Ram Ganesh:

Thank you, and good afternoon, everyone. Welcome to the Lam Research Quarterly Earnings Conference Call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment, and we'll review our financial results for the June 2024 quarter and our outlook for the September 2024 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. The release can also be found on the Investor Relations section of the company's website along with the presentation slides that accompany today's call. Today's presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation. This call is scheduled to last until 3:00 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website. And with that, I'll hand the call over to Tim.

Douglas Bettinger:

Great. Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today. We executed well in the June 2024 quarter. Our June quarter results came in above the midpoint or exceeded our guidance ranges for all financial metrics. We were pleased with the company's strong execution. For fiscal year 2024, we achieved the highest gross margin percentage since the merging of Lam with Novellus in 2013, coming in at 48.2% and we generated quite strong free cash flow of approximately $4.3 billion or 29% of revenue. Let's look at the details of our June quarter results. Revenue came in at $3.87 billion, which was an increase from the prior quarter and over the midpoint of guidance. Our deferred revenue balance at the end of the quarter was -- excuse me, $1.55 billion, which is a decrease of $194 million in the March quarter related to revenue recognized that was tied to customer advanced payments. As we sit here today, I believe deferred revenue remains stable at these levels for the foreseeable future. Let's turn to the revenue segment details. June quarter systems revenue in memory was 36%, which was a decrease from the prior quarter level of 44%. The decline in the memory segment was mainly attributable to DRAM. DRAM came in at 19% of systems revenue compared with 23% in the March quarter as investments in mature nodes declined in the June quarter. DRAM revenue reached a new record in fiscal year 2024 with spending focused on DDR5 and HBM enablement as well as on the 1Y node. Non-volatile memory came in at 17% of our systems revenue, which was down from the March quarter level of 21%. And just a reminder, we are characterizing one customer's investment in specialty DRAM as a non-volatile investment since it has a non-volatile component in the device. Net revenue was at a low point for this year, and I expect NAND investment to gradually improve as utilization rates return to more normal levels, our customers slowly increased spending in conversions to 2XX and 3XX layer devices into the next year. The Foundry segment represented 43% of our systems revenue, which was roughly flat with the percentage concentration in the March quarter of 44%. Growth in shipments for gate all around nodes was offset by a decline in mature node spending. The logic and other segment were 21% of system revenue in the June quarter, up from the prior level of 12%. The increase was driven by strength in mature node spending in China. With respect to the regional composition of our total revenue, the China region came in at 39%, down slightly from the prior quarter level of 42% and a little bit higher than our expectations from the previous earnings call. This was driven by domestic China spending. The next largest geographic concentration was Korea at 18% of revenue in the June quarter, versus 24% in the March quarter. Taiwan was 15% of revenue in the June quarter, which was an increase from 9% in the March quarter. The customer support business group revenue in the June quarter pulled approximately $1.7 billion, an increase of 22% from the prior quarter level and 14% higher than the June quarter in calendar 2023. CSBG revenue represented 44% of our June quarter revenues and reached the highest point since the end of calendar 2022, driven primarily by an increase in Reliant systems, followed by growth in spares. Our Reliant systems revenue benefited from strength in domestic China spending for specialty and mature nodes. Spares revenue increased largely due to continued improvement in utilization at our memory customers, as well as a little bit of inventory stocking. I do not think CSBG will grow modestly in calendar year 2024. Let's look at profitability. Our June quarter gross margin came in at 48.5% at the top end of our guided range and slightly down from 48.7% in the March quarter. June quarter gross margin benefited from continued improvement in factory efficiencies, which largely offset the headwind we saw in customer mix that we talked about on the last earnings call. Operating expenses for the June quarter were $689 million, down marginally from the prior quarter amount of $698 million. As Tim mentioned, we continue to prioritize spending in research and development to extend our technology differentiation as well as expand our product portfolio. I'd just point out that more than 70% of our total operating expenses were concentrated in research and development. The June quarter operating margin was 30.7%, above the guidance range mainly because of that strong gross margin performance. Our non-GAAP tax rate for the quarter was 11.5%. We estimate the tax rate for the remainder of the calendar year 2024 to be in the low to mid-teens level, and this rate will fluctuate from quarter-to-quarter. Other income and expense for the June quarter was approximately $19 million in income compared with $10 million in income in the March quarter. The increase in OI&E was primarily the result of fluctuations in the fair value of our venture investments. And as we've talked about in the past, you will see variability in OI&E quarter-to-quarter. Let's turn to the capital return. We allocated approximately $382 million to share repurchases, and we paid $261 million in dividends in the June quarter. During the quarter, we announced that our Board of Directors approved a $10 billion share repurchase authorization. We have $10.8 billion remaining in the plan at the end of the June quarter. For fiscal year 2024, we returned $3.7 billion or 88% of free cash flow, which was in line with our long-term capital plans of returning 75% to 100% of free cash flow. June quarter diluted earnings per share were $8.14, close to the high end of our guidance range. The diluted share count was 131 million shares on track with our expectations and down from the March quarter. Let’s turn to the balance sheet. Cash and cash equivalents totaled $5.9 billion at the end of the June quarter, up a little bit from $5.7 billion at the end of the March quarter. Day sales outstanding were 59 days in the June quarter, a slight increase from 57 days in the March quarter. June quarter inventory turns of 1.9 times compared with 1.8 times in the prior quarter. We are making progress in bringing inventory levels down, and we'll continue to work on this throughout the rest of calendar year 2024. Our noncash expenses for the June quarter included approximately $79 million for equity compensation, $74 million in depreciation and $14 million in amortization. Capital expenditures were $101 million, flat with the March quarter level with spending mainly centered on lab investments in the United States and Asia, as well as manufacturing facilities in Asia, supporting our global strategy to be close to our customers' development and manufacturing locations. We ended the June quarter with approximately 17,200 regular full-time employees, which was flat with the prior quarter. Let's turn to our non-GAAP guidance for the September 2024 quarter. We're expecting revenue of $4.05 billion, plus or minus $300 million. Gross margin of 47%, plus or minus 1 percentage point. This gross margin decline is reflective primarily of an unfavorable quarter-to-quarter change in customer mix. I expect this change to continue to be a slight incremental headwind in the December quarter. Operating margins of 29.5%, plus or minus 1 percentage point. Gross margin and operating margin included impact from ongoing transformation costs related to projects to improve our systems and operations. As we communicated at the beginning of the year, we're focused on reengineering our business processes and systems to drive operational efficiencies and to implement AI at greater scale. And finally, we're forecasting earnings per share of $8 plus or minus $0.75 based on a share count of approximately 131 million shares. Let me wrap up. As we finish the first half of calendar year 2024, I was pleased that we were able to execute to the objectives we shared at the beginning of the year. We prioritize investment to extend our technology differentiation while driving operational improvements. We're encouraged that the spares business recovery is beginning and upgrade activity should improve as we exit the calendar year. Longer term, Lam is well positioned to capitalize the increase in etch and deposition intensity by delivering new capabilities at multiple new manufacturing inflections that we see ahead. We look forward to talking to you in February at our planned Investor Day about the long-term opportunities for Lam to continue our outperformance in the semiconductor industry. Operator, that concludes our prepared remarks. Tim and I would now like to open up the call for questions.

Timothy Arcuri:

Thanks a lot. Doug, I wanted to ask about the service system mix in the guidance. So you said that the service -- I thought you said which you now think it's going to grow modestly this year. But if I flatline service in September and December, it's up 8% year-over-year. So can you just clarify what you're thinking for service in the guidance? Thanks.

Timothy Arcuri:

Okay. Great, Doug. Thanks. And then can you talk a little bit about -- just in DRAM, I think there's generally more excitement, Tim, about DRAM WFE among most investors out there about where it could go during this next peak. Obviously, you do very well in NAND. But in DRAM, you did talk about a lot of the investments that you're making. Can you just talk about -- I know your leverage to the advanced packaging part of the HBM dollars being spent but that's still a pretty small piece of it. So can you just maybe give a chance to kind of discuss some of the view that you're not very levered to DRAM and give us a sense of maybe where you're investing and where you think you can gain share in DRAM.

Timothy Arcuri:

Thank you, Tim.

Operator:

Next question comes from Krish Sankar with Cowen & Company. Please go ahead.

Douglas Bettinger:

Yes, sure. Krish, I'll just remind you what we said last quarter. It hasn't really changed in this quarter and what that statement was that for the year, 2023-2024, China is up. However, it is a somewhat first half weighted year this year as opposed to last year, it was somewhat second half weighted. I'm not communicating, hey, it's going away. It's not going away. It's just the spending because sometimes these customers are a little bit bigger than a bread box, it can be a little bit lumpy and that's very much what we're seeing in China. I'm not ready to tell you exactly what next year looks like from the China region. But I do think it's going to be a pretty solid year, right? Again, it's not going away. It's too soon for us to quantify things for next year, but 25% should be a pretty decent year in China, Krish.

Douglas Bettinger:

I'm not going to give you a number, Chris, but I've been signaling for a while that because of customer mix, margin will have a little bit of some headwind going into the second half of the year. I just guided you to 47% in September and suggested that there might be a little bit of incremental headwind into December because of customer mix is what I said in the script.

Timothy Archer:

Sure. Well, I don't think we're prepared to quantify it for you today. But I think that -- what my comment was, though, we see each of these inflections. And 6F2 to 4F2 is a technology inflection that brings with it some important changes. I mean, one, the architectural layout of the device itself puts additional requirements on etch, which I think we're very well suited to serve. And that's why we've been developing new conductor etch capabilities to target those new requirements. So there is some incremental opportunity there. Clearly, the jump to 3D NAND is a much bigger step-up in etch depth intensity, but our goal is to increase our SAM and grow our share at every technology node. So we look at whatever is the new requirement and how we can best address that. You also look -- as you look at DRAM going forward, another thing that's happening, whether it's 6F2 or 4F2 is the implementation of more EUV layers and how Lam plays in EUV. Again, anything where effectively pattern transfer etches, the feature sizes are getting smaller, precision is required. These are the kinds of high-tech etches that Lam excels at. And so we look at participating in those. And then on the deposition side, of course, we've talked about things like our dry EUV resist process and how that plays into EUV as DRAM and foundry logic transition from EUV to high-end AUV. And so, we're just looking at every technology node as an opportunity for us to gain.

Timothy Archer:

Thanks, Krish.

Srinivas Pajjuri:

Thank you. Tim, I have a question on DRAM. Obviously, the recovery has been ongoing and HBM is a secular driver that you talked about, and you do have a very strong position in that market as well. Then I look at your revenue, I think it peaked around December of 2023, and it's been kind of declining on a sequential basis. I'm guessing some of that is maybe mature now DRAM. Just wondering if you're kind of at the bottom and then given all the talk about HBM spending, I would think that it's going to kind of -- it should, at some point, come back strongly. So I just want to hear your thoughts on why it's been declining? And how should we think about, in particular, in DRAM revenue.

Srinivas Pajjuri:

Okay. Got it. Thank you. And then on the CSBG business being up 20% sequentially, 22%. I know you don't want to give us guidance going forward, at least for the next quarter. I'm just curious about the sustainability of some of the trends that you're seeing, Tim. And then what does that mean for the overall WFE? Is this a prelude to something? And is this just the utilization improving? And then does this usually follow in terms of WFE increasing in terms of new tech migrations or capacity additions. So any color on that would be helpful.

