KLAC - Earnings call transcript Q4 2019

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Operator

Good afternoon, ladies and gentlemen. My name is Jerome, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation Fourth Quarter 2019 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 Instructions] [Operator

pleasure Ed the Relations. Lockwood, is my your The over host, yours. Mr. KLA to it's call hand to floor Now Corporation, Investor

Theodore Lockwood

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

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

If can website. you release, it find you haven't seen the on our

ended investor on and Today's our a as non-GAAP A for including Annual Investor KLA financial discussion to found calendar factors Report and Conferences of on results SEC impact There, descriptions presentation our website. that those of also of Relations the earnings reconciliation well risk basis, will find non-GAAP also results. as specified. posted year be otherwise XX, Events, future on today's XX-K find presented can filings, Investor be to release in a KLA's the filings, you our June unless could of results Form you'll will future GAAP financial XXXX. In Presentations press links detailed the in

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

significantly from may projected differ statements. actual Our our results those in forward-looking

to call With that, I'll turn Rick. over the

Rick Wallace

KLA while demonstrating growth our is finishing the relative for thank the challenging from in Thank quarter QX year joining in a another us strong results you, for for strategies market industry. for above you for call. and guidance was benefiting the performance leadership everyone of afternoon today's delivering solid midpoint company Ed. Good with

is new in to and based of signs into resulted in continues business be investment KLA. capacity The environment as soft. customers offset for stabilization broad delayed environment. on focus provide the they which weakness and markets weak to supply some and by today's low demand. the is rising foundry pricing, of with as rebalancing plans strong traditionally like memory NAND are This insights being memory has in have idled demand existing Even equipment and demand levels DRAM from logic, I'd capacity and

and through additions The dynamics, of capacity the strong in XXXX business and by continue with for into a driven environment EUV and be foundry XXXX foundry with increasing leading-edge, initial XXXX, expected in to outlook is the view second consistent WFE the in competitive infrastructure. in product mix with shift logic January, significant we in approximately investment half investment to technology and the remains next-generation to logic. development, at decline and held Altogether year expected our by XX% to demand in

strong customer to on pleased differentiation business. very critical market highlights update execution and Now is enabled acceptance on product address leadership most semiconductor focused product you of some portfolio. the recent KLA's positioning experiencing challenges. successful our our portfolio I'd strategy from our a customers' with We're like process our across to we're control by

currently For being seeing optical accelerated now second iteration its is example, of our are in platform, since inspection we flagship which Gen produced X in XXXX. adoption first

detection in of the at cost lower defects enable to previous shipments leveraging X Gen sensitivity unique are expect of Customers to XXXX compared of to combination this We double the limiting platform yield the to throughput in year. alternatives. compared ownership and significantly

foundry customers in latest known Further, as application enjoying adoption is Voyager market our optical memory and for Voyager, in-line deploying of platform, the confirmation the continued X leadership strong inspection inspection. X innovation strategy multi-generation optical the customer now are in also its strong and success adoption for the of in the manufacturing. and laser platform, scattering of our Gen in marketplace. further of generation fifth iteration, The monitoring Gen are success of high-volume platform Leading

In and momentum mask experienced positioned inspection, the through strong continues is several which XXXX. extend to past we over have the quarters

upside inspection to platform mask deployment foundries We strategies. leading expect for customers our EUV from as ahead latest seeing broaden our are generation demand with move and

of finFET, interconnects. opportunities our Orbotech, growth and portfolio the platforms broadening business, transitioning our larger In like our and diversifying of materials year we logic metrology new further technology metal with architectures And market. new ramp more seeing as the are WFE as and is foundry, and and acquisition film customers new recent we're product toward strong a complex adoption last CD released serving

Integration now synergy Orbotech. opportunities very activities further our in in September. We look growth Day this the on to about excited are forward Investor with we're and well discussions and upcoming in underway combination

summary, the demand control semiconductor our process uncertainty by of current In despite contributions momentum KLA environment, building the from for industry acquisition recent in in strength Orbotech. is driven and business

a we are we relative while serve and on growth performance to to innovation result, solutions XXXX in continue and drive differentiated market when products re-accelerates. introduce for strong a path the As

the results. for that, the his Bren? call over on to I'll Bren turn commentary With QX financial

Bren Higgins

upper $X.XX everyone. approximately and $X.XXX X.XXX share or the in $XX range exceeding were $X.XXX was of and approximately each QX non-GAAP and billion. billion was afternoon shipments the finishing the Rick, range of control of shipments end Total billion GAAP for per million guidance. the process midpoint at earnings end revenue share guidance $X.XX Semiconductor earnings of high Thanks and the good above was quarter. midpoint the over of the were guidance. Total per range

noise quarter electronics achieved global we with We market. in are the June pleased significant the in the and uncertainty despite results

integration all to executing continue acquisition. across synergy plans the and from on Orbotech move our markets, and our focus business forward we with As

