KLAC - Earnings call transcript Q3 2018

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Operator

Good day. My name is Jeff and I'll be your conference operator today. At this time, I'd like to welcome everyone to the KLA-Tencor Third Quarter Fiscal Year 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank like call I'd to turn to now over the Mr. And with KLA-Tencor Lockwood Investor Ed Relations. begin. may you Sir,

Ed Lockwood

Thank afternoon, Jeff. you, Good conference to call. our everyone, and welcome

our the Officer; results X:XX on and here Chief released today me our these quarterly today this March We're Rick Joining Pacific results XX, discuss for We call Financial Officer. at Chief ended Time. Bren and Wallace, Executive to Higgins, period our afternoon are President XXXX.

There on the on non-GAAP release, report a KLA-Tencor's detailed Today's future for links you investor basis If our you Form as risk today's future on Relations it calendar results. results as presented website. GAAP and descriptions impact find results of find be unless annual you'll haven't in to the found the factors a presentation presentations KLA-Tencor's earnings those ended Investor financial our XX, to seen be find that reconciliation of of A discussion our release our of on conferences, can could including press also in XXXX. events, financial can investor In June otherwise filings, will well specified. non-GAAP you'll year XX-K and SEC filings, website.

KLA-Tencor results guarantee you on true. including and those to those risks. the subject come are we forward-looking will call our As cannot know, Any future risks, those make to statements subject forward-looking statements, today, are

projected significantly those the With differ in may over I'll results from call forward-looking actual Rick. our turn Our that, to statements.

Richard P. Wallace

off prepared remarks briefly joining to I handing to my three all cover items for you thank before in Bren. And us. Ed. Thanks, today plan

for by of and market very XXXX strong reported in performance March outlook our outstanding the quarter, Gartner, KLA-Tencor's First, a our industry and of KLA-Tencor quick results calendar with growth for by highlights XXXX. as updated in followed concluding in review the

process share first highlights. revenue I'm and time to $X Diluted billion March the report end the was of success the with upper KLA-Tencor definitive were earnings and Also, acquire technology the creation. Orbotech, KLA-Tencor, the each growth in manufacturing the display our momentum marketplace the value very the results panel guidance. reach circuit across electronics and major XX This non-GAAP KLA-Tencor for chapter profitable topping record combination, be long-term record groups customer for announced Limited. finishing of of in from reflect packaging, acquisition agreement services. we yield leadership the product diversified on quarter even at strong in and of ongoing March experiencing Let's manufacturing. for and technology will begin our a chain semiconductor on more next progression extending is solutions we to happy in strategies and in this With to with These services, management and our $X.XX. board and are printed the by quarter per range leader a driven another March focus to device address value of flat

these efforts, integration are forward moving kicked planned. off planning and have the as and review We regulatory processes

prospect opportunities we are of we experiencing and that Orbotech, create excited we momentum with from with strategies team core the opportunities measurement our and growth about Orbotech are will the KLA-Tencor. very that the are and are We excited for in lie business, with this assets Coupled the execute customers, ahead with benefit combination as inspection the employees. that and impressed the new very stockholders augmenting to our about

process our SAM approximately customers WFE market maintained The report drove market of equipment the strong for Turning that now investment XX% a strong to Gartner recently inspection KLA-Tencor markets, in in memory China. product and at complex of industry accounting XXXX, a addressing position the to or by growing a and customer measurement grew of expect addressing in and level published each XXXX. very high year, expansion marketplace. to shows value critical in XXXX, semiconductor fab overall overall problems highlights year driven in forecasted for while intensity and in data demand more remain and we of for requirements wafer inspection With measurement increasingly control WFE with expansion in grow major the in

strengthen As China, and a in control, continues of our terms process KLA-Tencor in customer adoption. leader in both footprint to position

represents for drive the factories under stages The in the on with complexity significant of developing presence overall world-class for early growth KLA-Tencor. of in in pressure a still start-up multiyear which mode tremendous to semiconductor are opportunity cycle a investment the while and We associated a our region. still China subscale will tremendous yield industry business

demand level high driven in as inspection well and by as XXXX XXXX expected an growth in the stringent to specifications cycle wafer in unprecedented calendar and momentum products order These and wafer wafer to has NAND. cleanliness fabs, in support with XXXX. customers manufacturers and investment with investment of capacity record more into wafer addition, in flatness revenue In to metrology and memory and in experienced scale unpatterned continuing IC meet this vertical shipments year

some underlie our highlights market strong that product performance. for Now

First, investment continued we XX% estimates by mask part optical lithography lithography. year large in $XXX multi-patterning in in KLA-Tencor's in bringing the success mask inspection to customer technologies customer strength million, EUV saw by and to XXXX. particular that grew mask are market. in critical in the EUV inspection fueled inspection in strength Gartner to market