Srinivas Pajjuri:

Thanks, Tim.

CJ Muse:

Yes, good afternoon. Thank you for taking the question. I guess first question I was hoping to focus on gross margins. A couple of quarters ago, Doug, you talked about kind of looking back to the June kind of 2023 quarter as normalized. But given the guide today, it sounds like that was conservative and it's a higher number. So just as you think about calendar 2025, as you get to kind of a normalized China mix and you normalize to Reliant, what would be kind of the base level we should be thinking about for gross margins? And then can you talk to what kind of accretion we should be thinking about related to Malaysia and/or some of these higher-margin upgrade drivers?

CJ Muse:

Very helpful. And then I guess as my follow-up, in your prepared remarks you spoke to the 7,500 high aspect ratio etch chambers installed in demand industry. And just curious, as you see upgrades there, what kind of growth could that add to overall NAND WFE specifically to you guys? Is there a kind of percentage we should think about? Any help there would be great.

CJ Muse:

Thanks so much.

Operator:

The next question comes from Stacy Rasgon with Bernstein Research. Please go ahead.

Timothy Archer:

Well, Stacy, what I would say is that, obviously, we're not going to guide what NAND WFE is next year. Frankly, I think it's still a developing story. But what we're trying to say is that, as customers move to upgrades, whatever WFE is spent, Lam will be the primary beneficiary of that WFE spend. And so, that's a year in which -- my comment was, we would be confident that we would outgrow WFE in the NAND space if it was primarily upgrade spend. And upgrades represent a tremendous efficient way for customers to essentially advance their technology and lower their costs. And so, we do think that will be the next phase of NAND investment based on our thoughts.

Douglas Bettinger:

It probably hasn't changed much, Stacy. This is Doug. Maybe a little bit better. We're certainly see a little bit of an uptick in utilization. But I don't think it's meaningfully different, Stacy.

Douglas Bettinger:

Yes, kind of a noise.

Operator:

The next question comes from Harlan Sur with JPMorgan. Please go ahead.

Douglas Bettinger:

Harlan, maturing that stuff is still pretty soft, frankly. And I think you understand what's going on. If you just listen to everybody else's earnings calls in the analog, industrial, automotive space. There's still a lot of inventory out there, it's still relatively soft. The statements we're making on utilization have more to do with what we're seeing in the memory fabs, quite frankly.

Timothy Archer:

Well, it has moved higher, and we're not going to requantify it just yet, but it is -- we're seeing very strong demand in those areas. I talked about the expansion of our global manufacturing supply chain footprint. And obviously, that's giving us more flexibility than we had during the last ramp. Our goal through all those investments was to be able to respond in this next few years of expansion better than we did in the expansion that we saw right around the time of COVID. And so, I think that, that will position us. I’m sure, you're always a little bit short when customers always drop in tools within your lead time, which keeps you busy. But I think that we're doing quite a nice job responding to the urgent request from our customers. We actually like this. I would say that generally from running the business, we like this environment where all parts of our business are a little bit supply constrained. I mean, you hear a lot of our customers talking about being cautious about adding capacity. Other customers talking about having a little trouble getting tools. I think that's a good place for us to be because it means that I think we're setting up for more manageable long-term ramp of demand than sort of a short spike followed by, again, periods of digestion that always creates a little bit of chaos in the industry.

Timothy Archer:

Thanks, Harlan.

Atif Malik:

Hi. Thank you for taking my question. Doug, if I look at the 2023 year-over-year China sales growth among the big five equipment makers. All of them are up quite well. [indiscernible] is up like 250% and the U.S. peers are up in teens or 20%, but you guys were down 11% total China sales in 2023. And this year, you're expecting China sales to be up. So I'm just trying to understand the dynamics last year. Were this just a function of maybe NAND spending and the NAND project not being active? Or are there competitive elements in China that are working against you?

Atif Malik:

Yes, it all makes it. That's helpful. And then on the cryo improvement, Tim, that you mentioned, are those improvements or process tool of record is going to solidify your market share next year or the year after?

Atif Malik:

Exactly I was asking about it. It is 400 layers or 200 layers, but it sounds like 200 layer.

Atif Malik:

Great. Thank you.

Operator:

Next question comes from Toshiya Hari with Goldman Sachs. Please go ahead.

Douglas Bettinger:

Maybe I'll take that one first, and then I'll let Tim comment on the 3.0 stuff. Yes, you might have missed my scripted statements. As we sit here today, we now expect that for 2024 CSBG, the word I used was modestly grow this year versus last year. And part of that is, we saw particular strength in the June quarter in Reliant. Little bit of an improvement in spares. And as we think about the utilization trends that are likely occurring with our memory customers, I think spares continues to be decent and we're optimistic that we'll start to see some of the upgrade spend that we've been talking about for a while. And I'll hand it over to Tim on the 3.0 stuff.

Toshiya Hari:

Thank you. Appreciate that.

Joseph Moore:

Great. Thank you. I wanted to ask you, I mean, there's been a number of press concerns about export controls with talking about the foreign direct product rule which doesn't seem like it would affect you, but also talking about entity list. And I'm just wondering, obviously, we don't know what would happen with any of that. But are you seeing any different behavior from your China customers? Are you seeing them push things in or pull things -- push things out because of any of those anxieties.

Joseph Moore:

Very helpful. Thank you.

Operator:

Next question comes from Blayne Curtis with Jefferies. Please go ahead.

Douglas Bettinger:

I don't know, Blayne, that I'm trying to communicate anything any different than we said on the last call, to be honest with you. We described this year as somewhat first half weighted, really no change to that. The June quarter was maybe a little tiny bit stronger in China, but only a little tiny bit. It's too soon for me to -- for us to quantify 2025. But what I would tell you is, I expect next year to be a solid year in terms of spending in China. I'm not going to give you a number yet, because I'm not completely sure. But what I wouldn't want anybody to think is, it's going away because it's not.

Douglas Bettinger:

Yes. I think NAND spending next year has to be greater than it is this year, right? We're off two years of quite low spending in NAND. I don't know at what magnitude. I expect next year -- we expect next year, you're going to see a lot of upgrades in NAND. But too soon for us to give you a number, but I would be shocked if it's not stronger than it is this year, it has to be.

Douglas Bettinger:

Yes. Thanks, Blayne.

Joseph Quatrochi:

Yes. Thank for taking the questions. I wanted to try on the NAND side again. If we just think about your prior peak NAND revenue ex customers that are obviously now restricted, can capacity upgrade to just higher layer counts support your return to those levels, just given your higher share of higher etch and depth intensity for the transitions?

Timothy Archer:

Yes. And Joe, I think that obviously, we're talking next year, it's very specific to the demand environment and the upgrade business in 2025. Longer term, I mean, we've laid out, in our view, is that NAND spending rises. And so it's just a matter of the time frame you're looking at. And from the standpoint of Lam's business, the etch and depth components and the complexity of tear stacking the precision that's required for implementation of QLC and PLC technologies, all of these skewed towards Lam's technical strengths and also SAM expansion opportunities. I talked about the PECVD pure carbon gap fill process, which is a new addition to the portfolio for NAND scaling technology going forward. And so, if I go back and I look at where we were in the portfolio, we had to sell, when people used to think of NAND is a very, very strong business for Lam, we've expanded that portfolio quite substantially with the gap fill, the backside stress management, the ALD oxide gap fill process plus the etch and stack debt that we've always had as well as metallization. So it's one of growth in NAND demand, but also growth in Lam's portfolio and served market as well opportunities ahead. So I think that bodes well for us once the NAND business itself starts to recover.

Douglas Bettinger:

Yes, you answered your own question, Joe. China is decent right now. Outside of China, it's pretty soft. And I think you understand what's going on, There's inventory that's built up for these inventories still need to come down in the mature node, analog, industrial automotive space and investment won't meaningfully occur until that gets adjusted. So that's kind of what's going on. You sort of answered your own question.

Douglas Bettinger:

Thanks, Joe.

Krish Sankar:

Hi. Thanks for taking my follow up. Doug, I just had a quick follow-up. It's a question on inventory. You spoke about bringing on inventory turns down. I was just kind of curious like how to think about inventory next year, especially you're planning for a strong WFE year in 2025? Or do you think most of this inventory would be in a bin, how to think about inventory next year? Thank you.

Krish Sankar:

Thank you. Very helpful. Thanks, Doug.

Operator:

Next question is from Melissa Weathers with Deutsche Bank. Please go ahead.

Timothy Archer:

Yes. Thanks, Melissa. I mean we always make choices about what we do and don't include it in the prepared remarks and gate all around fell out this time, just no intended message. In fact, if I look at what happened in the quarter, Lam, again, as we've talked on previous calls, is really positioned quite nicely with our forward-looking etch and depth portfolios. We really targeted those kind of markets with new tools in selected etch, which is a market we hadn't been in before. And in fact, in the quarter, we had additional selected etch wins for gate all around at multiple customers. We targeted investment in ALD films that are specifically needed for things like spacers and gate all around, and we had additional wins in the quarter for those films. Often with gate all around, we think of those -- they are obviously different technologies, but kind of occurring at the same node, the backside power delivery. That's an area that is really right in our sweet spot in terms of deposition and etch. And in the quarter, we had wins in backside power in ALD oxide. And so I would say net-net, I mean, given those wins and what you're hearing from the end markets about the need for high-power computing demand for AI, I think the $1 billion forecast we gave you, certainly, as we move through next year would be going higher. And so, again, that's a combination of rising demand, but also a product portfolio that's both expanding and one in which we're winning share. And so, there was no message about leaving it off, but thank you for asking the question so we could get that in right at the end.

Douglas Bettinger:

Awesome, operator, I think that concludes our call. I want to thank everybody for joining us today. We look forward to seeing you at a variety of conferences and interactions as we go through the remainder of the quarter. Appreciate it.

Operator:

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Ram Ganesh:

Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment, and we'll review our financial results for the March 2024 quarter and our outlook for the June 2024 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. The release can also be found on the Investor Relations section of the company's website along with the presentation slides that accompany today's call. Today's presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation. This call is scheduled to last until 3:00 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website. We are having some technical difficulties posting our earnings call slides externally. We will try to post it as the call is going on, if not, we will post it on our website after this call. And with that, I'll hand the call over to Tim.