former we that structure will and new we quarter, it in completion Under when segment Orbotech this adopted this will new Beginning see separate KLA. the under KLA inspection component and report report The inspection. our reflected control our includes now of into component will Form to process filed. semiconductor semiconductor subsequent display the process the Orbotech the and acquisition specialty process results two you reporting business we is XX-K segments; in business this the structure PCB of the and ICOS segment control former businesses segment latter the will

new in structure each within reporting this unique characteristics of our components of channels, included markets, applicable best terms will segment the is segment technology. how from and reflects believe services also business organized be We the each segment. and Results

we the shipment we In the longer June our shipments quarter provide report quarter addition, and guidance no call going will earnings forward. in will last

between earnings is not immaterial investors of the forward any the dual revenue shifts to in Subsequently, resource reporting. warrant in explained commitment and and the recognition, call As quarter. to last approximation shipments timing on and shipments of the revenue under assume does given a overall close revenue a XXX result, reported difference revenue detail ASC can May, maintain as

fourth Now, in $X.XXX for the June [ph] billion. total mentioned results, the quarter quarter were revenue as I

about the revenue We continued our first quarter. at level and total be the in in half second to $X.XX $X.XX grow across December to in of the expect expected be X% And midpoint September range with all sequential segments. half quarter the higher to the business revenue growth for the billion billion than

June detail and commentary trends quarter. some to regarding the turn now in revenue I'll segment

revenue our For inspection KLA, the represents all was in over revenue semiconductor except was as legacy business, control process just component which stated component the billion $X.XXX [indiscernible]. segment, inspection quarter.

XXXX mostly January our of with view original KLA logic discussed view As WFE remains the demand. environment opening stronger his demand remarks, consistent in benefiting our foundry with Rick from and for from

XXXX by unchanged, I the improved review logic memory. although will offset is overall demand environment the margin of in the past declines over in that for outlook and has the note on foundry six months, near-term investment

over expectations quarter modestly. fact, we've course In second overall of improve our the the June seen half

logic businesses current process versus Our in calendar half first the be now low versus of expect the year the the revenue half. over as foundry view XX% to up second from for to customers revenue for up half first control be we the semiconductor is and double-digits

XX% Memory September of investment was outlook to in for revenue XX% quarter. QX to and system memory in control as from approximately September. shipments flat process and were approximately in XX% migration June logic be be weak is of Memory customers semiconductor be towards forecasted is approximately we was system directed [ph]. XX% revenue Shipments and Foundry logic to systems expect XX% current in the the shipments of remains about revenue technology only. and

Turning now at in as division power segment, SPTS a the million. markets. the PVD and process packaging advanced former like to growing SPTS in as MEMS, discussion RF in and $XX solutions specialty SPTS was Revenue semiconductor devices, Orbotech. fast is well leader of semiconductor etch sensors, for applications

business Huawei delayed Huawei for by June impacted Commerce RF as share this and of were on with of quarter investments. ban Department planned capacity U.S. the market meaningfully MEMS to semiconductors shipments customers results

business of deposition the year-over-year in tools and portion a expected etch in not ban. to due a SPTS Though issue, this forma are year calendar this its action As of pro this XXXX. these the in to implications term revenue saw deliver still leader SPTS notwithstanding is expected clear, for growth delay markets, longer

this with and Orbotech are the businesses component segment line PCB our the year. for of on in our and for This component this inspection was segment former and Results for with plans were display PCB inspection Revenue for quarter million. includes $XXX the business. expectations segment ICOS and display track KLA's

and Patterning was revenue display includes Wafer inspection the was semiconductor and enhancements reticle pro major which X%. business in revenue Wafer the of and of includes QX. processes of the inspection Now Other, inspection in X%. I'll mature was process June inspection which specialty semiconductor are patterning the component control PCB part was quarter. Service XX% by KLA discuss XX%. and distribution instruments, category XX%. XX% revenue products product was and segment. solar,

U.S. rest In of Taiwan was X% XX%, Asia X%, XX%, China terms was was of the was Europe XX%, Korea was regional and XX%, revenue, Japan of was split X%. was

XX% the guided our revenue P&L. for XX.X% more was for control the of quarter of to end Gross of Huawei results on level higher June effect and on margin semiconductor detail specialty top semi the Now the as range the a offset business. process XX% at the in

the quarter. We mix XX% expect higher in service in our to favorable expected semi to drive gross the gross more product as be margin business XX% quarter in and the in process of September the margin control range improvement margins

service ahead, global and to footprint. are us the opportunities chain, for infrastructure the leveraging global we across by businesses profile our supply gross believe many margin there improve Looking Orbotech

these quarters and the initiatives We financial discuss these coming picture firm in of as actions. detail impact over a more we will get on timing the

below expenses operating June in benefit guided XX.X%. than business synergy expected some expenses was from the $XXX and were due margin $XXX Total Orbotech. million Operating target million the lower across to

initial $XXX XXXX quarter. consistent synergy calendar [ph] activities. product quarterly of million June to and million timing the of development was the be OIE the expect our expect and be expenses remainder in million quarter and operating income with approximately range We to in planned Other of to the million $XX this the $XX expense for investments $XXX realization of we

tax effective outstanding. the level profit. should XX.X% in distribution going rate and forward to investors the XXX continue and given diluted Net tax was for our model expectations income rate XX% was our corporate a had we U.S. new the and $XXX tax weighted at structure shares The of planning geographic million average

highlights and million. cash balance $XXX was free on operations some statement. $X.X $XXX billion. million total flow debt and for billion and Now were Cash flow Cash and investments sheet from was cash $X.X the were

new Michigan. support facility We Arbor our the including a are to in making new future Milpitas a building infrastructure construction growth, of site, Headquarter in Ann our and investments

