KLA Corp at UBS Global Technology and AI Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : So first topic is I wanted to talk about was the export controls. And you made a comment yesterday about there being $500 million impact. Sounds like that's incremental to what you said already. You said China would be down 15% year-over-year. It sounds like that sits on top of that. So can you go through some of the dynamics and sort of how you arrived at that number and what it includes?

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : And in terms of service, so you were thinking service would grow sort of low doubles next year. That would bring it down to what high singles. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 5:15PM, KLAC.OQ - KLA Corp at UBS Global Technology and AI Conference

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : Got it. And can we just talk about 2025 just in general? What -- some of the puts and takes? You haven't given that much specificity really on '25. But I think you still think '25 even after this, you still think '25 is up in terms of WFE.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : And you think -- so you think you can hold WFE share next year even despite there's some China headwinds, you did very well this year in China, Nan's going to be a little better next year. But do you think that the power of that, leading edge fab logic is enough to allow you to hold or maybe even gain? I don't know, WFE share.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : And then how do you think about W-intensity in memory. I know, like I used to think of it as your capture rate per dollar is 50% higher in foundry logic than it is in memory. Now, that's changing a bit because you are -- you've come out with some new technologies in memory and your capture rates a little higher, I think in memory than it used to be. So can you talk about sort of how you see the GAAP between your process control and intensity and foundry logic versus in memory both.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : But you still think that rough math, every dollar of foundry logic is spending is 50% better for you than a dollar of memory spending. That's still just --

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : If it mid-10s versus like 10% or 11%.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : Okay. Got it. And then can we just talk about China? So my contention is that there's going to be some force consolidation of a lot of this mature node spending a lot of these mature node projects, some of it government led some of it's, natural business forces. Do you see signs of this happening that, -- this litany of all these new entities in China that, we don't even know who half of them are that there's going to be some consolidation of those entities that could further pressure the market even as you look at it to '26 when we're trying to figure out what like steady state is for China WFE and what your, China business is>

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : Great. Can we talk about gross margin? And it sorts of struggled to get much above 62% recently. So you talk about some of the puts and takes, I think, China is for not just you but for everybody a bit higher margin. So that's a headwind, coming down, that's a mix, headwind service is a little lower gross margin for you. I believe. So that's, -- maybe that, coming down a little bit is a better offset for you. But when you look at the puts and takes it seems to me probably a little challenging for you to get gross margin much above 62%. Can you just talk about sort of how you can push gross margin up?

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : It is. Which is great.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : Yeah, I guess, I asked because one of your peers that doesn't compete with you in all your true types. But the other major player in process control, they've been talking about pushing pricing higher and pushing gross margin higher. So I just wonder, I mean, if there's anybody that can push pricing higher and sort of set the margin, it's you. So I kind of wonder if there's some thought of well, maybe there is an opportunity for us to sort of reset pricing and margins a bit higher. You know, why can't you do 65% or 66% or -- because the customer doesn't have any alternative in most cases?

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : Brent, I've always thought of KLA, and I've covered KLA for 26 years. So I've always thought of KLA as much of a software company as exists in this, -- in the semiconductor equipment world. I sort of think of you as maybe even more of a software company. I mean, yes, you sell hardware, you don't sell software, but your secret sauce really is in the software as much as it is in the hardware. So we don't talk about that as much. So I'm kind of wondering if you can talk about just from a value proposition for people that don't know the, -- that don't understand the like software piece of your story, maybe if you can talk about that.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : Yeah, I guess I ask you because NVIDIA has this product coup litho and they're working with ASML and TSMC. And they're using AI to basically predict what, -- before you ever start the design to predict how the design is going to actually map on the wafer. And this is a massive opportunity for you. So I would think that there's much more of an AI opportunity for you where you can bring your software leverage to bear maybe work with NVIDIA. I don't know. But rather than, kind of the old world was okay, let's, let's produce the wafer. Let's look at it, let's see the defects and figure out, what was the problem and which knob do we have to go turn? And it was more of like an iterative process back and forth. But if we can, -- if you can have products that makes it so that you don't even have to start the design before you fully simulate it and you know exactly where the defects will be, exactly how it's going to tape out.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : Great. Can we talk a little bit about the backlog and the RPO? Because just another thing that's changed also with the company in the past three years, four years, really, since COVID. I always think of KLA, KLA always had five months of systems backlog, give or take and now you have double that, -- double plus. And so we always have this conversation. Is that cyclical or is that secular? Is there like something different in the business? And is it you're running the business differently or is it your customers are planning their capacity differently? So can you talk about that, is that like a permanent thing where you think we should expect you to have 10, 11 months' worth of systems RPO? And is that really, should that give us a sense of confidence that you have even more visibility than you used to have or is that just sort of like out there? And maybe it happens, maybe it doesn't.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : Great, maybe just one quick last question. So there's some pretty big stimulus in Japan from the government. I mean, big, big numbers, there's a big new foundry in Japan that, we can debate whether they'll be successful or not, but they're going to begin to be impactful for your business even next year. So how do you sort of like think about the emergence of, we think of the Chips Act all the time, but the Japanese government's doing the same thing even like bigger dollars.

Question: Timothy Michael Arcuri - UBS Investment Bank - Analyst : Great. Thank you, Brent. Yeah, appreciate it.