Doug Bettinger :

Great. Thanks, Tim. Good afternoon, everyone, and thank you all for joining our call today during what I know is a busy earnings season. We delivered solid results in the March 2024 quarter. Our March quarter results came in over the midpoint of our guidance ranges for all financial metrics. I'm pleased with the company's continued robust execution. We achieved the highest gross margin percentage since the merging of Lam with Novellus. We also continued to generate very strong free cash flow of $1.3 billion or 34% of revenue. Let's dive into the details of our March quarter results. Revenue for the March quarter was $3.79 billion, which was roughly flat with the prior quarter. Our deferred revenue balance at the end of the quarter was $1.75 billion, which was a decrease of $182 million from the December quarter related to revenue recognized that was tied to those customer advanced payments. I believe deferred revenue will continue to trend downwards as we continue throughout the year. From a segment perspective, March quarter’s systems revenue and memory was 44%, which is a decrease from the prior quarter level of 48%. The decline in the memory segment was attributable to DRAM coming in at 23% of systems revenue versus the 31% that we saw in the December quarter. DRAM spending was focused on the 1Y, 1-alpha, and 1-beta nodes, spending largely driven by DDR5 and high bandwidth memory enablement. As we noted in the last quarter, non-volatile memory WFE is increasing in 2024, but it remained at a subdue level on a mixed basis for the March quarter. This segment represented 21% of our systems revenue, up from 17% in the prior quarter. I do just want to mention one thing. We are characterizing one customer's investment in specialty DRAM as a non-volatile investment, since it has a non-volatile component to the device. This might be different than what others in the industry are doing. NAND investment was driven by very modest spending and conversions to 2XX and 3XX layer devices. The foundry segment represented 44% of our system's revenue, a slight increase from the percentage concentration in the December quarter of 38%. Growth was driven predominantly by domestic China shipments. And finally, the logic and other segments were 12% of our system's revenue in the March quarter down from the prior quarter level of 14%. The decline was driven by continued mature node softness. Now, I'll discuss the regional composition of our total revenue. The China region came in at 42%, up slightly from 40% in the prior quarter. While most of our China revenue continued to be from domestic Chinese customers, this was the largest quarter for multinational spending in China since mid-last year. We expect spending from this region to increase year-over-year in 2024. I believe it will, however, decline as we go through the year. Our next largest geographic concentration was Korea at 24% of revenue in the March quarter versus 19% in the December quarter. Japan and Taiwan rounded out the remainder of the top four regions. Our customer support business group generated revenue in the March quarter totaling approximately $1.4 billion. This was down 4% from the December quarter and 13% lower than the March quarter in calendar year 2023. Our Reliant systems revenue decreased in the March quarter due to continued weakness in mature node investments, partially offset by a higher level of spares. Reliant is at the lowest revenue level in the last two years, and spares is at the highest revenue level since the end of 2022. The spares business is seeing very early signs of positive impact from utilization increases from our customers. Turning to the gross margin performance, the March quarter came in at 48.7% above the midpoint of our guided range, and above the December quarter level of 47.6%. The increase was primarily a result of favorable changes in product and customer mix, as well as improved factory efficiencies. March quarter offering expenses were $698 million, up from the prior quarter amount of $662 million. This was due in part to expenses incurred for an extra week in the quarter. I'll remind you, it was a 14-week quarter, as well as our conscious growth in R&D spending. As Tim mentioned, we remain laser-focused on investing in R&D to extend our product and competitive differentiation. R&D, as a percentage of spending, was at a high watermark coming in at 71% of total spending. Operating margin for the current quarter was 30.3% in line with the December quarter level of 30% and at the high end of our guidance range. This was primarily because of the strong gross margin performance, which was somewhat offset by the growth in R&D investment. Our non -GAAP tax rate for the quarter was 11.7% consistent with our expectations. Looking further into calendar 2024, we continue to believe the tax rate will be in the low to mid- teens with some possible fluctuations quarter by quarter. Other income and expense for the March quarter came in at $10 million in income, compared with $5 million in income in the December quarter. The increase in OI&E was due to higher cash balances and higher interest rates. OI&E will be subject to market-related fluctuations that could cause some level of volatility quarter by quarter. On the capital return side of things, we allocated approximately $860 million to share repurchases and we paid $263 million in dividends in the March quarter. Our share repurchase activity included both open market repurchases as well as an accelerated share repurchase arrangement. The ASRs continued to execute into the month of April. And I would just mention, we continue to track towards our long-term capital return plans of returning 75% to 100% of our free cash flow. March quarter diluted earnings per share was $7.79 towards the higher end of our guided range. The diluted share count was 132 million shares on track with expectations and down from the December quarter. We have $1.2 billion remaining on our board authorized share repurchase plan. Let me pivot to the balance sheet, our cash and short-term investments at the end of the March quarter totaled $5.7 billion, up a little bit from $5.6 billion at the end of the December quarter. The increase was largely due to collections with an extra week in the March quarter offset by cash allocated to share buyback, dividend payments, and capital expenditures. Day sales outstanding was 57 days in the March quarter, decreased from 66 days in the December quarter. Inventory at the end of the March quarter totaled $4.3 billion, down $107 million from the December quarter level. Inventory turns remained flat from the prior quarter level at 1.8x. We are making progress in bringing inventory levels down, and we will continue to work on this throughout calendar 2024. Noncash expenses for the March quarter included approximately $77 million in equity compensation, $75 million in appreciation, and $15 million in amortization. Capital expenditures in the March quarter were $104 million, down $12 million from the December quarter. Spending was primarily centered on Lam expansions in the United States and Asia, supporting our global strategy to be close to our customers' development locations. We ended the March quarter with approximately 17,200 regular full time employees, which was flat with the prior quarter. Let's now turn to our non-GAAP guidance for the June 2024 quarter, we're expecting revenue of $3.8 billion, plus or minus $300 million, gross margin of 47.5%, plus or minus 1 percentage point. This gross margin decline from March is reflective of a quarter-to-quarter change in customer mix, operating margins of 29.5%, plus or minus 1 percentage point. This reflects our continued commitment to prioritize R&D spending. And finally, earnings per share of $7.50, plus or minus $0.75, based on a share count of approximately 131 million shares. So let me wrap up. 2024 is a year of continued transformation for Lam Research. We're investing in our long-term strategy to extend our technology leadership and operational excellence while efficiently managing overall spending. We're encouraged that the long-term drivers of semiconductor growth, such as artificial intelligence, are seeing accelerated adoption. And we expect Lam to be a strong beneficiary of these trends. We are well-positioned for the architectural and material change coming, such as gate-all-around, advanced packaging, backside power delivery, and the move to dry photoresist. Operator, that concludes our prepared remarks. Tim and I would now like to open up the call for questions.

Krish Sankar:

Yes, hi, thanks for taking my question. I have two of them. First one for Tim. Tim, a question on high aspect ratio, etch for NAND, very high market share. And you said in your prepared comments, you defended market share there. Your competitor, the Tokyo Electron, introduced a Cryo Etch product a year ago, but you also have one from three years ago. So I'm kind of curious. Can you talk a little bit about the market share dynamics and high aspect ratio etch? And the fact that some of your customers are talking about using Cryo Etch for like 430 Lam NAND. So can you give us some color there on high aspect ratio, etch? And then I'll follow up with Doug.

Krish Sankar:

Got it. So good to hear that the share is still solid. And then a follow-up for Doug on margins. Doug, you kind of mentioned about the gross margin, maybe moderation in the June quarter due to the customer mix. Is it mainly a function of China and how to think about gross margins in the second half? And maybe if you can extend that question, how to think about OpEx into the back half of the year too.

Operator:

Our next question comes from Timothy Arcuri from UBS.

Timothy Archer:

Yes, Tim, I mean, obviously, we can't forecast changes in U.S. trade policy with respect to China that we don't know about. And so, we're basically giving you our best view of what we think our China business will be through the rest of the year and recognizing that there could be changes that we don't foresee. And what I will say is we, obviously, we've built up what we believe is a strong government affairs team. We've plugged in to all the relevant discussions. And I think over the last couple of years, you've seen we have a pretty strong track record of working with the U .S. government, responding to export control policy, and that's just what we're trying to do going on in the future.

Doug Bettinger :

Yes, listen, I think it's well understood right now that you got two dynamics going on relative to thinking about the different components of CSPG. First, industry utilization is starting to get somewhat better. I would definitely say it's early days for that. But the reason I specifically talked about the Spares level versus where it's been over the last couple of years is because of that. That clearly is beginning to show up in our Spares business. However, when you look at CSPG in total, we were down now because of the softness in Reliant. I also think that's pretty well understood in the industry, right. Mature node investment outside of the China region certainly is pretty soft right now. And so you have those two competing dynamics going on that's showing up in the CSPG line. If I was guessing, Tim, right now, CSPG is probably flattish this year from last year because of those two offsetting dynamics, if that helps you think about it.

Timothy Archer:

Tim, I think the only thing I would add there is when you think about the CSPG business a little bit longer term. I mean clearly, we commented on utilization starting to pick up, but as we move into 2025, I think we also will see significant upgrade activity coming back in, especially in the NAND space. We talked about the fact that there is a large portion of that installed base that has not yet been moved towards the technology nodes that are most useful for our customers, and so I think that will also flow through into the CSPG business in perhaps not so much this year, but clearly as we move into 2025 and beyond.

Harlan Sur:

Good afternoon. And thanks for taking my question. With an accelerated compute and AI semiconductor segment to the market, there still seems to be a lot of constraints centered around high bandwidth memory and tightness and [inaudible] packaging. Obviously, you guys have a very strong position here, as you mentioned, Tim. You guys previously talked about this business, this opportunity is being potentially like a billion dollar per year type of revenue opportunity, but just given the strong demand pull and some of the expanding use cases, I mean, is the Lam team already on track to drive a billion plus dollars in advanced packaging revenues this year? And now that the trends are in place like what's kind of your new or maybe revised view on the revenue opportunity here for the team over the next few years?

Harlan Sur:

Yes, no, congratulations on hitting that milestone. For my follow-up question, with your customers and their spending outlooks looking more constructive, their cycle dynamics continues to improve, you got strong tailwinds on manufacturing complexity translate the growth. Look appears quite solid right for the team. So if I look out beyond this year and the ramp of your new Malaysia manufacturing facility I mean not only, is it low-cost geo like you guys have mentioned, but you've got highly skilled workforce. You also set up the supply chain support infrastructure locally as well. So I don't know if it's for Tim or Doug but is there any way to think about the incremental gross margin benefit on incremental revenues that flow out of the Malaysia factory as you start to load it.

Doug Bettinger :

Yes, Harlan, I guess I just remind you what I've said in prior quarters, which is I don't want you to run ahead of that financial model we put out in 2020. That's still the right way to think about it. Now, obviously right now we've got quite favorable customer mix. I don't expect that to continue long. I don't know maybe I'm wrong about that but the benefit from Malaysia after we came to the inflationary stuff and whatnot was completely how we intend to get back to the gross margin and better than that financial model, maybe we can push a little higher. Certainly, we're not going to stop staying focused on that. But that's the way to think about it is Malaysia is still into the future, it will show up when we ramp incremental volumes and we're ready for that.

Srinivas Pajjuri:

Thank you. Doug, I think on the China side, just one clarification, were you expecting China to moderate in this quarter? Did it come in better than you expected? And then, just to go back to your comment about China moderation through the rest of the year, any particular segment within China, I mean, is it DRAM or is it logic or is it both? If you can add some color to that, that'll be helpful.

Srinivas Pajjuri:

Thanks, Doug. And then maybe for Tim. Tim, some of your large customers got, pretty good amount of subsidies from the government recently on the CHIPS Act and other stuff outside of the U.S. as well. So I'm just wondering what sort of impact should we expect in terms of your own business as, I guess that money comes in and any, I guess, thoughts on the timing of potential orders from this incremental funding that they're getting? Thank you.

Operator:

Our next question comes from C J Muse from Cantor Fitzgerald.

Timothy Archer:

Yes, CJ. I mean, obviously one of our peers in the industry reported last week. We took a look at it and just have a view that we missed a little bit of what was shifting into China. That is the vast majority, if not all, of the change in WFE from our point of view. There are always some moving pieces. DRAM is maybe a little stronger. Trailing etch, foundry logic is probably a little bit softer. But at the end of the day, the biggest change that we saw was litho. We missed it a little bit because it's not part of our addressable market. I'm not sure I caught all of the second part of your question, CJ. Try it one more time.