We next and other future [indiscernible] due expect infrastructure sustain these capital projects to expenditures necessary our annual to years growth to investments the over few expectations. exceed

share In and we've units restricted of made of the quarterly an common in price dividend regular vesting stock million repurchased an quarter below dividend aggregate program. and $XXX to average share upon our pursuant $XXX share of of just million stock per equivalents $XXX June at repurchase

available million share under authorization. repurchase $XXX current approximately our have We

we diluted count of expect million shares. September XXX For between and fully share million XXX

in results are in XXXX the portfolio is technology across we strong discipline, and seeing diversified encouraged strong for product leadership conclusion, KLA our demonstrated markets, In business. and quarter operational the momentum relative we operating June by broad are end positioned continued our performance performance our with

EPS With a to of [ph] is that, for per EPS share. third $X.XX share, to of to revenue billion non-GAAP summarize, and $X.XX diluted between $X.XX guidance per $X.XX $X.XX GAAP diluted share the $X.XX and quarter billion.

in remind turning Before to have call for like York. our investors seeing We I'd you Day questions, XXXX over scheduled Investor there. September we that the forward to XXXX your New for Tuesday, Midtown, look

I'll call to now turn over Ed the Q&A. begin back to the

Theodore Lockwood

you, Thank Bren.

if one will limit time As the ready have accommodate Jerome, for you feel free we question request first follow-up. Please the to we to and one that which question. requeue we begin any we're Q&A permits. as you questions, yourself additional

Operator

Pitzer question the [Operator Suisse. of line from comes Instructions] Your John Credit first with

You are now live.

John Pitzer

and the see Yes, good you strongly be I logic results. the me half's as questions, solid bare the appreciate that how out foundry that back the recovery year, and differentiate you it's letting curious, wafer, DRAM do plays do ask afternoon performing XXXX, and process I'd and market calendar Rick, of kind into congratulation on bottoms expectation at market between guys. in memory control look second NAND, in XXXX? in think it good you potential to continues in of about think you do think half quarter which and maybe the how

Rick Wallace

momentum we of then said, in Bren some don’t thoughts Right and see, a you let DRAM. see we weigh in. lot I'll we as now give don’t

strengthening what said, a lot think but foundry technology logic as in think not think than the got I some lot I not migration a we of is we capacity. now and and other we've

So recovery might meaningful what half when about of before XXXX you we our DRAM first if any come mid timeframe customers see is think are NAND now more and would saying the change. for XXXX probably

Bren Higgins

that some Yes, business thing technology characterize help quarter market the one is expect we There more transitions some these our in from John, customers also would see I'd second the investment and seeing the of most our the seeing and China. is do level in roadmap influenced are of some half some only KLA we're we since what as we saw say I customers. some their to navigate about is shipments year. of We last shift activity migration

wouldn’t early And this they to and How customers capacity market think disciplined capacity. meaningful been idling quickly point, I back see have overall is capacity out But comes that to any Rick's tell XXXX. to given I into look from as the little we until we expect as at that pushing have been get a point.

on bare half second our the bare roughly wafer, mentioned into of You we XXXX. see side bare being at wafer wafer the business flat

it little XXXX Now it in lower in had business it XXXX. off in inflection overall bit a XXXX. than XXXX, for probably a come We've XXXX. was huge comes in a that bit is seen We off

both dynamics inspection, we're for a think given more sustainable around memory, I business or also that level but forward around operating higher the metrology. that specifications at moving for from

commentary view numbers in that the and So, the expectations moving that's of think been we forward. our part provided of terms in I

pretty So and changed I wouldn’t open say that much has about. there that's certainly we've been

John Pitzer

my to then business it's to that does And just all, going you kind forward? guys as Rick comments guess complex X process I'd and your and Well a and I and it. foundry intensity in How X love logic get EUV in I move maybe control as got fit equation. on you the to of followup, inspection going

Rick Wallace

John. Sure,

logic we in our X one of of Gen than Gen Gen that course that to the we're bulk I going terms seeing from of is mentioned in lot couple driven, the a is think drive and transition X harder of that system. of X things, a strength to

toward will requirements deep So design X. smaller to Gen We're the activity the shrink. going drive driving

One, as for also the but a number going to Gen of people so another The other checks, I print we're want design we're happening for really for on our pre-EUV couple what's additional starts, they in a to the is to customers with large verify a in number happen seeing think designs, thing seeing drive overlay of but big ways. use as of terms Eventually us in advanced pressure because X. going is are of that's the that put the it driver rolls. down shop our also the EUV, anticipated while

the is the production overall, to So right later. process going an we increase EUV us terms what bit favorable term think in that to development that's think intensity is we But in out phase. it in think definitely I high volume be I into we introduce levels as of Longer now there control seeing. a get mix we're as more

think also mixed a overall. foundry in the that's mentioned and I We shift increased driver to been also competition

John Pitzer

congratulations. Thanks and

Rick Wallace

John. Thanks

Bren Higgins

Thanks.

