KLA Corp Q2 2025 Earnings Call Transcript

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

Question: Harlan Sur - JPMorgan - Analyst : Process Control, a strong outperformance for the team in calendar '24. I think your Process Control Systems business was up 15% year over year, right? That's versus WFE at up kind of mid-single digits. But if I look back over the past five years, the team's process control business has outgrown WFE on average by about 500 to 700 basis points per year. So given this year is going to be more leading-edge technology inflection driven, which is where obviously you guys have a strong leadership position, is it fair to assume that if WFE is up mid-single-digit percentage points this year that your process control business should grow kind of low to mid-teens percent in calendar '25?

Question: Harlan Sur - JPMorgan - Analyst : That's great. And then on the 60% growth outlook for your advanced packaging business this year, can you just kind of help us unpack that a bit? How much of that mix is 2.5D packaging technology like CoWoS HBM versus other packaging types? And what is the rough mix of process control versus semi manufacturing systems? And then we're already starting to see some future AI designs moving to 3D SoIC technology starting next year. Is this a further tailwind for the team, given the higher complexity of these next-generation 3D architectures?

Question: Harlan Sur - JPMorgan - Analyst : Harlan, it's Bren here. It's about 65%, 70% semi PC versus process.

Question: C.J. Muse - Cantor Fitzgerald - Analyst : I just wanted to dig a little bit deeper in your outperformance relative to WFE. Within that, you're including that $500 million China hit. And so would love to hear, I guess, beyond the rising process control intensity at 3-nanometer and HBM, are there other drivers? Are those the two principal ones we should be thinking about?

Question: C.J. Muse - Cantor Fitzgerald - Analyst : Yeah, those are the two principal ones. Well, it's also the sure game.

Question: C.J. Muse - Cantor Fitzgerald - Analyst : And just to follow up on that, Rick, you talked about share Can you elaborate on that? And then my second question would be on Service. You talked about hitting kind of the long-term growth rate over time, but would be curious given kind of the China impact, how you're thinking about growth for overall Servicing calendar '25?

Question: Joseph Quatrochi - Wells Fargo Securities, LLC - Analyst : Just a follow-up on the services impact from China. Just given the fact that most of your services is highly recurring. Do we just take that, I guess, quarterly kind of run rate impact all in the March quarter and then grow from there? Or is there further kind of headwinds to think about in the out quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 11:00PM, KLAC.OQ - Q2 2025 KLA Corp Earnings Call

Question: Joseph Quatrochi - Wells Fargo Securities, LLC - Analyst : Okay. Perfect. And then just thinking about capital intensity for process control on the DRAM side, can you talk about just the difference in HBM process control intensity relative to conventional DRAM, just how to think about that adoption? I know obviously, EUV being adopted across the board is helpful for you guys, too.

Question: Timothy Arcuri - UBS Equities - Analyst : Bren, can you give us RPO? It was supposed to be up. Can you give us the number?

Question: Timothy Arcuri - UBS Equities - Analyst : Got it. Okay. And then Process Control Systems, you said pretty stable from here, but what about EPC. It was up a lot this quarter. It grew a lot in -- well, it didn't grow that much, but it grew a lot in Q4. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 11:00PM, KLAC.OQ - Q2 2025 KLA Corp Earnings Call So how to think about it for this year? Can it grow 10%, perhaps low double digits this year?

Question: Sreekrishnan Sankarnarayanan - TD Cowen - Analyst : And Rick and Bren, thanks for quantifying the $500 million plus or minus impact from export control. You also spoke about China WFE dilution. I'm just kind of curious, if you lay in the digestion from China, how to think about your decline in China sales year-over-year on top of export controls in '25 versus '24?

Question: Sreekrishnan Sankarnarayanan - TD Cowen - Analyst : Got it, got it. That's very helpful. And then another question is going to China, I apologize to this. But when you look at your numbers compared to some peers, over the last two quarters, your China sales have been more resilient compared to your peers. Is this due to the wafer business? Or is it because China is building domestic critical capacity? Like what's happening there that kind of makes you relatively more resilient to your peers? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 11:00PM, KLAC.OQ - Q2 2025 KLA Corp Earnings Call

Question: Thomas O'Malley - Barclays - Analyst : Mine is a little short-term oriented, so forgive me here. But the last two things we've seen you and a competitor kind of talk about better NAND pretty significantly into the March quarter. I was just hoping you can give us just a little more detail. It didn't sound like from a sequential basis, you had really called that out. I don't think a ton of detail that would make sense that we see coming there. But just maybe describe what's happening there? Is that coming from a single customer? Is that coming across multiple customers? I totally understand it's a much lower base from these guys. But would love to try to figure out where the strength is coming from just on a sequential basis into March?