technology, a promises that comprehensive control. qualification accelerate with positioned with issues are requalification. major catalyst and to and to each for metrology, deploying the uniquely two process was overlay semiconductor of process KLA-Tencor. investment grew market across inherent to million. patterning address These, capability The for source a and the advanced portfolio and mask pioneer opportunities market driven by future industry. KLA-Tencor the Other development, metrology our KLA-Tencor and other to XXXX collaborating is of overlay KLA-Tencor with complexity We in along metrology overlay advanced metrology we with for most and year, the associated present include to markets strength the in current positive defectivity memory structures. control in believe film different challenges and in layers a growth multiple technology the customers XX% in stacks factor control yield complex EUV scanner including of memory in of in be market the increased control the verticalization in in unique platforms. The EUV architecture, EUV resist process growth EUV design is XXXX $XXX major

leadership service to execution preference led X% the sales and plasma of for drive of is product a inspection just pattern And and billion. strong increasing continued measurement that, result the over in $X.X few that product wafer customer that semiconductor industry. successes competing growth scattering and to marketplace. optical inspection year our SAM by inspection, the Finally, growth expansion strong success period KLA-Tencor's through our served a inspection today's in to and are a wafer And challenges optical successful driven helping XXXX. laser address market, customer is in growth strategies KLA-Tencor for This in including of the e-beam. broadband These SAM experienced over our grew of market the in largest technologies portfolio we

markets XXXX, be exceptionally Turning strong growth in WFE XXXX. the to an to today calendar low-double solid, environment outlook each expected to the that in Coming overall industry digits industry a of investment is off landscape the currently customer is digits year for the supporting XXXX. in in end major high-single

wave continued the led the In WFE by from to the are of investment end investment memory half investment terms DRAM XX the see expansion in investment view investment five foundry XXXX, In nanometer. and of XXXX focused expecting with finally, expect of lithography or logic expansion in more again year, see memory. to of in XD orders for we begin the capacity in in year. in the foundry, once first in and ongoing And we our of markets, NAND, of comprising EUV DRAM China XX% continued in second nanometers on we ramp

leading which expecting leadership, revenue China, XX% to intensity new memory customer in of more will of the and end deliver our This not process Bren Bren? the our call over growth comments. to we any to from by does I products, the his Orbotech of acceptance acquisition strong control turn improving the in for Given is expect include KLA-Tencor XXXX. technology strength now and year. or Higgins contribution edge close

Bren D. Higgins

everyone. afternoon, good and Rick, Thanks,

the highlighted earnings company. the in his in solid and as strategic was record period In This outstanding our March opening per the Rick remarks, revenue, non-GAAP Shipment, $X.XXX share. of diluted guidance $X.XX, result at in a will portfolio, quarter, end range our share quarter by you earnings driven As quarter, revenue to $X.XX. earnings find the earnings billion was well the demand across non-GAAP share objectives. upper GAAP was represented per product diluted levels. an each at finishing GAAP for and was strong release, per in with earnings the diluted of non-GAAP execution share financial came per reconciliation Revenue and of diluted performance our press per share of GAAP as of

of refer covered results, the on commentary the focused exclude press will With which I GAAP non-GAAP be the explicitly in adjustments when exception the to release. my results,

upside the metrology the Total range higher-than-expected were the end demand shipments. top products. pull at Now environment the our billion, March overlay by turning in of for of to $X.XXX highlights of finishing terms shipments guided for customer with driven quarter,

we to plans calendar to Based half compared forward, the to are billion. we sequentially in customer modeling and range half in continue $X.XX of grow be our June the of current Looking on and shipments expected grow the mid-single to $X.XX shipments digits timing, delivery quarter year. to second billion first expect the build

stronger we forecast of in total quarter. than in shipments DRAM original digits. for XX% of year, expect growth shipments the and high-single period. Memory accounted was full the the XX% system the our shipment for For

Memory be of shipments is quarter. in XX% half dominate of the next in and XX% will remain mix shipments of systems in shipment shipments to total shipments the June mix current approximately of in XXXX. system is second We the our was of shipments be XX% the Foundry expect about memory QX. in was and March outlook be shipments of forecasted total expected forecasted and XX% to X% logic March, X% Logic quarter, to June. foundry memory for with continue to between in to of quarter XX% is the

of was terms product statement. approximately the patterning was now XX%, turn XX%; patterning distribution for includes to shipments reticle inspection; was and by In shipments wafer inspection record was X%. of range group, at remains base I'll $X.XXX as income of XX%; the a approximate in non-semi service of was contributor upper the guidance. customer finishing the March, in level. the to the high at billion Service installed a quarter a upside revenue at end the was Revenue utilization

range or the Gross line in trends year margin terms margin revenue product our was XX%, of billion $X.XX introduction for in growth expect with be product our consistent in of outlook management June in factors quarter, second accordance in billion the quarter. the to the of driving margin be The and execution $X.XX in greater. and service revenue We to performance of our full new grow cost efficient XX% were XXXX and for for to strong revenue recent sequentially manufacturing gross of mix, and guidance variable in with with half calendar operations.

