The operator welcomes participants to the KLA Corporation's earnings call and introduces the speakers. The call will discuss the June 2024 results and the September quarter outlook. The discussion will be presented on a non-GAAP financial basis and the company's website contains additional information and SEC filings. The speakers' comments are subject to risks and uncertainties. The CEO, Rick Wallace, will begin with introductory comments, followed by the CFO, Bren Higgins, who will provide financial highlights and the company's outlook.

KLA had a successful quarter with revenue, gross margin, and EPS exceeding their expectations. The market environment for customers at the leading edge is improving and there are long-term tailwinds in the foundry/logic and memory markets. The company's broadband plasma products had a strong performance and are expected to continue delivering growth. AI is driving growth for KLA's business, with an estimated opportunity of $400 million in annualized revenue by 2024.

In the third paragraph, the estimated advanced packaging revenue for KLA has been raised to over $500 million, with the help of AI technology. The Services business also saw growth in the June quarter, and free cash flow and margins have been consistently high. The company's success is attributed to its process control leadership and product strategies. The financial highlights for the quarter include revenue of $2.57 billion, non-GAAP diluted EPS of $6.60, and a gross margin of 62.5%. Operating expenses were $553 million, resulting in an operating margin of 41%. Other income and expense net was a $32 million expense and the quarterly effective tax rate was 12.6%.

In the fourth quarter, KLA reported a non-GAAP net income of $893 million and a GAAP net income of $836 million. The company's cash flow from operations was $893 million and free cash flow was $832 million. KLA also had $4.5 billion in cash and $6.7 billion in debt. The company expects to see growth in the semiconductor industry in the second half of 2024 and into 2025, with a focus on leading-edge investments in Logic/Foundry and memory. The company's September quarter guidance predicts total revenue of $2.75 billion and Foundry/Logic revenue from semiconductor customers to be around 80%.

The memory segment is expected to make up 20% of semi-process control systems revenue, with DRAM accounting for 83% and NAND for 17%. Gross margin is predicted to be around 61.5%, with operating expenses of approximately $565 million. There will be incremental growth in operating expenses for the remainder of 2024 and into 2025, in line with the company's business model. Other assumptions for the September quarter include other income and expense, GAAP and non-GAAP diluted EPS, and a fully diluted share count of 135 million. The company is optimistic about future growth and is focused on delivering a product portfolio that meets customers' technology roadmap requirements.

The KLA operating model is driving outperformance and the company is focused on customer success, innovative solutions, and operational excellence. The return of scaling and complexity highlights the importance of process control in technology advancements. The near-term industry demand is improving and KLA's business is also improving. The long-term secular trends in the semiconductor industry remain strong. In the Q&A section, Rick is asked about TSMC's plans for 2 nanometer technology and its potential impact on KLA's outlook and share of the WFE market. He expects 2 nanometer to be a significant factor in 2025 or 2026.

The company is seeing an increase in activity in the reticle market due to more design starts, and this trend is expected to continue into 2025 and 2026. The demand is being driven by advancements in AI and larger die sizes. The company's goals to increase their percent of WFE are supported by these opportunities. The high mix of parts in the design start environment is also leading to more investment in process control. The company has seen a more positive tone from their customers due to early demand from their customers.

The company is seeing a strengthening in their business, particularly in N3, which was not forecasted. They have raised their expectation for the advanced packaging business for 2024 to $500 million, a mid-60% growth rate from last year. There is high customer interest in packaging due to the growing demand for broadband capability and the bottleneck in AI being silicon and packaging. Customers from the front end are also starting to involve the company in packaging conversations.

The speaker discusses the role of AI in driving the growth of the semiconductor industry, specifically in terms of silicon, packaging, and HBM. They estimate that 60% of this growth is due to process control, with the remaining 40% coming from specialty processes and chemical process control. They also mention that 2024 will be a transition year for the memory market, with more growth expected in 2025 due to improved financial performance and increased investment. They predict that DRAM and HBM will be the main drivers of growth, while flash will see a more modest recovery.

Richard Wallace and Bren Higgins discuss the increase in silicon utilization and the addition of capacity in HBM. They also mention their confidence in relative performance, particularly in the foundry/logic side, and expect to see growth in this area next year. They also mention the potential for packaging opportunities and increased sampling in DRAM.

The company expects to see continued improvement in DRAM technology and process control as they move forward. They have seen a decrease in repair effectiveness and an increase in the need for process control due to EUV and print-check. The team is confident in their strong guidance for the September quarter and anticipates sequential growth in the December quarter. They also have a more positive outlook for 2025, with indications of better investments in 3-nanometer technology and potential improvements in other areas.

Richard Wallace and Harlan Sur discuss the expected sequential growth in the December quarter and the strength in the funnel of opportunities for next year. Harlan also brings up the dynamics that are pushing advanced logic-like capabilities into memory, which could potentially increase memory process control intensity. Bren Higgins agrees and mentions that they have already seen an improvement in intensity over the past couple of years.

The company is waiting for a full investment cycle from their customers before fully committing to improvements. They expect to see opportunities in the leading-edge foundry and logic markets, as well as in the bonding packaging sector. However, they are still working on proving that their solutions will work for these opportunities.

Atif Malik from Citi asks a question about the increase in metrology intensity and EUV map for gate-all-around PDC at 2-nanometer and 3-nanometer. KLA's Rick Wallace explains that this creates new integration challenges and that they have seen an increase in the adoption of Gen 4 to support this. He also mentions that VT control becomes more important and overall, there is nothing different in their modeling of process control intensity and share performance. Bren Higgins adds that the last time KLA had a high share in WFE was during the transition from planar to FinFet structures.