Operator

Your next the question with Harlan comes Morgan. of JP Sur line from

You are now live.

Harlan Sur

on guys. and outlook. Nice afternoon, quarterly job the execution strong Good

mask year. terms they outlook, shipments, inspection XX% looks your specifically of within going In about business, the and are or system to grow results like strong EUV reticle this

installed year, If into base the about to next I still XX% EUV look is growing XX%.

already So long installed high business just visibility inspection given segment market next continued how and of the year base? very see guys mash your do do growth the is your the share you the you lead given of of directionality up guide at into mash times ups have and directionally this

Bren Higgins

go Yes it. of look Harlan, at reticle first things if are I'll it's the you inspection and couple business here, but Bren driving

X in of so tape-out significant at purchasing significant driving foundry nanometer product. First, the the and that's

reticle remember to before have behaved to you in somewhat that fab. process, are up to You a inspecting inspection mash reticle the you when ship it every

So it dynamics has That's move the the together. and design one in unique they terms driving dynamic that's of to customers starts relative buy how some and business.

The activity Teron the development system. other is obviously that's EUV driving also the

So to WFE effects, frankly biggest but is growth design where driving today you nice obviously both in the the start down. and solid it year is have X around at driver more business have that is the

that growth prepared to that said as seeing remarks, we and Rick in into in continue we're would So his XXXX. expect

will that support out to some of then it. products move see Timing the business is generation install next half come EUV some the that year of we but as and we're seeing deployment a out how the influence EUV year, next next there into in directly. nice as existing we'll they recovery plays of And upgrades second the it out base and in the sustainability we potential see to there,

the and through that exciting impact. we're a seeing flow lot terms of in there's numbers of happening things So P&L space in

Rick Wallace

build the platform think of because layers, benefit we I we've on got that just one it, I yes benefit either EUV optical or extended fact think the EUV to able these handle layers, we traditional Teron have still not can platform to on lithography. for an we EUV the aspect the depending or be to number for that of whether handle mask

of they I of starts at on benefiting regardless the because but layers nodes, and still reticle which be on advanced how So strength adopted, not just necessarily that and the more we're the EUV clear depending what part it's goes. seeing a to we're in nodes just intensity that's of why many think not are way going the

Harlan Sur

so, And right, there. given if the about XX business see All the there second be strong team overhang, was guys an and a thinking better moving into assume I for the China bit half of Orbotech has doing is for second half? of thanks this and guys of insights ago but a on just large are semi just Orbotech power, for focus then on you do customers, color maybe well RF the improving days number of FPV but the the year, given in you Orbotech specialty what the all trade would half what the segments were mean given of upward that still second the will bias that I and PCB? that

Bren Higgins

they've a have RF market share that's and more for for customers expectations you do specialty related that this business. and of have cautious their with Yes, come for so to space the some in Huawei bit the and in impacted effect, effect. Huawei so directly but phones growth that have indirect capacity plans The semi year down

to but expectations, I degree panel, panels out. days but come expected still the line PCB flat our growth say of grow going business for we came and business to the down going before that PCB So year, would that XX year-over-year, flat this the specialty that most ago are flattish, the from is is in with not semi. probably to ban

there bit effect. year-to-year, So a little given Huawei some the there's growth still less but but

Rick Wallace

in put perspective within it a Harlan, in business. contribution we few percentage Yes. profitability the terms still to But KLA we're modeled and had originally to of just for of what

So looks good. it still

we shifting kind some really thought said, not in from As Bren that so dynamics, what year. earlier the of different

Unidentified Analyst

job Yes, the Thank execution. on great you.

Rick Wallace

you. Thank

Operator

line next comes the Arcuri Your Timothy from question with of UBS.

now live. are You

Timothy Arcuri

the about, sort quarter lot. other half that you sector a there that, are sort Rick the been Thanks have talked some year. that of of second of the are project that pace in year? stuff some it I was And that broader the is companies the guess the back seeing trade half know have is of of talked in weeks kind increases guess, couple look the these China? a past of pull-ins the half, back of but about as your out the second last big only view half China your I first into from projects question helping back you now and what generally into is of in next I the and you year

Rick Wallace

to the but seen as seeing lot we're the up definitely just of seeing, and noise urgency point, have takes fully in get the increased and some where We in China there's terms those a you puts in others maybe second so system. half projects know, are of to what

In thought a The what in second much small terms where some of come overall, substantial it. our but seen having we as the part in strength only of very is might of business Bren effects we've mentioned, half terms thing in. pretty