Question: Thomas O'Malley - Barclays - Analyst : Got you. And then on the DRAM side, clearly, there's debate in the broader market. You guys called out AI in some of your prepared remarks, but it seems like there's some share jockeying that's currently taking place. It sounded more positive for the year, your kind of view on the DRAM side. Any commentary just when you think about 6 months ago is when you talk to your customers. Obviously, people were putting in capacity for kind of all of 2025. Have you seen incremental spend there in the short term or rush orders to try to catch up by customers? Anything on that would be helpful.

Question: Christopher Caso - Wolfe Research - Analyst : Just a follow-up question with regard to the China impact. And you've given some color on what you expect that for the year. From a quarterly basis, is there any sort of incremental headwind or benefit as we go into the second half? I know that you talked about some of the mitigations and licenses, which are taking some time. But I guess how do we think about this as we go sequentially through the year?

Question: Christopher Caso - Wolfe Research - Analyst : Okay. Got it. And just a follow-up on gross margins. Again, you're kind of starting out with 62, you're guiding to 62 for the full year. So sort of assuming that remains stable as you go through the year. And I guess at what point with regard to some of the operating leverage that you typically get with the fall-through, what's kind of the starting point from that, that we can to see some of the leverage kick in as revenue starts to grow?

Question: Srinivas Pajjuri - Raymond James - Analyst : One short-term question on your March quarter guidance. Just the Foundry/Logic, I think you're guiding for 73% of the mix to be Foundry/Logic. That is, I think, implies at least in a mid-single-digit type decline. We haven't seen a decline in that business in a while. And I'm just trying to understand how that reconciles with your comment about N2 demand being strong in the short term?

Question: Srinivas Pajjuri - Raymond James - Analyst : Okay, okay. That makes sense. And then, I guess, as we go through the year, obviously, N2 is going to be relatively strong. Do you still have, I guess, material contribution? Are you still expecting material contribution from N3? Or is it at a minimal level? And then, I guess, just a follow-up to that, how does the, I guess, PC intensity change as we go from N3 to end N2?

Question: Brian Chin - Stifel Nicolaus and Company, Incorporated - Analyst : I'll ask a few questions. Yes, I was just curious, in terms of Logic/Foundry chip makers that are at the leading edge, but maybe not expanding capacity aggressively. Can you comment on the magnitude of residual spending you still see with them and technology development? Obviously, you're able to offset that or any drag there and outgrowing WFE this year. But just curious if you had any sort of commentary around that.

Question: Brian Chin - Stifel Nicolaus and Company, Incorporated - Analyst : At the leading edge, but not expanding capacity aggressively. That's kind of one guy doing that. But in terms of the other ones, you're sort of on the pace or maybe -- on the pace, but just not billing out aggressively. Maybe some sense of the spending engagement you still have with them?

Question: Brian Chin - Stifel Nicolaus and Company, Incorporated - Analyst : Okay. Fair enough. And then maybe just carrying for that last question, the process control intensity going from 2-nanometer around the (inaudible) because I think they're kind of meant to be somewhat closely coupled to some degree.

Question: Charles Shi - Needham & Company Inc. - Analyst : So I think that you guys don't want to call out the direction for the second half in terms of the growth relative to the first half of the year. But it sounds like the base case assumption from you guys is you're probably going to be around that $3 billion per quarter level, maybe throughout the year. Maybe some of that is contingent upon whether you can get some expo licenses for that $500 million impact from the latest export control. But is there any other swing factors that you probably don't have a conclusion yet, but that could support some of the second half growth. Is there anything that you haven't mentioned?

Question: Charles Shi - Needham & Company Inc. - Analyst : Maybe a quick follow-up. What's the expectation for China revenue contribution into March quarter?

Question: Charles Shi - Needham & Company Inc. - Analyst :