Timothy Archer:

Yes, I think given the mix we see in some of these technology transitions, it should be incrementally better than it was last year for sure.

Timothy Archer:

I guess, CJ, you've got to just kind of look at where we've been, right. You're absolutely right, and thanks for mentioning the 46. That's sort of where gross margin was after we had done some of the Malaysia stuff and before China popped up with those smaller customers. And so the fact that we're above that level is largely customer mix. And so that's how you should be thinking about it. And if we have that mix wrong, then margin kind of, you've got a couple of data points in the last couple of quarters that you can kind of solve for to understand what it might look like. It will be in that 46 to 48 -plus percent range depending on what the mix looks like.

Atif Malik:

Hi, thank you for taking my question. The first one for Tim. Tim, it's good to see some green shoots in the NAND market. You talked about double-digit spare parts growth in the NAND. And you also talked about that the AI storage inflection for high density SSDs is in front of us. But we do not have the 3x wafer surface offset that you're seeing on the DRAM site. So can you kind of paint for us the trajectory of the NAND improvement that you're expecting into second half of your next year?

Atif Malik:

Great, thank you. And then one for Doug. Doug, within your China, 42% of sales, you talked about multinationals picking up, which came as a positive surprise to me. Can you talk about what's driving that? Are those customers not worried about incremental restrictions or are they just trying to upgrade some of the older technology?

Operator:

Our next question comes from Toshiya Hari from Goldman Sachs.

Timothy Archer:

Sure. Well, obviously, any time there's a material change requires a new system, it's an opportunity for Lam to provide that technology into the market, and so it's an important change. We would call it moly just because it's so hard to say molybdenum, but the change to moly has some significant device benefits, and also, I mentioned that the important thing in NAND is, I mean, it's important in every element of semiconductor devices, but it's the cost and technology, and so one thing that's sometimes lost is part of the transition to moly is also about enabling stack height reduction, so you can go to more layers and limit the stack height in a way that allows you to then have more productive and just more productive depth issue and other things. And so, I think it's an important inflection for the industry and an opportunity for Lam, and we're well positioned to win that inflection literally.

Doug Bettinger :

Appreciate it. Maybe I'll give it a try. I mean, when you look at overall good demand, HBM is probably a point or two of it, although it's growing and adding to the broad market. But it's clearly requiring incremental investment of our SABRE 3D tool, our deep silicon etch tool. And I think it's something you're going to hear us talking about for many years to come. This form factor is going to continue to be important relative to AI enablement, feeding the GPU the data that it needs. Small today, but growing quite rapidly.

Joseph Moore:

Great, thank you. I wanted to follow up. You had mentioned that there was a customer that you're classifying as NAND, that others might be classifying as DRAM. I just wanted to double click on that. If you could talk to what's going on there, is that customer doing both and people just have different classifications? Should we be thinking that there's more NAND capacity coming on in China than I had thought before? Can you just talk to that change?

Joseph Moore:

Got it. Thank you for that. And then on the Reliant business, can you talk about changes in that business as we sort of move into a lower level of utilization in trailing etch nodes? Do you see that kind of returning to more of a refurbished tools business, where there's stuff that you're able to actually refurbish and any ramifications we should think about for profitability there?

Operator:

Our next question comes from Stacy Rasgon from Bernstein Research.

Timothy Archer:

Sure, Stacey. I'll take that. I was actually the one who said the comment. Yes, no problem. I just wanted to own it in case you disagree so. I think you're thinking about it exactly right. The reason upgrades are so attractive for customers is the total WFE spend is lower. That's why they upgrade the installed base. And so for my comment was specifically about Lam's outperformance relative to whatever WFE is for the industry next year. In an upgrade heavy cycle, which obviously we haven't had for the last two years in that next cycle of NAND upgrades, we're saying we would capture a higher percentage of whatever that WFE is. Now, we've said in the past that Lam's opportunity, actually, because of that much higher capture rate is not so different in terms of revenue for every bit added through an upgrade versus a greenfield. So if WFE comes down, that's why it's attractive for customers. But for Lam, we capture almost the same amount of revenue because of the much higher capture rate, and so kind of both ways.

Timothy Archer:

Well, I would say, the only thing I would say is because there's been lots of questions about whether Lam's market share in defense and others, we're not quite indifferent because the power of the installed base is that, again, when the customer's preferred path is to upgrade what they already have, it means that the positions don't change. And so Lam's very strong position carries forward in that case. So agnostic from a financial perspective, but obviously our position in the industry continues to strengthen through each of those great cycles.

Doug Bettinger :

Yes, no. Spacey you kind of have one customer in China DRAM. So I got to be careful talking about that. China is going to modulate through the year, all right, it's not going to stay at 42% is the statement that I made and it's going to modulate in every segment I believe in the China region.

Doug Bettinger :

Unfortunately, I know the slides in primary right now states you were having some technical challenges. It's all going to modulate.

Operator:

Our next question comes from Vivek Arya from Bank of America Securities.

Doug Bettinger :

Okay, well, Vivek, we didn't say spares would double. We said that it was a double-digit percent growth quarter-on-quarter in our spares revenue, so not doubling. But I think that in general, I mean, the way we look at that and why we made that comment, obviously it's positive for us to see spares move up. If you think, go back to our commentary previously about CSPG over the last few years. We've said spares revenue will grow year-on-year because the installed base itself grows. However, through this downturn, the cuts in fabulization were so severe that we actually saw spares revenue come down, which surprised us a bit. So maybe to your point of expectations, we knew that as soon as customers started to utilize the fabs and bring some of the tools back online, we would see spares increase. We said that would be the first sign that the end market was really starting to improve. And so the reason we called it out was that obviously it further confirms, I think, what you're hearing from our customers, which is that utilization is starting to improve. It doesn't tie to WFE because utilization, what you have, is one issue. When you choose to spend more to either upgrade technology or add capacity is a second decision. We said that is likely still more of a 2025 event on the equipment spend side. But you have to get the first indication, which is utilization improvement, spares improving, and then the rest will come.

Doug Bettinger :

Yes, I said flattish, Vivek, plus or minus flat, and by the way, that's not a new disclosure. We said that last quarter as well.

Doug Bettinger :

Correct, for this calendar year, yes. ‘24 over ‘23.

Christopher Caso:

Yes, thank you. I guess the first question is on DRAM, and could you perhaps talk about some of the moving parts that are going on with that right now? And I think a previous question you talked about, the China part of DRAM expecting that to moderate through the year. Obviously, the direct revenue from HBM sounds good, but there's a broader capacity question going on in DRAM that's fungible with HBM. Could you talk about, what your expectations are for that as the year progresses?

Christopher Caso:

Got it. As a follow-up, you made in your prepared remarks a comment talking about a billion dollars in revenue from gate-all-around this year. Could you talk about that in context of, where the overall opportunity is for gate-all-around? Is this -- is that billion represent, what you would consider to be gate-all-around capacity? Is that just getting the processes started, kind of where are we with that gate-all-around ramp?

Ram Ganesh:

Thank you, Chris. Operator, we'll take one more question.

Brian Chin:

Hi, there. Thanks for sneaking me in. The companies previously discussed an incremental $1 billion to $1.5 billion increase in WFE for every 1% AI server penetration. Last year, given the under-utilization of capacity and the focus on conversion activity, maybe the math was lower last year. But now that utilization rates for advanced foundry and DRAM nodes have recovered, do you see AI growth, I guess, driving spending levels more consistent with that $1 billion to $1.5 billion? And do you already see that maybe playing out to some degree in your order backlog?

Brian Chin:

Okay. Yes, that's helpful, and then maybe just kind of follow-up on the last follow-up but again of that $1 billion kind of shipment for gate-all-around in 2024 calendar year, how much of that is second half weighted? Is it more kind of pilot production or how much is it pilot versus high volume?

Brian Chin:

Okay, fair enough. I think it is more second half bias. Thanks.

Timothy Archer:

That concludes our remarks guys. Thanks for joining the call.

Ram Ganesh:

Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and CEO; and Doug Bettinger, Executive VP and Chief Financial Officer. During today's call, we will share our overview on the business environment, and we'll review our financial results for the December 2023 quarter and our outlook for the March 2024 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. The release can also be found on the IR section of the company's website along with the presentation slides that accompany today's call. Today's presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation. This call is scheduled to last until 3:00 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website. And with that, I'll hand the call over to Tim.

Douglas Bettinger:

Great. Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a busy earnings season. We delivered strong financial results in calendar year 2023. Our revenue came in at $14.3 billion and diluted earnings per share at $27.33. We're pleased with the company's execution during the year where the memory WFE mix reached historic lows. Let's look at the details of our December quarter results. Revenue for the December quarter was $3.76 billion, which was up 8% from the prior quarter and down 29% from a year ago. Our deferred revenue balance at the end of the quarter was $1.93 billion, which was an increase of $238 million from the September quarter, which was mainly tied to growth in customer advanced payments. We continue to have a higher deferred revenue balance versus historic levels given these customer advanced payments. From a segment perspective, December quarter, systems revenue in memory was 48%, which is an increase from the prior quarter level of 38%. The growth in the memory segment was led by DRAM, which was at record levels on a dollar basis, coming in at 31% of systems revenue compared with 23% in the September quarter. DRAM is benefiting from growth in high-bandwidth memory capacity and the move to DDR5, which is needed to address AI-related workloads, and it's also benefiting from shipments to China. As we've noted in prior quarters, nonvolatile memory WFE was at historic lows on a mix basis in 2023. For the December quarter, this segment represented 17% of our systems revenue, which was up a little bit from 15% in the prior quarter. The slight growth was predominantly related to investments in certain technology projects. NAND customers have aggressively reduced capacity throughout the year to bring inventory levels down. The Foundry segment represented 38% of our systems revenue, a little higher than the percentage concentration in the September quarter of 36%. Growth was driven by new fab shipments in various regions across several process nodes. The Logic and Other segment was 14% of our systems revenue in the December quarter, which was down from the prior quarter level of 26%. The decline was driven by general mature node softness as well as the timing of customer projects. Overall, in the Foundry and Logic segment, we performed well, delivering on the share gains that we've previously been discussing with you. Now I'll discuss the regional composition of our total revenue. The China region came in at 40%, which was down from 48% in the prior quarter. Most of our China revenue in the last 2 quarters was from domestic Chinese customers, and we expect spending from this region to be stable overall in 2024. China as a percent of our revenue is expected to stay relatively high in the March quarter, but it likely trend lower as the year progresses. Our next largest geographic concentration was Korea at 19% of revenue in the December quarter versus 16% in the September quarter. And finally, Japan and Taiwan rounded out the remaining of our top 4 regions. The customer support business group generated revenue in the December quarter of nearly $1.5 billion, up 2% from the September quarter and 16% lower than the December quarter in calendar year 2022. Overall, the business was steady, and we continue to see our memory customers operating the fabs at very low utilization rates. Given the strength of the installed base units, we have a strong foundation for growth with technology conversions and utilization rates resume growing. Spares followed by the Reliant product line continue to be the 2 largest components of CSBG. Turning to the gross margin performance. The December quarter came in at 47.6%, which is above the midpoint of guidance and generally in line with the September quarter level, which was 47.9%. We've improved elements of our cost structure during the year and delivered on our commitment to improve gross margin from the 2023 March quarter level by approximately 1 percentage point as we exited calendar year 2023 from those operational improvements. December quarter operating expenses were $662 million, up from the prior quarter amount of $622 million. R&D as a percent of spending was higher versus the September quarter, coming in at over 69% of total expenses. The increased spending reflects our ongoing focus on extending our product and technology differentiation across those critical inflections that Tim mentioned earlier. We will continue to grow investments across multiple market segments to support the long-term strategic objectives for ongoing company outperformance. Operating margin for the current quarter was 30%, in line with September quarter level of 30.1% and above the midpoint of our guidance primarily because of a stronger gross margin performance. Our non-GAAP tax rate for the quarter was 12.3%, generally in line with expectations. Looking into calendar 2024, we believe the tax rate will be in the low to mid-teens with the normal fluctuations quarter-by-quarter. Other income expense for the December quarter came in at $5 million in income compared with $7 million in income in the September quarter. The slight fluctuation in OI&E was mainly due to variations in exchange rates. OI&E will continue to be subject to market-related fluctuations that could cause some level of volatility each quarter. On the capital return side, we allocated approximately $640 million to open market share repurchases, and we paid $264 million in dividends in the December quarter. For the 2023 calendar year, we returned 79% of our free cash flow, totaling $3.8 billion, which was largely consistent with our long-term capital return plans of 75% to 100%. December quarter diluted earnings per share was $7.52 over the midpoint of our guidance. Diluted share count rounded down to 132 million shares on track with our expectations and down from the September quarter. During 2023, we repurchased nearly 5 million shares through our share buyback program. And I would just mention, we have $2.1 billion remaining on our Board-authorized share repurchase plan. Let me turn to the balance sheet. Our cash and short-term investments at the end of the December quarter totaled $5.6 billion, up from $5.2 billion in the September quarter. The increase was largely due to collections, offset by cash allocated to share repurchases, dividend payments and capital expenditures. Overall, 2023 was a record year for cash flows from operations coming in at $5.3 billion. Days sales outstanding was 66 days in the December quarter, which was a decrease from 73 days in the September quarter. As a result of our operational focus and execution, I'm pleased to report that inventory turns improved to 1.8x from the prior quarter level of 1.5x. We will continue to work on bringing inventory down throughout calendar 2024. Our noncash expenses for the December quarter included approximately $70 million for equity compensation, $78 million for depreciation and $13 million for amortization. Capital expenditures for the December quarter were $115 million, up $38 million from the September quarter. Spending was primarily centered on product development activities and lab expansions in the United States and Asia, supporting our global lab investment strategy. We ended the -- excuse me, the December quarter with approximately 17,200 regular full-time employees, which was flat with the prior quarter. Let's now turn to our non-GAAP guidance for the March 2024 quarter. We're expecting revenue of $3.7 billion, plus or minus $300 million. Gross margin of 48%, plus or minus 1 percentage point. This gross margin guidance is reflected -- reflective of continued favorable customer mix. I do expect this favorable mix to mitigate somewhat as the year progresses. Operating margins of 29.5%, plus or minus 1 percentage point. I would again highlight that the March 2024 quarter will have higher spending as it includes an extra week in the quarter, which occurs every several years. It's a 14-week quarter. And I will also remind you we will be growing R&D spending this year. And finally, we're expecting earnings per share of $7.25, plus or minus $0.75 based on a share count of approximately 132 million shares. We continue to be focused on improving our business operations to optimize efficiency and effectiveness as WFE growth occurs. Our profitability metrics reflect the progress we made during calendar year 2023, with business realignment and transformational activities well underway. We'll see these activities continue in the first half of calendar year 2024. Including the cost incurred for these improvement activities and headcount reductions that we saw in calendar 2023, I now expect we'll spend in total $300 million for these actions, which will continue to be reported in our non-GAAP adjustments. I had previously told you we would spend $250 million over 12 months. It's now $50 million higher and 6 months longer. So let me conclude. Over many semiconductor cycles, Lam has established a proven track record of successfully managing our business. With the actions we've taken over the course of the last several quarters, we expect to strengthen our operations and technology leadership and further enhance our profitability profile. When revenue scales into the next upturn, Lam will be stronger, better positioned and more efficient. Operator, that concludes our prepared remarks. Tim and I would now like to open up the call for questions.

Timothy Arcuri:

I guess my first question for you, Tim, is I wondered if you could sort of translate. Obviously, you heard your big litho peer that reported today that had these huge orders and it looks like a couple of billion dollars in EUV orders for DRAM. So that sort of translates to an extra $9 billion to $10 billion, something like that. So it seems mostly for shipments during this year and even into next year for them. So like maybe you haven't seen that yet. But can you talk about what that tells you about the future of that segment? And I know you think it's going to be up, but it seems like it could be up a lot. And maybe any change in the planning outlook or the discussions that you're having with your DRAM customers?

Douglas Bettinger:

And Tim, it's Doug. I'll just remind you something that I know you know very well that with those lead times are generally much longer than ours are in etch and deposition. And you never buy litho without eventually buying the process equipment that goes along with it. So if they're seeing something, we will see it, too.

Douglas Bettinger:

Yes. Tim, I'll remind you what I said last quarter call too, still kind of the same thing. The customer mix is benefiting us again in the March quarter guide, maybe even a little bit more than it did last quarter. I took you back to that June quarter of last year before we had such a favorable geographic mix and that largely is what's driving the customer mix. We were around 46% gross margin, 45.7%, I think, if I remember the June quarter specifically. That's not a bad place to kind of start when mix normalizes back to maybe more normal levels. So think about it that way. Somewhere in between there and where we are here. These operational improved install that we've been talking about are real things and as growth resumes and we know growth will resume at some juncture, we should benefit from like repositioning the company to these lower cost locations. So that's still on the come line. but it will require some level of growth in the business.

Harlan Sur:

Again, going back to your large litho peer that reported this morning, right? They called out seeing an increase in customer utilization of their litho tools, both in memory and in Foundry and Logic, appearing that this is the early signal of a positive turn in cyclical dynamics. I know you guys are also track in real time utilization, activity rates of your customers. I know they're at very low levels, but are you guys starting to see some pickup in utilization rates across your customers? And is that also maybe giving you further confidence in your modest growth outlook for WFE this year?

Harlan Sur:

That's very helpful. And then you mentioned this, I mean, your CSBG business has grown at a 17% CAGR since 2019, right? That's significantly faster than I think it was a 10% to 11% CAGR target that you guys put out at your last Analyst Day. I know it's been weak over the past few quarters, just given some of the supply side discipline of your customers, lower utilizations, slowing tech migration. But assuming that you will see the pickup in activity sometime this year. You combine that with a strong continued growth in the installed base business, number of chambers continues to grow at a low double-digit growth rate. Like how should we think about the growth profile, puts and takes of CSBG this year and going forward?

Douglas Bettinger:

And Harlan, maybe just like to remind you, there's 4 components in CSBG, spare service upgrades, all of which will benefit from what Tim was describing. You also have the Reliant product line in there, which has just done amazing in the last year. That will ebb and flow to a certain extent with more mature nodes, specialty node WFE. So don't lose sight of that one. There might be a slightly different dynamic with the Reliant product line.

Atif Malik:

First one, Tim, historically, you guys have benefited disproportionately when the NAND spending happens. And -- if you were to think about your position competitively when the NAND spending recovers, I understand this year there's more technology upgrades. But how should we think about your position coming out of this NAND downturn competitively, particularly on more layers than the whole edge process?

Atif Malik:

Great. And then a quick clarification, Doug, on the OpEx. You said R&D will be up year-over-year. I wasn't sure if that implies total OpEx is also up or SG&A is down to offset the increase in R&D?

Timothy Archer:

I think the maybe the easiest way to think about it is the lead time for us to develop new products that we need to drive growth is unfortunately a little bit longer than the lead time for our spending revenue. So with an outlook that growth is coming and that we're entering this next upturn, where there are tremendous opportunities for the company, we feel very confident to invest ahead of that revenue showing up, and that's I think what we signaled through this year. But with the confidence that we're going to see that growth in new products and technology investment from our customers.

Toshiya Hari:

The first one on WFE. Doug, I -- forget if you mentioned this, but is there a first half, second half sort of bias that you're willing to share as we think about the trajectory of WFE this year? And more importantly, curious how we should be thinking about your rate of outperformance vis-a-vis the market? You guys have talked about obviously, depth and etch intensity growing across the memory space. You talked about advanced packaging in HBM. HBM things like dry resist. So assuming you're accurate with your WFE assumption and the market's up call it, mid- to high singles. What sort of outperformance can we sort of expect from you guys in calendar '24?

Toshiya Hari:

Got it. And then as my follow-up on China, Doug, you mentioned China as a percentage of your systems revenue to stay elevated in the March quarter. And then you went on to say that, that number should decline as you progress through the year. Is that just purely a function of your other businesses, other regions improving throughout the year? Or are you sort of sensing absolute decline in your China business? And if so, what are some of the areas or device types or applications you're seeing a slowdown?

Operator:

The next question is from C.J. Muse with Cantor.

Timothy Archer:

Sure, C.J. I think the simple answer is, yes, we do believe that. I mean, we've -- let me address the NAND question first, which -- as I mentioned, this year, customers are primarily focusing on technology upgrades and what makes sense. I mean eventually, to drive the type of bit growth that we think we see longer term. Obviously, there are some additions that need to be made, but we're not forecasting that this year. With each of those technology evolutions, etch and dep intensity rises simply because of the increasing number of layers. And in a technology upgrade, we've talked about the fact that Lam captures a much higher percentage of WFE because of the goal that etch and deposition play in the technology upgrade. So I think that as we see NAND growing -- recovering and growing at a certain percentage rate, Lam will actually significantly outperform that rate because of the fact that most of that is coming from upgrades. Now longer term, I think we have turned to our attention and strategically, we've said we want to build resilience into our business by really capturing a lot of the opportunities that exist. Of course in NAND where we're very strong, but really outside of NAND and some of these other markets that are becoming more etch and dep intensive. And we've talked about those, whether it's gate-all-around or backside power or advanced packaging, dry EUV patterning. And each of those, we've characterized as a $1 billion-plus opportunity when fully scaled for Lam. So -- and those are SAM expansion meaning that they are incremental to where Lam has been before. So I think when you play those out and obviously, we have to be successful in execution. That's why we keep talking about we're gaining traction, but there's still a ways to go before these inflections and all decisions are made. But we think those can certainly drive Lam to new highs in terms of revenue and obviously profitability as well.

Douglas Bettinger:

Yes, C.J. I mean, it's 14 weeks versus 13. That's the right way to kind of think about it. You can just ratio it to understand kind of it's a longer quarter. So that's the piece from that. And then any delta to get to the 29.5% op margin is part of that beginning to step up R&D. As we go through the year, though, we will purposely be growing the investment in R&D so that you might not see the historic leverage that we've delivered is what I described a quarter ago, and that's still very much how you should be thinking about it.

Srinivas Pajjuri:

Tim, you talked about your trough EPS doubling essentially, which is a tremendous achievement and execution. I think part of the reason was your services business did increase as a percent of the mix. I think that helped for sure stabilizing the cyclicality a bit. So as we go through the next, I guess, as we kind of look out to the next couple of years as business recovers, just curious as to how you think about the mix shaking out between systems and services? And how -- what sort of implications that might have for your top line and also your margin profile? And I guess, on the next peak EPS, if you want to talk about?