the Looking as forward in expected richer to a range expect in is be gross to XX% mix to of June, quarter. XX% the product we margin

the trends support in number XX% about current guidance calendar Total $X higher unchanged, million March, including end a million XX% of $X guidance higher factors, were were down high Our in and programs. material this $XXX expenses of quarter to of for December, due million margin than XXXX margin was gross towards range. however, operating the XX.X%. bias expenses operating next-generation for March compared a approximately with to cost Operating remains

line business to and supporting growth memory new investment for and plan our EUV maintain core programs, continue see many to We top applications. including those vertical future posture our with opportunities in

million to operating level For the of operating $XXX are this be June expense XXXX, quarter, quarter, to half approximately In count modeling driven we of development costs. expect million. non-head by $XXX to we around variability engineering approximately million the timing be with per program second $XXX expenses million operating expenses the $XXX to

our XXXX for investments consistent to our sheet $XXX Our was free and of in was resume pursuant income for $XXX upon share the outlook increase annualized highlights $X.X to $XX effective rate long-term In QX, $X our stock million consistent to paid $X.X record for program, quarter, the this $X.XX the ended XX% $XXX billion and million a per the range. December. In XX.X%, Cash the the well business and as had dividends balance March our of That's compared end billion, from Finally, billion stock with quarter. with million approach. was in fully model level our We dividend billion quarterly shares vested million turn Cash diluted as March of million with revenue million The operating million in margin approximately rate cash in regular additional million. in had in March and with our quarter restricted excess February, quarter, $XXX effective a equivalents flow outstanding. new operations repurchase tax statement. $X.XX we authorization is completion share line in $XX quarter was fully quarterly authorized in in of and share an program. aggregate increase be articulated acquisition. quarter June we the the At of XX% and we repurchases planning published the dividend Orbotech $X share. our guidance to an flow now common cash for we contingent units from I'll previously of $XXX announced an under to at to net and plan repurchase repurchased

the connection shareholder share amount merger. June legal in with prospectus proxy the restrictions expect of given the in following will on quarter repurchases be We the limited distribution vote statement the of the and Orbotech

repurchase subject completion the current accelerate conditions. Our market activity to is the plan our vote to shareholder following share of

adopting will recognition the starting with we coincide the new quarter, in start standard, that year revenue fiscal of be the to note our XXX, I'll ASC Finally, September XXXX.

We financial approach will standard, ASC report XXX retrospective be results under modified the results. using will historical adopting will a which new in not prospectively but we restate

industry-leading the In financial company's information next the XXXX additional critical the of KLA-Tencor's by the the the results the provide our nature strategies, in reporting conclusion, reflect model on capital earnings standard March growth process of and business in quarter call Gartner and the impact company our our on strategies. will and control and report July. technology We the allocation demonstrated of new leadership, customers' value in in

traditional such the industry today, and We drivers Things This intelligence, by a computing and growth are data, electronics on the markets. in demand unprecedented is experiencing Internet in driven of the mobility fundamental automotive new artificial of as big layered semiconductors. demand top shift for

presented control long-term leader this positioned market by with pending the industry growth believe semiconductor As and value. new acquisition, the we create to opportunities in is Orbotech process the KLA-Tencor uniquely enduring from to and benefit

to digit in of of XXXX Looking Fueled March the just revenue of backlog quarter, the what forward we $X.X beyond, under low-double are environment are positioned industry currently energized as to by more of the to billion $X.XX the to and quarter XX% EPS $X.XX of end revenue well of growth record back shipments against June by share, billion $X.XX our EPS per billion, With billion, to the $X diluted Q&A. and that, guidance I'll share. GAAP over With to as $X.XX diluted per and is as between range Ed the of in now summarize, of to $X.XX non-GAAP the turn begin $X.XX that, in WFE for total that overall to lies billion year the ahead. backdrop grow range. is we the call forecasted high-single or digit the $X.XX for to

Ed Lockwood

limited as for point, to call given open have today's time up time for the additional that Jeff, limit We call. follow-up one first. we're At to Bren. Feel Okay. and to right, free Thank one yourself re-queue this questions All you ready permits. question we you, questions. we'd request for the like the

Operator

All right.

question Arcuri first of the from from line UBS. Timothy comes Our

ahead. You may go

Timothy Arcuri

Hi, Thank you guys. very much. Hi.

the with it's So first I don't obviously question with XX%, having which market. remember line is line the guys basically memory. is lower. the on bit market. sort concentration XX%, ever guys shipping I remember Typically you ever a don't that's in you memory quite of in

my that? Is about to talk it big like it Can process a guess is intensity? uptick just Thanks. one-time control is, I deal in So related China? you question memory a

