just curious to understand a little better what the implications from high NA, I know it's early days, but you know, as we go to high NA, I'm reading that the radical sizes will come down, I'm guessing the complexity will increase quite a bit. And of course, you know, packaging complexity will go up. But if radical sizes come down, so just curious to understand what the implications for you know, semi PC intensities with high NA. Thank I think those are those are exactly some of the issues that are our customers are considering as they think about when to insert, and how much to insert.

Rick Wallace: I think that the one thing that is definitely true is the reason you want high NA is because you want to print smaller features. And that's always been a driver for our business because the same thing that allows you to print print smaller features means that smaller defects matter more. So our customers when they go when they increase the resolution on their lithography have to increase their sensitivity on their inspection. That's a good thing. And also at the same time, it means that we've got to drive our capability to have, you know, more, more detection on those advanced devices.

Rick Wallace: The reticle quality, and the verification of reticles has been a huge driver in EUV in general, and that created a whole separate category of what we call print check, which is where people take the wafers that are being printed by EUV. And they inspect the wafer to verify the design, even though there are tools for reticle, there's also that additional, we would expect, especially in the early days of high NA that there would be more reticle check required. So from our standpoint, it's, it drives increased percent of inspection and measurement because of the continued scaling, but it also, you know, we're working very closely with our customers who are considering that, because one of the decision points they have is do they have the metrology and inspection to make those nodes work.

Rick Wallace: So that's a big part of the conversation. So I would say that the most likely scenario for high NA is when it gets introduced, it'll be at a limited number of layers on whatever device or node that it's introduced. And our customers, because they have to be thoughtful, will have a backup plan in terms of whether it's multi-patterning or other ways to achieve their objectives. So it's in the end, good for us as EUV has been good for driving relevance and of inspection. But I think it remains to be seen when that timing actually happens and what if devices and I'm quite sure because our customers keep telling us it's going to be based on their economics, not just on the performance, but on the total cost of implementation.

Srinivas Pajjuri: Thank you, Srini.

Timothea Curry: We'll next go to Timothea Curry with UBS, please go ahead. Thanks a lot. Bren, I wanted to ask about SUNY systems half-on-half. You quantified in the presentation, you actually quantified the outgrowth relative to this mid-single-digit WFE this year. You said you're going to outgrow by several points, so if WFE is up five, I take several to mean three, so that means systems will grow like eight, and you did 7.5 in systems last year, so that puts you at 8.1 for the year, so if we know what you're doing in the first half, it implies the back half systems is down like 15% half-on-half.

Bren Higgins: That's a lot, so do you take issue with that math? Because I thought systems were going to be more like slavish, half-on-half. Did like something change? Thanks.

Bren Higgins: Yeah, hey, Tim, I'm looking at the numbers here and it's a revenue expectations. I think semi PC systems are going to be roughly spot in the second half of the year. Okay, well then you would outgrow by a lot more than several points. I said several points relative to the, to the, if WFE's up mid single digits, I said we'd do several points better than that. Yeah, well, if those are the numbers, you're going to get like 12. So that's like a lot more than several.

Bren Higgins: But anyway, okay, so then on RPO.

Bren Higgins: So why, why stop reporting RPO mid year? Was it like, causing a problem? And then I guess, you, you said that you're going to include it to be the transaction price for contracts that have not yet been recognized as relevant at the end of the So we're not going to stop at mid fiscal year.

Bren Higgins: We're just giving you a heads up that we're going to make a change going into our new fiscal year, which begins on July 1st. So it's the September 30th ending quarter. If you look at the quarter we just completed, you'll see the actual numbers based on the historical practice in the 10Q, the profile at the end of this week is the RPO came down to about 8.9, changed a couple hundred million. So not really much change in it.

Bren Higgins: Our view moving forward was one of the things that was, and it's something that we spent a significant amount of time on over the last several months is that companies, the disclosure practices across companies very widely hear about what RPO really is. Okay, Brian, awesome, thanks.

Melissa Weathers: And we have we have time for one more question. We'll go next to Melissa Weathers with Deutsche Bank. Please go ahead. Hello, thank you for letting me ask a question and squeezing me in. I wanted to ask on the high volume manufacturing side, this was a big theme that you guys talked about at your last analyst day, as you shift from more of like R&D type spending to HVM spending and being a bigger part of the mix there. So how are you seeing this play out in the current leading edge nodes and maybe future nodes?

Rick Wallace: Like, is there any way you can help us contextualize how much the HVM opportunity is for You know, historically, KLA was more levered towards R&D and fab ramp. And as a fab moved to entitlement yield levels, there was a reduction in process control intensity and a shift in our customers strategy to focusing and driving productivity in the fab. As the design start environment has picked up over the last several nodes, it has driven more challenges into high volume production as customers are trying to manage yield across different process flows, and in a very different or robust design mix.

Rick Wallace: And so as a result of that, you end up with different designs that test design rules in different ways. Our customers don't want to start any more wafers than they have to as they deliver to tight market windows. And so you're seeing the adoption of more process control in a high mix foundry in high volume production. So it is changing. And we're also seeing even backporting where they're seeing a change in mix, where a fab at N5, for example, had a certain tool set expectation based on an expected type of mix. But as you've seen, more and more HPC products move through those fabs, it's driven the need for different and more capability.

Rick Wallace: So you're seeing a lot more adoption in production than what you used to see if you go back, you know, 10 to 20 years in the industry.

Rick Wallace: And so I think it's just really reflective of the dynamic environment our customers are trying to manage to with process windows that are extremely tight with these leading edge nodes. Thank you.

Kevin Kessel: Thank you and I'd like to turn the call back over to Kevin Kessel for any additional and closing remarks. Great. Thank you, everyone, for your time and your attention, your interest in KLA. We appreciate it. I know it's Busy Earnings Day. We will be catching up with all of you at the upcoming conferences and meetings.

Margo: With that, I'll turn it back to the operator for any final closing instructions.

Margo: Thank you and this concludes the KLA Corporation March quarter 2025 earnings call and webcast. Please disconnect your line at this time and have a wonderful day.

Q3 2025 KLA Corp Earnings Call

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