Srinivas Pajjuri:

Got it. And then Doug, one clarification on the deferred revenue. I think it went up about $238 million this quarter. You talked about prepayments. Just curious, are customers still prepaying because of any supply constraints? Or is this an ongoing, I guess, trend that you're seeing? Just if you can talk about how we should think about deferred revenue going forward, that will be helpful.

Operator:

The next question is from Stacy Rasgon with Bernstein Research.

Douglas Bettinger:

Stacy, I don't really see a big change year-on-year relative to end market. I'll remind you, when China DRAM was second half weighted last year. It's probably a little bit first half weighted in China, maybe more than a little bit this year. But year-over-year, I don't think I really think about a significant change in contribution for the entire year.

Douglas Bettinger:

Yes. Let me remind you, in 2023, China was a more modest amount of WFE that grew in the second half of the year. And so the comments we're making are year-over-year, it's relatively stable. Kind of the half-on-half stuff probably looks different in '24 than it did in '23 in China specifically.

Douglas Bettinger:

Yes. The customer mix stuff, I think, mitigates some as we go through the year, and it continues to be quite strong in the March quarter guidance.

Vivek Arya:

For my first one, I'm curious, what's your assessment of NAND supply demand as it exists today? I think in your WFE view, you are assuming that NAND grows but more because of technology upgrades. But what are your customers telling you for as to when they want to start adding more tools? And what's Lam's opportunity to grow NAND right at a measurable pace in the second half of the year?

Vivek Arya:

Okay. And then, Tim, as many of the DRAM customers are saying that they plan to shift a bit more towards HVM from DDR. Does that have any positive or negative influence on your CSBG and the spares business?

Vivek Arya:

I guess maybe just to clarify, does your CSBG business start to kind of grow consistent with the growth in your tools business overall? Or do you think there is going to be a lag factor because it slowed down later? Does it start to regrow later also?

Operator:

The next question is from Krish Sankar with CDT Cowen.

Douglas Bettinger:

You're a little bit muffled, Krish, but I think you were asking about our performance along with WFE. And frankly, I think we will mirror whatever the trajectory of WFE looks like with an expectation that etch and dep outgrows to a certain extent. I think I answered your question, although you were a little bit muffled there.

Douglas Bettinger:

Yes, I think it will be, Krish, I'm not going to put numbers on it yet, but we will mirror what goes on with WFE.

Douglas Bettinger:

I guess what I'd say, Krish, from a margin standpoint, you shouldn't think about any differential margin necessarily. The incremental piece for the stuff that goes in high-bandwidth memory is a bigger die, you know that. The die itself, building a DDR5 die is largely the same equipment that builds DDR5 that doesn't go into HBM. The incremental stuff comes when you go into the advanced packaging stuff, the Syndion deep silicon etch and the electroplating are areas where we are extraordinarily strong in addition to some other things. That is clearly incremental equipment.

Operator:

The next question is from Joe Moore with Morgan Stanley.

Douglas Bettinger:

I guess, Joe, I would just to take you back to what I had in my script. Two things are driving the strength in DRAM in the December quarter, and you mentioned both of them, frankly. It's high bandwidth memory in DDR5. In addition to the fact that we've got a China customer in DRAM in the second half of the year. That includes September and December, that wasn't in the first half. So each of those things contribute to the strength you saw in December.

Douglas Bettinger:

Probably.

Brian Chin:

Maybe going back to NAND, the best ever quarter for NAND spending was probably higher than the total level of NAND spending maybe for all of last year. And so even if it's off a low base, isn't it pretty logical that NAND WFE should exhibit the largest or highest rate of improvement in '24?

Brian Chin:

Okay. Fair enough. And then just to kind of level set and DRAM and then also looking forward. How much did DRAM industry spending actually declined in '23? It seems to be better than what was initially thought based on HBM, et cetera. And also, can you give us a sense of the number of wafer starts or percent of the DRAM installed base that could be converted to more advanced 1-alpha or 1-beta like process nodes this year?

Timothy Archer:

Yes.

Douglas Bettinger:

For the most part, in memory, everything gets upgraded to the next node, all of it. That's always been the case. It's not a new phenomenon.

Christopher Caso:

The question is on delivery times. And you had mentioned, obviously, your delivery times may be different than some others in the industry. Where do they sit right now? And as a consequence, how much visibility do your customers need to give you? And with that, when we start to see some stronger perhaps memory spending, how quickly will you be able to react to that and turn that for revenue?

Christopher Caso:

Fair enough. As a follow-up question, I wanted to ask about backside power. And last quarter, you made some disclosures about the revenue impact to Lam as that happened. Could you give a little more color on that and specifically, we know that the different customers are having different implementations of backside power. At what point does that start to become a meaningful driver for Lam?

Operator:

Operator, we have time for one more question. And that question comes from Thomas O'Malley with Barclays.

Timothy Archer:

Well, I think that as a real key supplier into the HBM market, as I mentioned, the strong position we have in the processes required before the stacking, this is an area where we're seeing very, very strong demand. I think that whether or not at some point, it's shipping above peak, I think that this AI market is continuing to evolve at a very, very fast rate. And all we're focused on right now is ensuring we are building out our own capacity and capabilities. And ensuring that we maintain that technology leadership that's allowing us to hold 100% market share of the TSV formation in HBM. And so really, that's our focus is hold the position and let the market grow as fast as the market grows.

Douglas Bettinger:

Yes, Tom, it's -- the rate of decline in memory as we went into '23 was pretty dramatic, and we ended up taking more inventory than we needed specifically for memory. So there's a bigger component of it targeted at memory and as memory recovers, the inventory will come down. Thanks for the question.

Tina Correia:

Thank you, and good afternoon, everyone. Welcome to the Lam Research Quarterly Earnings Conference call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment and we'll review our financial results for the September 2023 quarter and our outlook for the December 2023 quarter. The press release detailing our financial results was distributed a little after 1 o'clock PM Pacific Time this afternoon. The release can also be found on the Investor Relations section of the company's website, along with the presentation slides that accompany today's call. Today's presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation. This call is scheduled to last until 3 o'clock PM Pacific Time. A replay of this call will be made available later this afternoon on our website. And with that, I'll hand the call over to Tim.

Doug Bettinger:

Excellent. Thank you, Tim. Good afternoon, everyone, and thank you for joining the call today. We delivered strong results in the September 2023 quarter. Our revenue came in above the midpoint of our guided range, and gross margin, operating income, and earnings per share all exceeded the high end of guidance. We're pleased with the company's execution during a year where memory WFE investment has declined by unprecedented amounts. Let's look at the details of our September quarter financial results. Revenue for the September quarter was $3.48 billion, which was up 9% from the prior quarter and down more than 30% from a year ago. Our deferred revenue balance at quarter end was $1.69 billion, which was a decrease of approximately $150 million from the June quarter, mainly related to revenue recognized tied to customer advance payments. We continue to have a higher deferred revenue balance versus historic levels given these advanced payments. We expect to recognize revenue in the December quarter for a portion of these deposits, which is comprehended in our guidance. Within calendar year 2024, I believe the deferred revenue balance will trend to more normalized levels. Let's now look at the segments. From a segment perspective, September quarter systems revenue and memory was 38%, which is an increase from the prior quarter level of 27%. The growth in the memory segment was driven by DRAM, which increased, sequentially coming in at 23% of systems revenue compared with 9% that we saw in the June quarter. As we noted in prior quarters, non-volatile memory spending is at historic lows in 2023. And for the September quarter, the segment represented 15% of system for revenue, which was down from the 18% that we saw last quarter. The spending levels in NAND are at dollar levels we have not seen since [planar] (ph) NAND was the predominant technology. The foundry segment represented 36% of our systems revenue, lower than the percentage concentration in the June quarter of 47%. The decrease is related to timing of leading edge investments within calendar year 2023. We performed well in this segment during the year with this quarter's spending coming mainly from mature node customers. And finally, the logic and other segments was 26% of our systems revenue in the September quarter, which was flat with the prior quarter level. Investments in this segment were heavily focused in the specialty device areas, including sensors, analog, and power devices. I'll now discuss the regional composition of our total revenue. The China region came in at a high water mark of 48%, up from 26% in the prior quarter. The majority of the China revenue this quarter was from domestic Chinese customers. And we currently expect we will have another strong China geographic concentration profile in the December quarter as well. Our next largest geographic region concentration was Korea, had 16% of revenue in the September quarter and that compares with the 24% that we saw in June. Our customer support business group generated revenue in the September quarter, totaling approximately $1.4 billion, which was down 5% from the June quarter and 25% lower than the September quarter in calendar year 2022. Memory customers continue to operate their fabs at very low utilization rates. And customers are holding off on upgrading tools until there's more digestion of the outstanding inventory that is in the industry. The specialty technology market has been a bright spot this year, and we see that part of our business up year-over-year as we close calendar year 2023. Spares and the Reliant product line continues to be the two largest components of CSBG. Let me now turn to the gross margin performance. The September quarter came in at 47.9% above our guided range and higher than the June quarter level of 45.7%. Our strong gross margin performance compared to the prior quarter was driven primarily by favorable customer mix. We've improved elements of our cost structure during the year and are on track with our plan to improve gross margin from the March quarter level by approximately 1 percentage point as we exit calendar year 2023. September quarter operating expenses came in at $622 million, up from the prior quarter amount of $590 million. R&D as a percentage of spending was somewhat higher versus the June quarter, coming in at over 68% of our spending. The increased investment was focused on key technology inflections and development engagements with our customers. We will continue to invest in programs across multiple market segments to support our long-term strategic objectives for continued company outperformance. Operating margin for the current quarter was 30.1%, higher than the June quarter level of 27.3%, and more than 100 basis points over the high end of our guidance because of that strong gross margin performance. The non-GAAP tax rate for the quarter was 13.4%, in line with our expectations. Our estimate for the December 2023 quarter as well as for calendar year 2024 is for the tax rate to be in the low to mid-teens range. Other income and expense for the September quarter came in at $7 million in income compared with $7 million in expense in the June quarter. The favorable fluctuation in OI&E was due to a variety of factors, including rising interest rates, generating income on our cash balance. OI&E will continue to be subject to market-related fluctuations that will cause some level of volatility quarter by quarter. Let me now pivot to the capital return side of things. We allocated approximately $830 million to open market share repurchases and paid $230 million in dividends in the September quarter. I'll highlight that in September we announced a 16% growth in our dividend in line with our plan to deliver disciplined annual dividend growth. Since paying our first dividend in 2014, we have now raised the dividend amount 9 times. We returned over 120% of free cash flow in the quarter, and we have $2.7 billion remaining on our board authorized share repurchase plan. Calendar year to date, we've returned 83% of our free cash flow to shareholders. September quarter diluted earnings per share was $6.85 over the high end of our guided range. Diluted share count was 133 million shares, on track of our expectations and down from the June quarter. Let me pivot to the balance sheet. Our cash and short-term investments at the end of the September quarter totaled $5.2 billion, down from $5.6 billion in the June quarter. The main driver of the cash decrease was obviously our capital return activity. I’ll just mention, we also purchased buildings at our company headquarters as well as our Bay Area California factory for approximately $250 million, retiring the leases that were on the balance sheet. [indiscernible] cash was somewhat offset by improvement in days sales outstanding, which were 73 days in the September quarter down from the 80 days that we saw in the June quarter. Inventory turns were flat with the prior quarter level at 1.5 times. We continue to work to bring our inventory down, but as we've noted in prior quarter, we expect this to occur at a slower pace than we've done in the past. Our non-cash expenses for the September quarter included approximately $67 million for equity compensation, $76 million in depreciation, and $14 million in amortization. Capital expenditures for the September quarter came in at $77 million, which was flagged with the June quarter. Spending in September was primarily centered on product development activities and lab expansions in the United States and Asia. We ended the September quarter with approximately 17,200 regular full-time employees, which was a decrease of 200 people from the prior quarter. Most of this decrease is related to the restructuring actions we took earlier in the calendar year with the timing of the headcount reduction occurring in the September quarter. Let me now turn to our non-GAAP guidance for the December 2023 quarter. We're expecting revenue of $3.7 billion plus or minus $300 million. Gross margin of 47% plus or minus 1 percentage point. This level of gross margin reflects a continued favorable customer mix, albeit not quite as favorable as we saw in September. Operating margin of 29.5% plus or minus 1 percentage point. The operating expenses embedded in this guidance increase from the September level due to growth in R&D. I'd also just mention that the June 2024 quarter will be higher as it includes an extra week in fiscal quarter which occurs every few years. It's going to be a 14-week quarter in March. And finally, earnings per share of $7 plus or minus $0.75 based on a share count of approximately 132 million shares. With our December quarter guidance, we see solid performance in both revenue and profitability. Lam is delivering strong financial results and technology leadership to our customers as we develop solutions for the next industry inflections. And before I wrap up, I'd just like to mention two things as you think about modeling our business into 2024. The first is that we're currently experiencing favorable customer mix that may not continue at the same level going into next year. This may create near-term headwinds for gross market. Second, given all the opportunities we see in long-term technology inflections, like date all around, dry resist, advanced packaging, changing metalization schemes, and continuing the evolution of other 3D structures like DRAM. 2024 may be an R&D spending growth year to take advantage of these future opportunities that we see. As a result, it's possible the historic leverage we've delivered takes a temporary pause. We will obviously continue to aggressively drive the operational efficiencies that we always have, and our longer-term profitability objectives remain unchanged. Operator, that concludes our prepared remarks. Kim and I would now like to open up the call for questions.