Richard P. Wallace

it always to get think of to I but give Tim. helps Hey, take and definitely the also China fabs, Bren. I'll which great newer process for players because it Yes ramp. yes. I are intensity, the control mean, to and greenfield then needing capability

in we new And is developments recognizing in the part second design to that's of The push adoption so increased also rules. NAND, that have they a process market but which continue capability result and is the need that. in for, both DRAM as we're the seeing control as

Bren D. Higgins

back. Welcome Tim. Hey,

we into Rick's this momentum have I a going don't a I China, quarter We're did NAND more in to I see So point, we to China. significantly add. ship lot there. into to mean, so project mean, of pretty ship DRAM much project

perspective from I stronger and some a than inspection solid metrology control in NAND seeing adoption a perspective, perspective. a think we're bit process segments, both intensity DRAM from little

really, we're that excited we've intensity the pipeline help hopefully products our got in further. I positioning So will and some there, about think, drive

Timothy Arcuri

Bren, can about a that for a as you really great. on products? those ramp guess, in industry's sort I yields Okay, timing talk follow-up, can just XD you waiting can of product I NAND. the the been help know –

guys going that's intensity of you sort drive really and can been of talk when that to for now control in for developing terms when sometime, going that the memory suite really about up You that's have Thanks. become shift you? organic to could revenue, product meaningful process and

Bren D. Higgins

field, that the or the translates on pretty challenge out for problem. in I proving We'll a engineering not. We've it's and customers product customers inspection tools working got – into with mean difficult see side, evaluation some we're to high-volume if a a in phase. be challenging And the production inspection proving Yeah. problem is

we're out, lot work think that's I jury a area. the one on And that but doing think of is I front. still

the I and the traction results next into the in-stack contribute think those products field get a – of But a XXXX, get see over tools on metrology for where product some I nine a outlook into we've metrology and don't move of we've discussing hopefully in we'll the to these bigger hopeful see the will percent we been we're be think there other or six some couple total. we'll to as is we'll area probe months. traction the shipped financial we'll there. certainly so

Timothy Arcuri

Thank Great. much. you so

Bren D. Higgins

you. Thank

Operator

Our from of Mr. second the JPMorgan. line question Harlan from Sur comes

ahead. go may You

Harlan Sur

question We taking Thanks off their by Good out call good customers, to got afternoon, DRAM heard and pushed some XX-nanometer congrats We've guys. the my also Intel ramp side. memory on for on yield issues. the quarterly they of your especially of challenges execution. just and just yield the the

challenges your adoption always flagship Gen as EUV inspection base? current of guys all You seen yield have as logic customer wafer more of given starts some of pull-ins platform and GEN the have an into your get by But opportunity in XXXX to characterized calendar just the guys you memory, proliferation. more X X

Richard P. Wallace

with good GEN We success have had the X.

the production. before into ramping. capability are cycle. the it do We it relatively where I multiple units places we're But ramps a still we couple mode think seeing out is of proving in long have of a

the of We have product seen pull-in nodes.

seen work more we characterization tied it'd where that of case did talking you're the to about. in be problems kind the So of more EUV, existing nodes to think we've

using felt definitely yield of challenges they'd the to capability resolved their people like of are some think debug. initial some I maybe

But for get but the push customers the still opportunity – expected. And kind of it's encouraged people most to are in some that. of long it's that. continuing seeing evaluation. are relatively It's once a as cycle we we adoption So

Bren D. Higgins

dollars use segments, but we segments of the customers So into or solving have all one shipped to cases. year, near XX I Harlan, things booked issues field by are across will discovery this also we around for by the that XX all in EUV encouraged somewhere the and use that's either across cases the we're that think systems end with of development

how to the work the of And and more is that speed of it roadmap about prepare X that you on most sensitivity do of some engineering So viable. and production and for product opportunities other effort volume up production most right line through beyond. for for the throughput is tool to now tunable nanometer make

It's it's the across and is which demonstrating value segments demonstrating good. encouraged all So we're traction with. value

Harlan Sur

year, you business EUV insights And the Yeah. think, statistics were it's those XXXX. by according Obviously, reticle then I last the as about, profitability you reticle Early recent But the Thanks next-generation inspection year adoption, performance. your guys platform? give think business on And for over EUV year? inspection talking strong Bren, market highest reticle we Xx segment inspection about then of you to for an probably XXXX update of you adoption accelerated of think grow drivers guys question. some do that strong the your this there. this First results the for was EUV grew the e-beam in off one can share Thanks. that just us guys. can

Richard P. Wallace

Yeah.