Bren Higgins

the Yes, at We're the thought like some year, some see it wafer seeing was it related of year. of and it's start we'll completely point interesting wow I that to looks think the second I the China. mean half and the beginning takes ship of DRAM plants Rick's we out in project, puts in it to

where than China there would change not are were I expectations margin, of this slightly a business where for So we lot on overall. say our year but versus before, we probably the thought higher overall

Timothy Arcuri

you ban of sort I'm can million the Huawei how in you the And costing year? much not, like what back $XX would is sort indirect is of question, I guess Okay trying what or quarter, quantify spec $XX had not wondering Bren, to thanks. half SMEs million of if like the just the effect? in a it's is to look something is then the sort of second this there, segment the business it that baseline I'm into if

Bren Higgins

for so $XX strength Yes, our the some the parts the XX million some of other quarter, meet business the quarter. around of goes was our up as helped move calendar That to XXXX. the quarter plus $XX to year and into think our to or total, million terms probably second in you'll I of the us adjustments number million results of impact in on expectations. million-ish certainly immediate and In minus the the Tim, in see plan we half between achieve impact somewhere million $XX and so $XX probably

providers run, there. semiconductor In that as business long other capacity an opportunity that start the providers to interesting non-U.S. specialty those, it's creates the are for their ramp as

in the probably the But terms there chain the So position, are of works. in how supply $XX potentially in year, around an big and designing total. there long the is long $XX the in a run, so impact in and somewhere of in current they run inferior million between opportunity out the terms million

Timothy Arcuri

guys, Thank Okay, you much so awesome.

Rick Wallace

Jerome, next question?

Operator

of the from Sankar with comes question next Cowen. Your Krish line

live. now are You

Krish Sankar

hi, Yes, taking thanks question. for my

for if legacy into of and that half your at look in some versus had 'XX guidance, maybe I the what one but strength that your Bren, made the NAND is calendar be or you out foundry 'XX half given so, first commentary going in First have if calendar assume terms and lasting not follow-up. I is DRAM recovering, in first it risk of to And know the the of business in to a KLA, guesstimate? 'XX and I then of second up you fair of guys Rick half to 'XX is

Rick Wallace

part to and it Yes, so the Bren. give let take first me then

not that's into we discussion feel trajectory to on. legacy. to rule definitely, kind call business going and the things good. design outlook at are is Analyst going going we're it next of now of that more advanced the a the control We're momentum, process other get So terms businesses Day in It's have our month, of like we way coming our work market but right the

the about new Gen and In competitive market. projects, the some strengthening addition, of talked some we hitting dynamics, products new X

in very feel position terms. So talk we good can Bren broader about and overall

Bren Higgins

I into about Yes, levels of think feel and logic, XXXX. we sustainability spend pretty foundry good

of look I We strength you We node talked across certainly continued an the X also reuse customers and effect would competitive expect to So as see look so dynamics, how markets if out at end well. think do, is about there you activity those limiting nanometer the much there. and that's investment. can having the

I there You'll next you about to see automotive into of all and broader industrial confidence the come moving hopefully us as and demand about a logic, think so give across segments. back year of year that some start foundry, think those are number drivers next

Krish Sankar

your lay the towards kind just the targeted on your e-beam coexistence road of of curious, curious down how X the to specialized follow-up, wafer is you we about portfolio okay. how it, think Gen then introduce about new of you. as Got of product kind think e-beam and a the for this a Thank products? and guys, And kind e-beam applications, for defect review of just recently do product so I'm and land

Rick Wallace

think a we along optical for is think I there e-beam and we and said Well, continues this what is role all that. complementary

a have our the where that not market. of will day utilize best I customers e-beam tool think both technology is that capabilities for But very optical what we a with don't the there advanced solution a our there capable with get think when be terms in they really ever our optical. I complementary in of latest is e-beam

solve better, customers excited to dollars. way we Optical spend remain our the will really e-beam the too, synergy the think and e-beam we've optical tool, better of has keeps we're between very their about about and same trying great optical mix get in but getting to terms our I think general challenging market the problems. of for of customers e-beam seen coupled some having our very what is their in with the But

Krish Sankar

Rick. Thanks

Operator

Your Muse Evercore with line of ISI. question the from next comes C.J.

live. You now are

C.J. Muse

that foundry, on e-beam, that competition haven't coming I terms your to, and question but perspective taking XXXX. you expectations products guess I Good you announced for you Great, speak And of the hear, perhaps end guess last wanted positioning sustainability detail new afternoon I on in then of guess more yet, EUV, at through an your for as thank both we'd question. you. love continue in, that look that to Samsung X to front? up could follow Gen I also guess, within within strength thanks regarding your market to just rising from thoughts highlighted? you in I

Rick Wallace

Yes.