Timothy Arcuri:

Thanks a lot. I had a question on China. So obviously, you've had a huge second half in China. Doug, it sounds like you think it's going to remain pretty strong in December. It sounds like maybe it's going to remain close to 50% of the mix. But it sounds like you're a little worried about -- sorry, not worried, but you think that it could actually come off a bit during the first half of 2024. Can you talk about that? What are the puts and the takes? I ask because, if you sort of back into where they're running in terms of WFE, they're running probably in the high 20s if I just take the back half of the year. So I'm wondering if that can sustain.

Doug Bettinger:

And yes, Tim, just to parse my comments a little bit. I said, we believe China will continue to be strong, but I also said, albeit not quite as strong perhaps as we saw in September. And as Tim alluded to, the China investment is not going away. I don't know if it's up, down, sideways next year, but it's not going away. They're investing for opportunities in the market that they see. I think we're hopeful that rest of the market begins to recover at some point, because it’s at pretty low points, and that will mitigate the China mix to a certain extent.

Tim Archer:

Yeah, Tim, I guess what I'd say is, we've reviewed the details of the regulations and our early assessment is we don't see any material impact to our forecasted business. Now, some of that has to do with the fact that we've already been quite restricted into what we can ship into China relative to technology engagement. And I think to your other point about tools being purchased for one node and used for another. I mean, that's something that obviously we're -- we have to follow very strict regulations to adhere to the US regulations. So I don't know that that's something that might be quite as common as what you're saying. So, but it's something that we make sure that we're fully compliant.

Tim Archer:

Thanks, Tim.

Harlan Sur:

Good afternoon. Thanks for taking my question. CSBG down 8% year-over-year through the first nine months of the year. It did decline, as you mentioned, 5% sequentially. I assume the sequential decline was driven by continued utilization declines by your customers, especially your NAND customers, as you pointed out. You did talk about improving bit shipments for these customers in second half of the year, pricing stabilization, it sort of seems to be reflective of this sort of steadily improving supply demand environment. So does the team believe that utilizations have bottomed the cost of memory and foundry/logic customers? Have they started to at least stabilize at current levels?

Harlan Sur:

Thank you. And then you talked about this on the last earnings call, but you've got a strong position in [stat] (ph) chip architecture, advanced packaging. You guys have talked about this segment as being $200 million per year for Lam, potentially with the path to $1 billion business. On HBM specifically, where you have very strong share, right, HBM to HBM2 to HBM3 to HBM4, I think that there's a doubling of TSVs per chip, every new generation of HBM the DRAM stack height is also growing from like 8 to like 24 at some point. So this is -- this all is sort of a very strong tailwind for the team. Do you guys anticipate strong growth next year for your HBM/advanced packaging business? And some of your DRAM customers are also talking about HBM driving 10% of overall industry DRAM wafer starts. Is that how you guys are seeing it as well?

Doug Bettinger:

Thanks, Harlan.

Operator:

Thank you. And our next question today comes from Atif Malik with Citi. Please go ahead.

Tim Archer:

In like a lamb, out like a lion. You know, I think that it's -- what we would say and without getting 2024 at this point, I think it is reasonable to my prior comments that I think spending will come back cautiously. And so, even though we may be seeing some of the leading indicators in some of our markets, I think people are going to want to see sustainability of that condition before we start to see significant spending. So if we were to think, and I believe that the general feeling is that 2025 is probably -- a lot of fabs opening, a lot of perhaps demand out in that timeframe. It's not unreasonable to think that you would ramp towards that as you move through 2024.

Doug Bettinger:

Yeah, if you take yourself back to when we were talking about this in the March call, you know, we're at roughly 44% gross margin and we articulated a view that we would be able to drive 100 basis point improvement in that from the operational efficiencies that we were undertaking during the year. And I'm super confident that that's absolutely already happened, frankly, and we will continue to be in a good spot as we exit the year.

Operator:

Thank you very much. Our next question today comes from Krish Sankar with TD Cowen. Please go ahead.

Doug Bettinger:

Krish, there really was nothing material incrementally in what was clarified. I guess it was yesterday, right? So you're right. When we came into the year we said $2 billion to $2.5 billion. Now we've got clarification. We could ship a little bit. We took it on to $2 billion. That's still kind of what we see this year. And nothing incremental really came out yesterday.

Krish Sankar:

Got it, got it. That's very helpful. And then now just to follow-up and to my -- I asked this question last time too, kind of like with respect to the whole cryo etch, the [indiscernible] etch versus [Tel] (ph), announcing a similar product, can you give us like an update on where you are market share wise on the [indiscernible] side? And is the cryo etch having any impact? Because my understanding is cryo etch does help the throughput, but it's probably a negative from selling number of tools for [indiscernible] etch NAND applications. I'm just trying to figure out how to handicap that.

Operator:

Thank you. And our next question today comes from Joe Moore at Morgan Stanley. Please go ahead.

Doug Bettinger:

I guess, Joe, one I would point to, and I'll let Tim add. Yes, China was a part of it, but it's not all of it. There was an earlier question about, hey, where we are with bandwidth memory? Yes, it's getting pulled in. I mean customers want it sooner, we can ship. You've got a transition from DDR4 to DDR5 with these new CPUs that are out there. So that also is a little bit of a bright spot. So I guess I'd point to both of those things as part of what we saw in DRAM.

Joe Moore:

Great. Thank you. And then in your upfront remarks, Tim, I think you had talked about trailing etch, mature node somewhat weaker outside of China. Can you -- is there something there that could be a trend? Or is that just kind of more of a one quarter phenomenon?

Joe Moore:

Okay. Thank you.

Operator:

Thank you. And our next question today comes from Toshiya Hari with Goldman Sachs. Please go ahead.

Doug Bettinger:

Toshi, I'll take it and then let Tim add on. It's a broad set of customers investing when you look at this, the specialty nodes. I mean, it's across multiple customers unlike like leading etch foundry as an example. And so I can't really point to any one or another for you. And quite frankly, I think we all know there's inventory out there in a lot of these device types, but these are long-term investments as well, right? This isn't something that comes in one quarter and then goes away just because of what's happening in the near-term marketplace. But it is in any one segment or another, Toshi, just kind of the broad set of customers.

Toshiya Hari:

Got it. I appreciate the color. And then as my follow-up, one for Doug, on the 2024 model you talked about mix normalizing and you guys potentially experiencing some headwinds in gross margin. You also talked about 2024 potentially being a growth year from an R&D spending perspective. So I guess on gross margins, I guess what's the baseline that we should be working off of? Is the Q4 rate a good starting point? Or is that still kind of high given where China is. And then from an R&D spending perspective, I guess, relative to answer if you can kind of hold our hand and quantify how low leverage could be in 2024 versus history that would be super helpful.

Toshiya Hari:

Yes, it makes sense. I appreciate the color, Doug.

Operator:

Our next question today comes from Vivek Arya with Bank of America Securities. Please go ahead.

Tim Archer:

Yes. I mean we've -- first, I'd point out the fact that it's been a long time if ever that we've seen fab utilization is quite this low. I mean our prior commentary had been that spares generally grows every year because the installed base continues to get bigger. One piece of that is true is the installed base continues to get a lot bigger. And in fact, we've said it's up more than 40% since the last cyclical downturn. And so the fact that we've seen spares and upgrades and all of these things sort of be off all at one time is pretty unique. We are anticipating that as fab utilization starts back, we'll see spares come back. And I think the one thing that will come back, and it's a little hard to predict is certain is the technology upgrade portion of this. It's been now a couple of years since any of these tools have been upgraded, and that will have to happen. In terms of your comment about offset, I think we'll -- typically, as customers start to turn the tools back on, you're probably a couple of quarters away from seeing further investments in the technology upgrades. And then I think when you're really talking about capacity adds, it's hard to predict what that time frame is because it really depends on many other factors about our customers' use of long-term demand. So I think the one thing we're certain is that we're at very low points now. We would anticipate things like utilization and spares and upgrades to start improving next year. And beyond that, I think we'll wait until January to give you a better view.

Doug Bettinger:

Yes, Vivek, we're not going to guide you next year quite yet. But the clarification of the rules we described isn't changing, right? So we understood one node that a certain customer was doing was okay to ship to. The rules didn't change. We just had to do a little work to understand that. Collectively, as an industry, that's not going to go away. Having said that also, what our commentary on the call so far has been, I don't know if China is up now on our sideways next tier, but it's not going away. When we talk to our customers in China, they all communicate roadmaps that have multiyear horizons in front of them. Nothing new came from the regulations that you saw yesterday. So I see a level of sustainability in China as we go into next year and frankly, beyond. They have long-term objectives.

Operator:

Thank you. And our next question today comes from Stacy Rasgon with Bernstein Research. Please go ahead.

Doug Bettinger:

Stacy, it's primarily litho. It's litho and these restricted fabs in China that we didn't have complete visibility into what they were doing, frankly. It was those two.

Doug Bettinger:

I think we do. That's why we updated the number. We never get this exactly right, but we try to tell you what we think of it now.

Stacy Rasgon:

Got it. Got it. But to be clear, I think you said there's no change to your forecast for the Lam business for the year, whatever that forecast is.