when if control look maybe support to intensity use that. to intensity a the tools at the EUV more UV includes as for at the And Let it rules process support tools bit reticle one EUV design support of being order perspective, it. look similar not largely optical, overall a in designs you people it. to at prepared only talked process EUV. strength capability a to this, from of we but well that. for optical see in we control of did by little and continued in a as and overall and view do scanner EUV, That due as as Yes, we advanced percentage new pushing driven shock mask Maybe course, you of about mentioned me remarks fractional versus our Deep see portfolio of tapeouts need you number take wafer strength percentage, compared of we to

intensity may for capital maybe areas general will than and overall track in process the control process intensity litho, industry control while EUV. decline other see outpace So for even in litho

encouraged we're So that. by

optical on is of continue with customers for finding extensions we have support platform, the In a and we that. the of lot appetite that our e-beam, to there so terms that we're

the nodes insertion, yield delaying a the also of nodes of slipping optical to the the the they're of out One – gives runway. due means which comments of longer advanced EUV

we well-positioned support feel So that. very to

Bren D. Higgins

Harlan. we XXXX. that about thing is add tool I'll Bren. introducing had sometime This Hey, the calendar is The in that to marketplace talked only in that

would the changed. it's time. first on of forward than right more that views that at moving haven't to towards half. the end plans expect intersect Our I are XXXX it's the our and HVM the going But

add what nothing on new So updated really we that front to since you with last quarter.

Harlan Sur

Thank All you. right. Great.

Operator

next Credit Our comes of from line question the Suisse. Ahmad Farhan from

Hi. question go - Farhan Ahmad my my the first to may LLC It's You for is of Credit and question, foundry Suisse in on ahead. basically. the a question, two-part regards (USA) results. Securities great Rick, shipments. Thanks taking congrats set

seems when you EUV, historically. level I I much as up I to at not the they have shipments half, I in having just want is going the strong shipments all-time even that foundry seen that at about look it's ASML shipments, back pretty how the recently talked you It are the the low. are it the foundry in And reflected segment, is to when nearly like that see but the don't second, First, trajectory having. pretty in foundry at you EUV that look an ask here. And from seems

in timing in difference a you actually there is EUV benefit? of the when would start ships when terms and to So

Richard P. Wallace

activity well. that's so reticle XXXX. later. over an quarter that that's in it the of comment carry support that I that that and EUV seen as And the year the shipments more do coming really on. is for we we point, Bren to work a around the think that remarks. end have with EUV, – and is reticle, support and maybe ordering increase we take just tools I XXXX the late toward business about we'll that consistent going talked expect but development think foundry something node, of and that also wasn't we of the nanometer the to I'll the and see of same of prepared have is to see timing X Yeah, in had driven our by We we're question addressing In into your but be great But I'll it, expect

Bren D. Higgins

through Yeah. a expect this earlier think at see foundry to foundry a the to lot level as in the in. in centric, beyond us China, mean, low as kick then as comments the at low we're process that think then level, during stronger the the But I at space you Xx point segments, good know, and unique the you high business you we your but this at future stays we here move wafer of of memory little you with closer development move coming that intensity improving think, pretty with to see a stronger. driving this made our we a I logic – are be I environment. almost we strong environment to performing, I we'll look year absent it's what inflections And year tends at would is foundry bit historical look for it's the into very activity, the when look foundry And control control To we logic point it's level. that and and memory. it EUV around story the activity in relevance and around different memory process the

comes Suisse mix to year. how question the and is cloud, is LLC regards increasing when Ahmad I Got and is it. more a positive Credit (USA) it saw to Securities of application-specific to a Farhan wanted we mask in driven us. just our if business, So you by And to significant not equal moving segment my you every that's created understand inspection for seeing much in so strength ASICs. and companies - processes. second that see In of the more then certainly dollar that pickup WFE so last broadly are it towards

about where fab there And what wanted the in inspection was foundry how phenomenon, sense that (XX:XX), growth starting the mask you? higher or the strength a business does of are designs a affect get So is saw think high a mix ASICs running lot continues future, a that a mix secondly, your I mix growth one-time the of business? that as more is this number it low in which in business, environment to be as we last year, for a limited from designs to strong fab, an the as the in the could you moves

Richard P. Wallace

you it you scales but with the And starts don't Well, design. wafer you volumes put where maybe tapeouts to the in tapeouts, where do see coincide have the low-volume see because a could situation with even you place capacity reticle the certainly right? have into necessarily it

even seeing certainly we're activity clearly, So at X-nanometer. more there,

so seeing are to X-nanometer multi-patterning ratio around units being with three investment one mask writers the and with inspectors, writers one – inspector to and if for more in of around nice does And a It a capacity you're there's deployed. and need width drive that or to every to two reticles a in a reticle shop. schemes two

LLC and and momentum Credit year, that So this Thank (USA) end for that's that that certainly into there's you. year move Farhan a all we Ahmad I I of have. - we around think as think the through next driver That's Suisse us, Securities that continues.

Richard P. Wallace

you. Thank

Operator

from comes question Evercore. Muse next C.J. from of Our the line

You may go ahead.