see numbers more terms don't actual sentiment market. behaving now Rick. we customer really you to right So, XXXX our in the than what actually good, pushing advanced of a you talk around can know, this designs their see strong. a of where of for the mask the new we're is mood so definitely because in is higher And tape-outs, situation is lot getting in feel a we I'll out, and capability, customers been for always energy pushing business but lot has

is, happening the some and lot of other be The technologies. a because of reuse Bren mentioned of to see the new don't what thing missed, of not we challenges

feel side, in of was going trying out that side, new it was map So momentum. the it challenges customer and really capability and see our to us new something on look strong looks like to on our were make the combination that of what we very terms like

hitting got visibility case out multiple new we ramping have very It's us. into and for and players really long at that. now you've that some products we're time market 'XX, into new concerned where have really are bringing to same we new and the devices, technology with the about just don't exciting great a How

C.J. Muse

thank helpful, Very you.

in I for my bucket, process Orbotech? as little control bit a for could well As service as expectations your overall the both growth for you to follow-up, speak guess

Bren Higgins

for they we based XX% of of for keep that stream they're process we so tools Yes, coming a and in process because just those revenue customers control base process how complexity what somewhere installed that tools CJ, those of we opportunity rate much off, time. We're long-term X% contract opportunities a adding general to so CAGR creates us. in up to control than have also the buy sell. desire is at XX% faster over customers control trajectory a believe to that

slow that the some the run So for of to grow expect the related capacity the well bit it But just continue to seen we at rate grow to in we've that's seen understood business. and that market. that idling long it that's good at a term it in over time. near little over We've of rate like

PCB so we business say service profile, XX% revenue about service strong XX% stream. PCB under is reported it Orbotech the a of of has tools The are contract, the it of for

enabling the of boards, that's for a technology business. that because circuit for that need So as trend the tool imaging positive for and

customers us our to side. in solutions opportunity we about position customers that for time how for help specialty on over And be is think we there leverage think the there the very panel specialty there flat as some I certainly. parts of there on service to working opportunity try are to some is that us better little attractive, but side, terms semiconductors, activity in with offer way consumable an on might

a have just companies with broader harder the footprint. always service Smaller time

maybe the lot So think a semi, of better and both company. up forward is specialty moving that opportunity for enabling end flat for straightforward of position we but cost driving for panel I terms for a doing in what us

C.J. Muse

Bren. Thanks,

Operator

Your next America Lynch. of from with line question Arya Bank comes of Vivek Merrill the

are You now live.

Vivek Arya

my had taking for I as Thanks well. two questions.

up points XX% or margins as XX%, potentially guiding First on that XXX basis or continue sales to to expect again grow what's gross gross so, driving we expand December? your should margins, margins and so in you're

Bren Higgins

some quarter, our ultimately said carry you ship it's what is in our there last whatever I an all XXX the from and Not effects thought June were products quarter business. unique semi-process you revenue. I perspective mix the margin same control Well, as under overall affecting

of the bit that drove our a down dilutive was XX%. the almost So short to some margins margins, to of just

forward, helpful. Moving that's and we obviously some growth in revenue have

higher We're margins the seeing a service side in mix sort utilization and I'm the the to to some back out and service of control business overall. of on expecting stronger normalized a in reversion process higher see rates

that the So as as range would to to those all see XX% driving next expect quarter into are we and well. move into us XX% I

next So like we as move normalizing quarter the overall to the number, I into months we so. expect it off see of six a that that's seems and the effect or last telegraphed where June

Vivek Arya

this resilience well. over for was always downturn, last Every the resilient just how quarters? curious we time several curious resilient you we get I'm the it go what not control it. for downturn And hope into process a assume of how in versus look well as what business, I'm has follow-up. core but that do my as Got cyclical business Rick, you actually been what your went services did back,

Rick Wallace

pretty Yes, sure. It resilient. was

rate. catch was lot a is now mean, softening on with has think but that was see bit but we'll I running. of little lot and modeling think mentioned, that Bren there's so saw, we utilization think I there been the that bit for a for under tools up large the been I long of up overall, those back value and still obviously some decreased, in reasons. growth healthy but we It little modeled base the keeping as a a there of service what's term, actually fabs of long-term the we

So Still, it. I slowest in still we quarter X%. digits, upper pretty about good so load single about good the was and think pretty feel

Bren Higgins

is Back than think other And ever And held had, faster up it's, right? we've in for I the systems business. business always about downturn well. Right? the bigger it's it's that I worst thing us it's pretty now growing Yes. mean the

accretive stream the an with overall. earnings is total, that's the the a percent anchor so we bigger So solid believe of to

uptime So, and service all they hard difficult is a and for the intact. to general the business think tend there with deal those to that they It of buy tools the and there's that ensure matching there complexity about those environments the products stream tend on to to us performance, they customers rely us. goes even want of amount points need and need earlier that's still tools for contract run in reasons, to dynamics the certain is a are I up, they how

Vivek Arya

you. Thank

Operator

Wells of Your line Joe the Quatrochi Fargo. comes question with next from

now are You live.