The speaker discusses how architecture changes can drive process control intensity to a higher level due to the immaturity of the change. This has been proven historically and is expected to create opportunities in areas such as inspection and metrology. The speaker is confident about the opportunities and their revenue guidance is wider due to higher revenues and the impact of large tool configurations.

The speaker is asked about trends in mature node and specifically about China revenue. They confirm that it is expected to be flat in the second half of the year, but there may be some fluctuations due to new projects and revenue recognition. They also discuss the impact of high NA on process control, which will involve continued scaling and new challenges with reticle qualification.

The speaker discussed the current state of China's revenue and stated that they do not see any major changes in the near future. They mentioned that half-to-half, it is relatively flat and that this is largely due to project timing and the level of greenfield activity in the country. The speaker also addressed the potential impact on gross margin in the upcoming quarter.

The speaker believes that next year's business levels will be similar to this year's, with potential changes in product mix. Gross margins may vary quarter-to-quarter due to product mix, but are expected to be around 61% for this year and 65% in the future. Advanced packaging is expected to contribute to business growth.

The company's revenue has increased from $400 million to $500 million due to the growing advanced packaging market. This growth is not limited to just macro inspection, but also includes other advanced lithography and inspection services. Customers are now showing interest in the company's capabilities and are pushing for accelerated product roadmaps to address packaging shortages. This growth is seen across the company's products, including processing and process control.

In the paragraph, the speakers discuss their expectations for growth in the market in the coming years, with a focus on high-bandwidth memory and hybrid bonding techniques. They also mention the potential for panel level packaging and the importance of having a strong road map for future upgrades. They emphasize the value of their higher-end offerings and the potential for continued growth in the industry.

During a conference call, Joseph Quattrocci asked about the expected growth rate for the company in the second half of the year and the mix of business between foundry/logic and semiconductor process control. Bren Higgins responded that the company is expecting high single digit to low double digit growth for the year overall and that the mix of business is likely closer to 75% for foundry/logic and 25% for semiconductor process control. He also mentioned that the company is seeing increased demand for their Gen 4 and Gen 5 products, but they are working to increase capacity to meet this demand.

The speaker discusses the challenges and growth potential for the company in the coming years, particularly in the high-end wafer inspection market. They also mention the trends in the Chinese market, with DRAM being stronger in the first half and expected to be weaker in the second half, while reticle and foundry/logic are stronger. The services business is also performing well, outpacing competitors.

The speaker discusses the growth of the company towards the high end for the remainder of the year, citing factors such as utilization rates and the shift of tools from warranty to contract. They also mention headwinds from foreign exchange and express confidence in reaching the top end of their guidance range. In response to a question about the company's business in China, they clarify that their multinational business in China is minimal and the majority of their business is with China sovereigns. They also mention that their process control intensity has remained on par with their competitors despite the shift towards trailing edge focus in China.

The speaker is discussing the growth of the company and the factors that contribute to it. They mention that the process control intensity is not as high as leading edge technology, but the small size of their sites and the added infrastructure helps to balance it out. They also mention that their forecasts for WFE growth next year are independent of any chips money, and that their customers are not building capacity based on demand, but rather using the money to offset building costs.

The demand for equipment in the market is based on overall market conditions, not on customer funding. The company is heavily involved in the reticle market and has not exited it. The company's conclusion is that actinic inspection is not currently needed for reticles, but they are developing a product for high NA in the future. They are confident in their ability to meet the demands of high NA manufacturing.

The operator introduces a question from Brian Chin about inflections and sequential and year-over-year revenue growth. Rick and Bren discuss the bookings and shippable RPO for the quarter, which was slightly down compared to last quarter. They also mention that the advanced packaging process control TAM is expected to grow faster than overall WFE, and that this part of the market will likely grow faster than semiconductor revenue. No specific numbers have been provided yet.

The company has a diverse portfolio and is approaching the market in multiple ways. They are well-positioned in the memory market and expect modest growth in their specialty semiconductor business. They have exited the flat panel business and are still seeing sluggishness in the PCB market, which is tied to mobility. Improvement is expected in the future with an increase in cell phone unit growth.

The speaker discusses the performance of the PCB industry, noting that there was a lot of capacity added in 2021 and 2022. They also mention that while the systems business has been slower, there have been service contributions that have helped. They estimate that the overall business is up a few points year-to-year. They also mention that there are still new customers in China, but also investments from existing customers. They expect a mix of new and existing customers in the remainder of the year and into next year.

The speaker, Bren Higgins, was asked about recent news regarding the use of the FDPR against non-U.S. suppliers in China. Higgins stated that he cannot speculate or provide hypotheticals about what may happen, but the company will comply with regulations and support their customers. Richard Wallace added that the company is seeing an acceleration in the leading edge of their business, particularly in leading-edge foundry, N3 and N2, packaging, and HBM.

KLA expects strong performance and opportunities in 2025 and 2026, driven by leading-edge advanced design rules. They anticipate a ramp-up in business from leading-edge customers on the logic and memory side. Book-to-bill has been below 1% for the past seven quarters, but KLA believes it will start to drift up as customers come back and orders increase. The RPO has decreased from $13 billion to $10 billion, but the order profile for the next few quarters looks promising.

The operator hands the floor back to Kevin Kessel for closing remarks on behalf of KLA Corporation. He thanks the audience for their time and interest and invites them to reach out to the Investor Relations team for any follow-up questions. The operator then concludes the call.

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