C. J. Muse

much would if where said drivers think grew if afternoon. make WFE. could scenario taking control you do see outgrow that of you X, And Curious that's XX would we the question, so, XX, my driven the WFE. at see And spend Thank first by given would half And I process what XX, the guess something rate months? next that process be you is the at the you data precise over there? how what roughly control memory. the sense you Good Yeah. obviously, question. look for Gartner earlier,

Richard P. Wallace

great question. Yeah. C.J.,

in can't up process I memory, saw. we and though words move toward mix grow. firm, as then up control you of know, intensity in mix process as we it intensity as course would go shift believe that Even control a other all much mentioned in was for the held make Bren held a flat, did it to foundry we think logic the if the memory and same year memory was ratio just as if where didn't you if

say on a a if intensity of control goes be you on weighted intensity basis growing memory I'd that average. process So that control do because relative main a process would down market a the but way

Bren D. Higgins

I a you swing XX basis usually about mean, of up it, in shift point we've end in is C.J. at mean, mix I with XX thumb for or rule XX-point looked a intensity.

So it a reasonable that's about little depending a it. but to and think on, around buying move tends on to bit so who's way

litho, move to ballpark be with an adds I is scaling may control it the you we closer total to So logic to XX% of intensity. in a to and XX% point, that control that environment, certainly process we've that Rick's seen element or foundry for the range be as – online. EUV outperform. and control will certainly XX% point, when foundry XX% good see as think we've increase, into And process to To the seen Rick's different process grow at maybe to certainly if process control ability start so a percent for

C. J. Muse

anymore? you That's helpful. backlog guys as And follow-up, I are guess disclosing bookings No? my

Bren D. Higgins

do quarter. number. XX-K. were bookings to a backlog of then If that give you you of I this you in that gets X But the We the and book-to-bill shipment, sort we below will the I slightly our tell

C. J. Muse

one then quick And Okay. follow-on.

think shares you on now ability Orbotech, what the to with buy close? As are the restrictions transaction your between about back and

Bren D. Higgins

the quiet in quarter of the the I that window S-X. the there's prepared prior or this filing So a mentioned and I to small have remarks, period from opening of – to the prospectus as our

we small where it'll be will So it's a begin activity but limited. very window our

– So the have no shareholder at we vote we restriction then no point restricted occurred. after has and then we're that so have restrictions

that based current if the so September the around, SEC back next but and those, quarter, based quarter. of you comments would half more a sometime could from would that buying move on those So get on on in and imply we way of in significant schedules the second begin

C. J. Muse

Very you. helpful. Thank

Bren D. Higgins

Thank you.

Operator

question comes Patrick Our line of next from from Ho the Nicolaus. Stifel,

You may go ahead.

Patrick J Ho

that the inspection of or intensity multi-patterning capital seeing trends XXXX. business, XXXX shrink first in much. picked steps, has know in you're benefits may of guess, you into I benefit, for your XD maybe very are memory lot to whole. market other Rick, also also the DRAM specifically? both other there up DRAM and both business you a Thank off continues intensity terms carry as more and Obviously the but for control NAND but applications of areas your as has in helped a from spending I metrology terms process

Richard P. Wallace

Yes.

oriented also we do do development, For that edge. and DRAM, scanning inspection, is both more X in see a capability we which monitoring, GEN laser for push for leading the which is the kind based inspection high-speed in but of

drives business see are and We it significant, also in challenges metrology overlay. for overlay very DRAM our

NAND And so well. basis had probably on trend. is there growth but do DRAM, see and increasing yes, a DRAM increasing trends relative more as in we than XD has an

Patrick J Ho

for question helpful. my follow-up back That's going second. Great. China to a And

talked of seeing the seems being of area, growth, this you a also quarter market? Chinese one, the by pickup. a a markets It supplemented things. segment as but where you the memory like about tracking probably foundry to you're the last foundry area of Is think still memory it's side that's I kind just shifted first call has the now and being bit Chinese thought

Richard P. Wallace

dealing I the think do getting bit things Chinese in investment we're has slowed the with some and strength with installed. fabs market to see you'd foundry they're greenfield forward challenges memory. Chinese all that terms market But move the in memory and there little bringing whereas tools and the expect ready we the seeing of delays continues from up facilities a

softer of As on a It Bren the been little though. said, bit foundry we'll see has more that. side,

Patrick J Ho

you Thank much. very All right.

Bren D. Higgins

mix closer of profile But is the probably on order an orders to from these perspective, calendar the in construction. Just to site and XXXX because lead order XX/XX. some there's time

tools heavier So are that the XXXX are shipping. and the order in profile was memory, those

perspective, But come will more shipment – into will have them. the a orders, ship an from So to of through memory-centric. and it's which will weight equal more start next a year

Patrick J Ho

you. Thank Great.