Joe Quatrochi

the taking question. or this for month. us ramping over about us about thanks gross new and puts launched for remind should Yes, you products gross I margin talk margins how we of some last was the could time. just help takes the Can wondering that think of if some you you

Bren Higgins

really you about. Yes, on products bringing at talking we've we focus mean, and we're know, KLA. when use applications it our goes and something adoption. products case is driving back it's Typically market and been Joe, introduced validation to out I how anytime, into the

we're to lower it And the margins prove little ways what would mature typically to I start the so, source. a come are starts second product, design the of out platform. bit engineering a out, at team look we say than Then to cost, with previous usually and we trying to iteration for the

And profile the as product margin to subsequent new we iterations introduce improves. the that

have it So, up. little lower a time bit is catches back we and it come any a over out, one new then time

did tend some and that I there So and see a different where profile are see we to so it an each maturity in as products year out I have portfolio offset that over we like of year. to this tend With into stages big next have, on of the we other. margin cycle, they prior effect play as quarters the the think we'll mentioned move rest

at to KLA what that. what But, of of how we do the price generally, is terms around value ensure in deliver of we customers and part discipline we

product-by-product it of the able value say we more drive any So that usually with and not and over latest different what consistent today that round out we to able is products. of more pretty ensure to are deliver we're and would we're I time,

Joe Quatrochi

that's I ramp solution? that just so on side of feedback adoption how should we curious the helpful. early any share if then of maybe far, think customer you the about Okay, was kind gotten that you've e-beam could And for initial

Rick Wallace

of little we're rate. going, platforms ready take sites doing to customers The technical demos, it take is getting worthiness. because I about pretty good modeling production contribute it industrial does good. meaningfully capability into the while a a feedback start we're these and and feedback run numbers the not enough of we're to we're adoption and get as but at feedback a It adopt feel the $X to does when for say, billion we the while still, to we're and We're out in a number yet,

Bren Higgins

approach Yes, that I the these would portfolio products fit have say the portfolio. we with

tools, across performance that common and You've the inspectors. of options got common out algorithms, drive common out the - capabilities incremental other help

broader truth enable the baseline with helps review or the So reference franchise. tools even sort it of ground

the happens ever process, more noise the the that that's approach matters with the defects, the we've today So taken the wafer. challenges at than in of it KLA, size on production the

lot that, our but independently those of that portfolio, big, of a are So the all capabilities to having tough customers. for across aren't sometimes always across markets create that collectively value all

Operator

Your Bolton next Needham. Quinn of question comes from the with line

live. now You are

Quinn Bolton

fifth the Gen and just outlook. Gen Thank ramps? month, you question of the nice the you really results congratulations Gen Gen guys X older iteration for wondering, systems for X taking tool, strength X what you're as you last seeing introduce X demand on my mentioned wondering and I'm the the on just

Rick Wallace

Well, like it it's, a mix of and think match. lithography

the and XXxx, deploying get cascades has getting you platform. that then So that than with capability they with then what effective e-beam, XXxx starting can Voyager up most end the you need and customers that really the is, cost they to solution new

be node. they really to advanced it's harder the - are easier than on used the So layers

can them. put they really where the solve X up the X deploy Did answer when the they'll Gen and problems that will question? to only that's your customers So then against Gen way

Quinn Bolton

That's takes, puts the Do helpful. in some sense this mean China pulled on Chinese that Thank in some follow-up just a question, you perhaps have any an as roadmap versus you just you. are And then XX Thanks. is more in think market for to a the of referenced generally, indigenous or the projects getting I a days fabs? acceleration strengthening of strength, shift those but timing you're where demand do and that you seeing ago.

Rick Wallace

is, what happens about it's uncertainty their procure to think may there don't - think about, is ability and I plans I be as much tools. own their

more on it out was So projects back it's ago it and to for then that that even they be is I don't par them, the I but do see they solidified. it, days could I think realized more want may when if think sets. XX they can tool to maybe that get speak the getting And pushed in. pulled

way, not kind their there are plans. don't derated. as think so demand. programs where I staying some there a the It's of we of much that's lot about So them by on And that more we are. end already

listened of and to If a said, couple rate go what getting customers to have closer had closer and going run XXXX years we're for for and back a ago XXXX. anticipated you we what

Quinn Bolton

you. Thank

Operator

line from of comes Sidney the Bank. Ho Deutsche Your next with question

You are now live.

Sidney Ho

you. Thank

say, in nanometers, is do X to nanometer pilot the little that to let's of could being what at at you X capacity hear look than now think but bigger which want Wafer upcoming nanometers, for line you is for built be X from just driving capacity changes? or of the kind If nanometers? past, the compared rate bit how perspective build to XX your the the the previous, is that

Bren Higgins

tools earlier, and into will that you're I XX that, seeing first bit nodes, through adoption from end stronger I here. amount I'll to first seeing of XXXX. little a go less level of and nanometers sort k activity. Yes, mean, wafer point the driving so other that's towards think certain that's the of previous of XX X we for I starts and part or would maybe the are probably of a and be it and somewhere XXXX between expect migration get

we're So say on X I dynamics because X nanometer other those seeing activity node. some of the perhaps for related to of would that us more

Sidney Ho

the Okay, strength project that, that being half. talk that second yield DRAM seen is then my the production have have out, gone the a stage most on of those from run revenue it's improvement have of in is gone, expect like follow-up here already level seems initial you customers more they about that past rate? seems it you of pulled on and because guys my that lot on maybe. it, guys understanding And question It China true the is that but in, you the type

