In this paragraph, Joseph Moore, the host, introduces Bren Higgins, the CFO of KLA. They discuss the company's 2026 financial targets, which include revenue and earnings per share goals. They also mention the expected growth in the semiconductor industry, with a focus on capital intensity and the mix of different types of WFE. They predict that logic and foundry will grow faster than memory, leading to higher process control intensity and overall market growth for KLA.

KLA has a strong position in process control and is expected to continue gaining market share due to the growth of optical inspection and adoption of EUV technology. The service business, which is high complexity and low volume, is expected to grow at a steady rate due to customers' reliance on KLA for high uptime and performance. The EPC business, which includes Specialty Semiconductor and PCB, is expected to grow at a rate of 10%.

The company expects to generate around $14 billion in revenue with a gross margin of around 60%. They have a target operating margin of 40-50% and plan to return 85% of their cash flow to shareholders. They anticipate strong growth as customers start spending again and are prepared for it. The Optical Pattern Inspection business is expected to see a 1.7x increase in process control intensity from 2019 to 2022-2023, driven by a focus on cutting-edge technologies. Overall, process control intensity is expected to increase from low 6s in 2021 to high 7s in 2023, with mix being a key factor.

The adoption of advanced systems for process control in R&D has been consistent, but there has been an increase in adoption during high-volume production due to the design environment and iterations in each process node. This has led to incremental growth and increased process control intensity. In the past, when Moore's Law was not scaling quickly and there was limited market adoption, customers were able to efficiently reuse their capacity, but this changed at 7-nanometer with the proliferation of design and is expected to continue as we move towards smaller nodes.

The company is confident in their current position and expects to see incremental growth in the future due to factors such as scaling, changes in architecture, and competitive dynamics. They anticipate WFE to be flat to slightly up this year and to remain around the high 80s in 2024. Leading edge is expected to improve, particularly in 3-nanometer activity, while Memory investment may see modest growth driven by DRAM. Legacy investment is expected to be lower compared to last year.

The activity levels in China have been relatively flat, with a slight decrease in reticle and wafer infrastructure and an increase in logic foundry business. This translates to a flattish to slightly higher outlook for the year. Looking ahead to 2025, there are several drivers that could lead to growth, including improving markets for handsets and PCs, increased data center investment, and the need for more capacity in the memory business. Additionally, the 2-nanometer ramp and competitive dynamics at the leading edge could also drive investment. While there is no specific guidance, there is a general expectation for a step-up in investment in 2025.

The speaker believes that the China business is likely to remain stable, with potential for improvement in the future. They note that there is a lot of new investment happening in the region, which could be beneficial for WFE investment. However, there is also some debate about the role of geopolitics in China and the efficiency of current projects. The speaker also mentions that there has been investment from both new and existing customers, but the infrastructure in the region has been a limiting factor.

The speaker discusses the desire for more control over wafer and reticle production in China and the potential for inefficiency in the investment process. They also mention the company's view on growth and profitability and the potential for a permanent tier of inefficiency as upside to their plan and model.

The speaker discusses the impact of export controls on Chinese companies and how it may affect their spending on process control equipment. They mention that it is difficult to predict the government's actions and that stockpiling is not a common behavior in this industry. They also mention the long-term investment nature of process control equipment and how it is necessary for companies to keep spending on it.

The speaker discusses the challenges of transitioning from old design rules in the legacy parts of a node, and the need to continue investing in certain products to gain customer commitment. They also mention that there may not be much growth in China DRAM due to limited financial efficacy, and that one customer may spend less this year compared to last year. However, there is still potential for subsidization and government support for domestic Memory production in China.

The speaker discusses the current state of advanced technology in the industry, noting that there is a lot of competition among companies for the best node and a strong interest in 3-nanometer technology. They also mention that the market is driven by good competitive dynamics and end market adoption. The interviewer brings up the fact that there may not be as much interest in being the first to adopt the new technology, but the speaker points out that there is also a growing demand for custom silicon and high-performance computing. Overall, the current state of advanced technology is seen as a positive and promising setup for process control companies.

The speaker believes that the pressure to support more designs at earlier stages of the process node life is good for process control, but it also puts pressure on yields. Customers are ramping at less mature levels and this has led to a greater adoption of process control. The speaker also believes that High NA, a technology beyond the current road map, will benefit KLA by driving scaling and enabling smaller feature sizes on wafers, which will drive high-end inspection and precision film measurement.

The interviewer asks the CEO about their supply chain management in 2022 and how they were able to avoid challenges that other companies faced. The CEO attributes their success to their partnerships with suppliers and their willingness to invest in capacity and make commitments. They also mention their large inventory as a factor in their ability to manage the supply chain effectively.

The company is not concerned with its suppliers or payment terms, but rather focuses on differentiating itself and commanding higher gross margins. They have invested over $150 million with suppliers to ensure capacity and are confident in their ability to scale from $10 billion to $14 billion in a few years. They are also prepared for potential improvements in the market and have plans in place to address any shortages in certain components.

The demand for Gen 4 product line is high due to its short length and cost-effectiveness. There is a special version for gate-all-around and deconfigured capability for legacy nodes, which brings in more revenue. However, there is a shortage due to the time it takes to set up grinders and polishers for optics. The Orbotech acquisition has added to KLA's capabilities in advanced packaging, which is a growing area for the company. This growth is seen across multiple products in the portfolio.

The rising complexity and shrinking pitch of back-end packaging is driving demand for higher-end inspection and metrology tools. This is expected to lead to an increase in unit growth and ASP. KLA's SPTS business, acquired through Orbotech, is well positioned to address these needs, along with their PCB business which will be introducing new products to the market.

The company has seen about $350 million to $400 million in revenue from imaging and inspection for substrates and PCB boards, and expects to see similar growth rates in the future. The DRAM market is expected to continue growing due to shrink investment and increased utilization, with a focus on HBM and EUV technology. Advanced die and reliability challenges are also factors in the market.

The speaker discusses the trends in the bit trade for HBM and advanced DRAM dies, predicting that there will be an increase in utilization and pricing as the year progresses. They also mention the potential for NAND to rebound next year, driven by a focus on shrinking and increasing layer counts. The speaker also mentions the growth in services and how their lack of spare parts gives them a unique view into the actual revenue generated from services.

The sustainability of the Service business at the company is strong due to its consistent traditional service model and the expected increase in revenue from improved utilization and tools coming off warranty. The structure of how customers buy process control is complex, making it easier for them to outsource to the company. This allows for good visibility and profitability.

The speaker discusses how the company's visibility and strong cash flow stream has allowed them to make successful decisions regarding capital structure and allocation. They also mention that their portfolio of solutions and collaboration with customers has helped them gain market share in Japan. The company invests more than their competitors and is able to offer a range of solutions to meet customer needs.

The speaker discusses how their company's portfolio and software capabilities allow them to provide more actionable results than their competitors in the process control market. They have a strong position in this market and are investing in areas where they have a weaker position, such as electronic markets. They believe their position will continue to grow as they invest in these areas. They also mention the potential for substitution between High NA and Low NA multi-patterning, but overall, the adoption of High NA will lead to more pitch shrink and a scaling roadmap.

The speaker believes that the introduction of EUV masks will have a significant impact on transistor density and precision measurements. They expect the complexity of EUV masks to create new opportunities and challenges, unlike the introduction of multi-patterning at mature lithography levels. They believe that the High NA environment will bring higher levels of complexity. The speaker thanks the interviewer for the conversation.

This summary was generated with AI and may contain some inaccuracies.