Operator

Our Sachs. the of Toshiya from Hari next line Goldman comes from question

You ahead. may go

Toshiya Hari

think X where much. business XX Great. breadth foundry or customers to the industry as of I your consolidated had mix guess something on you we approaches there? nanometer? your Should the should about Thank pretty business, we so customer how a investing expect you aggressively, nanometer-plus fairly multiple and similar X then

Richard P. Wallace

of many really as I that be in and their X the people say for players same nanometer, I'd so happen we're advanced we terms haven't phases foundry they're to to players that were for many the think all seen rules doing design We investment. at aren't dropout various expect There in, phased going still in investing. them they're but

real the advanced breadth the on change in from nodes. no foundries So

Toshiya Hari

guys as quarter China tripling talked think domestic got XXXX, I follow-up, you. my about for XXXX. in Curious if Okay, Thank then last And expectations orders you your it. what are any?

Richard P. Wallace

these would momentum of order where lead we as in given innings notwithstanding. us the with my terms flat there they early the of to Well, prepared said the I relatively perspective the of are numbers look a just see remarks, in from investments. comment we continuation time earlier say an some

it right how see quarter. year. we'll move Obviously, they to fairly some we but So like the second-half looks now what that consistent profile it's through there's as versus through plays last dependency for saw it

Toshiya Hari

you. Thank

Richard P. Wallace

you. Thank

Operator

Instinet. the Romit question line Shah next Nomura from of from comes Our

You ahead. may go

Romit Jitendra Shah

from your the across meaningful have Yes. Thank market. of my impression the I a subdued board. that a the market customers, major is is you. generate I foundry. they And mobile portion question And apologize guess foundry pretty revenues also I about

for percentage, doesn't question node a recovery healthy foundry business it transitions enough. smartphone seem Because in the weak? sustained so demand And seeing foundry down a just are your as remains we is can double-digit June see the like revenues even

Bren D. Higgins

Well, pretty down in we're foundry.

that. into our So of the strength with the in profile foundry a we lot and don't until I think we I of end anticipate year get XXXX. is later consistent And mean, into

forecasting our and our commentary that there's thesis here. point agrees all your So with all a

the investment to course, advanced and investment coming. more however, increased We are node that's seeing around activities, and precursor that's, of

we're of and reticle support seeing definitely the that. we're is that in seeing business of So some now it

So by that's given same talk what followed followed development as you business the in of past, about be size patterns, smaller being the ramps those have where and of historical going The around and initial model the our forward. anticipate investment ramp. the than we we is path may a part

Romit Jitendra Shah

Thanks, Great. Bren. Okay.

Operator

Malik question comes from the next line from Atif Our of Citigroup.

go ahead. may You

Atif Malik

tensions were you quarter. at Thanks the of you chance have driving speaker talk Hi. SEMICON XXXX on my face got the and a good job to expect some Rick, keynote for to I'm a taking behave then of executives you tariffs I trade follow-up. and the China. question recent the do How between and in to sure plan. a recent spending domestic Chinese U.S. the the And China China?

Richard P. Wallace

in This to in don't of a China's big semiconductors. what logic in over seen is terms self-sufficiency think Chinese of program Right. of of in of perspective from memory discussions. the changed the I terms a anything's because and the we've such gain time importer some

I we them going So any like? their I don't have we there's think in forecast seeing still it for recent change But to don't as a on sound on any that's see you of ask does activity take the cut of level investment going change. the there. growth were And and and China numbers I noise me based the thought result system we're any trade. big that in the what around half and a

Atif Malik

a and of your if I'm big Bren, on have Does this Thanks. can deal? kind other feedback curious And required what milestones as talk deal? just about of deal, the three from it some then you And on China MOFCOM follow-up customers this Okay. on Orbotech the approvals? regulatory received require the approval you

Richard P. Wallace

little take take are in second. there's overlap. not interest areas, of they're different and both so in have I'll focused much very customers larger deal them same the even organization This such not the There's from first some where really could Bren the part the is the been in that on commentary customers. a case

we've going they it. was said thing But but what our bit that has to just we voice that was our compelled only the They supporting commentary them, support something, to felt us will we're one existing all maintain today focus is us is continue that and the to we're customers. heard been at doing consistently think please we by there in organize no wouldn't. I assumption we such – have to when they lose for every customers that as Structurally, much have not. want as on don't way that we're a focus them

Bren D. Higgins

so, submission have not the on one to which then the week or schedule. will front, than all end and is the our our country that's and And the for according mean, period. given submitted clock I filings any review There's reason this holiday week that of another exists had plan regulatory by delaying of a other on there's take in the that's that that will that we

So everything plan. according moving to

Ed Lockwood

question? next Jeff, our

Operator

Yes.

comes of the from question from next Mok Our Edwin line Needham.

go ahead. may You

Y. Edwin Mok

for Thanks question. taking Great. my

Orbotech on follow-up So as just a quick guess the deal I well.