Bren Higgins

overall mean Well, like business and of I China. takes said, in the I some there puts level in

I of wafer what before, happening there likely is thought slightly than that's think well. some rationalization better but capacity it's as we

project, parts. do while So, some some strength this have moving around have other because DRAM you you do

roadmaps node. way about proving to to I technology think more the is next think the about this moving and then on out business

some more that you then gets capacity lot amount there than a roadmap, of engagement technology So of progress but the and seeing we're otherwise is because down to effort there is added, that of certain improving yes to slightly the next the on need move are parts because set. upgrade of are node that node, they yields the tool to might, then challenged they to trailing happen and again

And a smaller driving the you'd technology and you a to it production then that's trying more see in with significant to lot and one behavior a curve on node different this go of business, might fabs. not the customers. little of customer, fabs It's focus leading-edge capacity. at So but more move down ramp of a memory just just level when than with volume of as and other continuous see some then you're ramping

Sidney Ho

that's right, helpful, All thanks.

Operator

line from of He Ho Your the comes question Instructions] next now. Patrick with will [Operator Stifel.

Your line is live now

Brian Chin

Brian Huawei afternoon, laggard been PCB things of the of panel space few a us adoption and on SAP might a for markets, on the few Thanks PCB Chin has questions a it also of this ecosystems, ask but overlay is SLP terms bit Maybe Smartphone line sounds China in like flat of the questions. cloud allowing major for first, a [indiscernible] little here, Patrick. and Good manufacturing.

Orbotech, imaging move as this them the or next on you'll adoption So leaders or - still have for as you to or year products into earlier we and begun more year? to begin curve we to maybe see the we KLA, are see this that China leader adopt now

Rick Wallace

still not yet. it's Yes,

as to the say do current we next probably it's that that. see to you expectation third and year, do expect probably the is, that think I guys

Brian Chin

see And like but Okay, through year, helpful. indicators maybe flat lines, year then environment any panel, urgency your XX-month do, that early that tool spending and come does in perspective, planning week you the obviously spending the pickup see increase for a relative early synergies indicators, to an cost you meaningful the this in the pivoting that's some we a [ph] suggests this for environment from to your pull do product could of if next year AI lead horizon?

Rick Wallace

see improvement, a We us of would working the off do to are right some early had think don't, of that XXXX picking up. marginal right. programs than point, probably I your bottom, but now to say some for It's later And I synergy there. that. actively it's we too we

Brian Chin

right, All you. thank

Operator

a Sur We from JPMorgan. Harlan have with question follow-up

You are now live.

Harlan Sur

question. taking Yes, hey guys, thanks my for follow-up

over. X for nanometer Gen On hearing of was the as have targeted this has for then the some case. the inspection older nodes, print And we X customers guys. originally We adoption you Gen are and keep the that improvement even earlier think EUV also strong nodes also adopting another memory Gen platforms, hear I check it adopted wafer at use been of yield sub-X X by that

buyers year of real strength shipments So, edge this are versus how much the types the development activities? driving of leading in these

Rick Wallace

We I thought those probably haven't I terms. though, thought it development. half It's about in and about broad if mean half, it. I use in

But improvements competitive since to new be in terms it it's the I of think going as of might cost the what to X. of to what happens for and tool productivity Gen a in what discovery some especially we not then starts of to lot aspect you're value, really find up, with it's sure product make a the applications and you is, going drive it imagine, create. of ownership this,

e-beam expected places platform. more say, much in frankly is they to and get now as throughput inspection, traditional you the leveraging higher originally was, that what optical deploy seeing have some by people we're away some what tried significant of in So value from we maybe the even places might

feel of good took kind very the but a very while, progress little we It see So about it feel broadening there. good. and we

Bren Higgins

line didn't bunch out of yield X use using product X coverage headroom lot point, more is these now tool driving Gen more customers yield that debugging even and -- without challenges there. and have are so exist having full faster more to more now challenges, whole nodes the type and that's the Gen enable to Rick's demand, you prior add so other tool capability the for at think a whole the more wafer and analysis customers at at that nodes to the that I seeing they're that activity

there the well. that's given much designs happening there, debugging happening those is seeing activity So, demand and across more how new at you're as nodes,

Rick Wallace

customers So, just years. while last it capability may is, to of the before dynamic, do takes of internally a that the they broad even one tool think them it lot a know you I prove for out release what

And they couple places as broken so broader people in ability quarters where kind of what last of critical we've have it. seen we've through who now the at evaluating some outside deploy the to first were just of

cases use So in number Gen a really the progress and up hence that X. opens significant of

Harlan Sur

Yes, the thanks for insights.

Rick Wallace

That's have we the call call. for conclude commentary. Harlan. today's final the Jerome, time you you. with Thank if the all would

Operator

joining Thank for call. quarter XXXX Corporation's you fourth KLA conference earnings

now may You disconnect.

KLA (KLAC) 5 Aug 192019 Q4 Earnings call transcript