do So potentially from some MOFCOM? tension to that the guys with kind get of challenges see regulatory with this approval for you creates U.S., you and trade China

Richard P. Wallace

We have not about. don't. heard that something we That's

the you look that associated I with again, deals at have look this. any of of if think nature they issues the that had nothing like that,

don't anticipate we that. So

Y. Edwin Mok

Is process higher higher you control then, clarifying in one in multi-patterning CapEx If Can that you for to you. Thanks your talking mostly question, a level. a see get and the a that. you CapEx you similar intensity great. And – clarify process, to that. of DUV Rick, spend? answering or EUV even that? process with mentioned of coming on just Okay, similar DUV about you Thank provide some type clear, And EUV? color per similar inspection in on -- control reticle really you are can versus EUV be that similar

Richard P. Wallace

versus talking Well, expensive. entire takes to control just the But intense. the model that is scanner, to support from we obviously UV an out more control what are standpoint to about support more support a it scanner or tools are takes a Yeah. worked more intensity advanced what scanner an deep EUV in necessary EUV if you're But that. of process haven't process it

scanner choice scanner it. to bit up acknowledging control EUV in slightly goes scanner. an support intensity actually order of around of process And higher, the little simply cost the that the the scanner total dollars, a the that's is cost a terms in ecosystem intensity So faster scale around the than resulting actually

qualifying, KLA-Tencor doesn't a that EUV take the comes are things just But growth online. it a in from support all measurements the image, so that. for It be reticle necessary account where there'd as standpoint, qualifying, the So being the as catalyst to reduction the the wafer into is other for that additional view layers. we

Y. Edwin Mok

very that's Thank helpful. Actually Great. you.

Bren D. Higgins

Thank you.

Operator

follow-up Timothy a from Mr. have Arcuri We UBS. from question

ahead. go may You

Timothy Arcuri

of Thanks. I'm of foundry into the make sense year. trying the shipment to half this still back

year. bit, maybe ultimately otherwise but and next pushed of and a what a Xx half I'm versus half. seeing down and shipments, correlation some obviously If it's kind breaking into if you between graphed the know seems this through foundry Lam's And you company and implies them trend strong you but that Thank the like of gets versus make it are of of their Lam's this are sense would sort that. – like change noodle that ramp stuff offsetting up I maybe the at just trying first that of very a second an very, big answer the their like guidance, at back, little it strong shipments time you offset just shipments different pretty look And sort there's that that from trend shipments, for you. customer, for be to is so a your that's a maybe logic you. comes maybe it foundry

Bren D. Higgins

Yeah, Tim. It's Bren.

half shipments than second the the are So foundry our of higher first half.

about discussed, when way. think you XX% overall to I there a clear XX% $X.X we of is that inflections I to the of an So shipment memory it's pretty basis, the in in in somewhere foundry we're to that be memory dwarfed on in But certainly seeing profile pickup. and range I But the getting want mean, be and is about we're it. the that's meaningful shipments. a absolute the to amount billion memory, the by range, compared will But weaker how that seeing. billion $X.X talk

Timothy Arcuri

Thanks. Bren. Okay,

Operator

JPMorgan. from the of Our next from line question comes Harlan Sur

may ask You your questions.

Harlan Sur

the pack Hey, guys. a KLA cash follow-up. always for or has kind of to flow just its do here. margin to from structure premium generation. sanity I'm free separated check taking due Thanks trying my itself

for I forma to pro be looking the XX%. is margin operating think Orbotech, So target

about pro margins free to company? So forma range? cash free think XX% for of cash combined going XX% the kind Or to flow margins how that are we the be somewhere should flow in

Bren D. Higgins

Yes.

of, when forma, pro end at so in say, realization, synergy margins you'll the forma or let's operating timeframe about, pro income. So XXXX post look XX% with yeah, we operating up

two against capital operating free because higher. where the think see relative intensity of we cash we flow are But income, the maybe would a if somewhere in margins So little margins that the below of we is similar. consistent are bit businesses today, with – level slightly our

that is we that one And the it'll the operating capital I capital it. think range that's growth and investments XX% in where we're working on. are on income. lower around terms obviously, So but thing of in also of depending of vary against attractive the intensity business and But so about level

and as together, to and through businesses drive scale to to cash operating and up high-XX% we so free And in bring right as get we mid- margins, XX% we should around minus. or flow start it the synergies these to somewhere plus able drive be these margin –

Harlan Sur

Thanks. Great.

Bren D. Higgins

Thank you.

Operator

time. continue. further please no at are There questions this Ed Lockwood, Mr.

Ed Lockwood

you, today all Thank interest KLA-Tencor. joining us you continued Jeff. for Okay. and Thank for in your

Operator

call. conference today's concludes This

You now may disconnect.

KLA (KLAC) 27 Apr 182018 Q3 Earnings call transcript