Stacy Rasgon:

Got it. Got it. And so for my follow-up, I want to go back to the leverage question for next year. So I understand you're talking about like leverage, like maybe flattening out. Was that just a statement you just think OpEx, I mean, just to put on table OpEx growing with revenue, whatever revenue is? Or given the gross margin compression that we'll probably see at least from the current level, like do you think operating margins year-over-year could actually go -- could decline next calendar year? Or like just how do we think about those different pieces?

Stacy Rasgon:

Got it. That’s helpful. Thank you guys.

Operator:

Thank you. And our next question comes from Srini Pajjuri with Raymond James. Please go ahead.

Tim Archer:

Yes. It's a good question. It's a hard question to answer because the actual. Our view is we want more of everything. So we're not looking to reduce our position in memory just to make the mix look better. So we try hard every day. We have a fantastic position in memory, and we think there's still more to come there as over the next decade, I mean, NAND is going to scale customers saying to 1,000 layers, and that's a tremendous opportunity for Lam. DRAM going to 3D around the end of the decade, tremendous opportunity for Lam. So I'm afraid the memory side will keep growing simply because it's so well suited to our strengths. But you have heard us talk a lot about the fact that we see huge opportunity in the foundry logic side as well. And when Doug just talked about spending, I mean, I've tried to lay out for you in the last several quarters, the breadth of opportunities that are ahead of the company, many of which -- not all, but many of which are on the foundry logic side. I mean just to kind of recap some of those, I mean, the dry EUV photoresist and develop. When we said that's $1.5 billion opportunity over five years. And when you get towards the tail end of that five years, I mean, that's a revenue that's growing with the number of expanding EUV layers at every technology node after that. That's primarily foundry logic business. We talked about gate all around, about $1 billion incremental opportunity for Lam introduces opportunities to win new tools and selective etch and ALD. And so that's same expansion for us in foundry logic and opportunity to grow. We talked about advanced packaging. I mean you've already seen what's happened with not only the HBM side of AI, but also the entire formation of these big AI systems using interposers. Lam's invested now in panel processing as a way to ultimately bring down the costs of some of this chiplet -- these chiplet applications. And then finally, today, I just talked about backside power distribution as a new way of being very creative about how you use that backside of the wafer is additional real estate and it opens up a lot of new opportunities for us, and that's primarily a foundry logic application as well. And so really, what we're talking about is Lam has a long way to go to expand our SAM, especially on the foundry logic side. That's what we're investing for. And each of these is a $1 billion-plus opportunity for Lam over the next several years. And so we're pretty excited about that. But we're not giving up on our strong memory positions.

Tim Archer:

Well, I think it's a -- I don't know that we've quantified that number, but it's -- it obviously is a much higher performance die than our device, and it does -- it is bigger and takes more capital. And so therefore, it's a performance-driven application. From our perspective, though, what really is interesting is that, many of the new tools that get added to enable HBM or Lam tools or tools that are in our market, things like silicon etch and copper plating for the TSV formation. And so that's what really makes it an even better transition for [indiscernible] company like Lam.

Tim Archer:

Thanks, Sri.

Brian Chin:

Good afternoon. Thanks for letting us ask a few questions. So about a week ago, the U.S. relaxed its licensing requirements for some foreign companies that operate more advanced fabs in China. I know it's fairly recent, but have you seen a positive impact yet from this change in the licensing policy. I did note that in talking about China remaining a good concentration in the December quarter. It sounds like maybe there could be some shifting there between local and maybe foreign domiciled companies?

Brian Chin:

Got it. That's helpful. And then a lot of questions have been asked about sort of service spares and utilization improvements. But just curious, if memory companies are kind of talking as is they'll realize some of that utilization improvement, not just through increasing wafer starts, but also through some reduction in wafer start capacity as they emphasize newer nodes or capital efficiencies on some wafer loss there. How are you thinking about how that impacts maybe the trajectory of your service and spares revenue growth in calendar 2024?

Operator:

Thank you. And our next question today comes from Mehdi Hosseini with [SIG] (ph). Please go ahead.

Tim Archer:

Yes. I think that it's still a little bit out in the future, I mean, you could go look at our customers' road maps and what they've said publicly, and I think that's probably the best way to put timing on it. I think what we're trying to highlight is the fact that our -- if you think about the challenges across almost every device, we're becoming more and more convinced that the technology solutions to those challenges involve vertical scaling, they move to 3D and you're seeing that backside power, advanced packaging, gate all around. These are -- it is something that is playing extremely well to our strengths in etch and deposition. And so timing is hard to predict, but the certain -- relative certainty of those changes happening is quite high.

Doug Bettinger:

Yes. Mehdi, in the past I've suggested maybe something around $1 billion is a normalized level and we're somewhat elevated from that. the longer we remain elevated, maybe the normalized level picks up a little bit, but I'll leave that statement, what I said, maybe roughly $1 billion.

Operator:

Thank you. And our next question today comes from [Chris Caso] (ph) with Wolfe Research.

Tim Archer:

Yes. I think that if we were to go back and talk about lead times compared to pre-COVID, I would say that generally still extended, but for a variety of reasons. I mean I talked about the investments we've made in our supply chain and our manufacturing facilities. A lot of that has to be more responsive, but I think we will be able to respond when realistically when demand starts to come back. Now in certain areas, it's a little tighter than others. And I think that's where, again, we still continue to work very closely with our customers to make sure we have good forecast as we talked about. High bandwidth memory has been an area that I think has been in tighter supply. And the good thing about the investments we made in our global operations is that in certain cases, we're able to respond a little bit more quickly than customers have urgent needs.

Doug Bettinger:

Yes. Usually, you don't really see much of a revenue impact, frankly. You kind of manage based on what customer wants when. But I know for sure, with an extra week, 14 weeks instead of 13, you got more salary expense, you've got more time to use project materials and whatnot. I don't know. I didn't give you a specific number, but I think it's pretty well chronicled about there. When people have a quarter coming in like this, how much spending grows just because of it. I'm not going to put a number on it, but just think about 14 versus 13.

Tina Correia:

Operator, we have time for one more question, please.

Sidney Ho:

Thanks for squeezing me in. In the past, you guys talked about memory spending recovery will go in several phases from increasing utilization to tech upgrades and then capacity expansion. One of the memory customers talk about converting some of this excess capacity to address the advanced note. Are you seeing that dynamics happening across other memory suppliers? And how does that change your view in terms of the timing of capacity expansion?

Sidney Ho:

Okay. So my question was more about some of your customers actually trying to convert some of the excess capacity to address the advanced notes, meaning that it seems like the timeline is compressed. Are you seeing all the memory suppliers doing that?

Sidney Ho:

Okay. That's it. Maybe last question for you. Given your position in gate-all-around, has your timeline changed at all in terms of when do you expect to see gate-all-around related revenue as compared to three months ago? Maybe just remind us when that is going to happen? And what are the leading indicators you watching to gauge that timeline. Thanks.

Sidney Ho:

Okay. Thank you.

Operator:

Thank you. And this concludes our question-and-answer session. I'd like to turn it back over to the management team for closing remarks.

Operator:

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Tina Correia:

Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we will share our overview on the business environment, and we'll review our financial results for the June 2023 quarter and our outlook for the September 2023 quarter. The press release detailing our financial results was distributed a little after 1 o'clock PM Pacific Time this afternoon. The release can also be found on the Investor Relations section of the company's website along with the presentation slides that accompany today's call. Today's presentation and Q&A include forward-looking statements, that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation. This call is scheduled to last until 3 o'clock PM Pacific Time. A replay of this will be made available later this afternoon on our website. And with that, I'll hand the call over to Tim.

Doug Bettinger:

Excellent. Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. We executed well in the June 2023 quarter with revenue coming in above the midpoint of our guided range and our profitability metrics exceeding the high end of guidance. While we continue to work through a challenging WFE investment year, most notably with very low memory spending, our focus on improving our operational efficiencies is showing up favorably in our results. We're laser-focused on what's in our direct control and executing well. Let me dig into revenue. June quarter revenue came in at $3.2 billion, a decrease from the prior quarter as we expected. Systems revenue declined quarter-over-quarter as we had reduced levels of deferred revenue with the improvement in supply chain constraints. We closed the June quarter with $1.8 million in deferred revenue on the balance sheet, which was a decrease of $165 million sequentially. We've got all the deferred revenue related to outstanding back order parts completely back to normal levels. As we discussed last quarter though, our deferred revenue balance is currently still at higher than historic levels. The deferred revenue balance includes increased customer cash and advanced deposits tied to orders from newer customers. We expect a significant portion of these deposits to convert to revenue during the second half of calendar year 2023. Let me now turn to the revenue segment details. Memory as a percentage of systems revenue in the June quarter was low at 27%, which was a decline from the prior quarter level of 32% and our lowest concentration percentage for this segment in the last decade. The DRAM segment within memory remained flat at 9% of systems revenue. And NAND came down to 18% of systems revenue, down from the March quarter level of 23%. We continue to expect NAND spending to remain at low levels for the remainder of the 2023 calendar year. And I just mentioned, NAND spending is at the lowest levels we've seen since the advent of the 3D NAND architecture. Consistent with the prior quarter, we see strong concentration of systems revenue in the foundry segment with the June quarter revenue percentage at 47% versus 46% that we saw in the March quarter. Investments were biased towards leading-edge devices. There also continues to be robust spending to support more mature specialty nodes. We had a record level of concentration in the logic and other segment with 26% of systems revenue in the June quarter, compared with 22% in the prior quarter. There was broad-based spending in areas such as advanced packaging, microprocessors, analog, image sensors and power applications. These are areas where we've demonstrated strong momentum with our technology solutions, and I'd just point out that they are broadly distributed geographically. With respect to the regional composition of our total revenue, the China region was 26% of the total, which was up a little bit from the prior quarter, which was 22%. China domestic customers were the majority of the China regional revenue in the June quarter. The result was strong concentration of investments for our customers in the Korea and Taiwan region, which comprised 24% and 20% of our total revenues, respectively, in the June quarter. The US region declined from the record level that we saw last quarter, largely due to the timing of customer projects. The Customer Support Business Group revenue in the June quarter totaled approximately $1.5 billion, which was a decrease of 7% from the prior quarter level and 8% lower than the June quarter in calendar 2022. CSBG represented 47% of our June quarter revenue. This is a historically high concentration percentage, driven largely by continued strength in the specialty node investments which are serviced by Reliant systems business. The Reliant and Spares businesses continue to represent the largest individual portions of CSBG revenues. Both our spares and service businesses had been negatively impacted by low fab utilization levels, particularly at our memory customers. On the profitability side of things, our June quarter gross margin came in at 45.7%, above our guided range and up from 44% that we saw in the March quarter. The quarter-on-quarter increase was related to cost and efficiency improvements, as well as a favorable product mix. We continue to expect to make further progress on our operational execution as we go forward. Operating expenses for June came in at $590 million, which was down from the $608 million in the March quarter, although it was a little bit higher than our original estimates coming into the quarter. Investing in research and development continues to be a top priority for Lam, with over two-thirds of our operating expense concentrated in R&D. We're focused on extending our product differentiation and ensuring that our competitiveness remains very strong. The June quarter operating margin came in at 27.3%, which was over the guidance range largely because of our strong gross margin performance. The non-GAAP tax rate for the quarter came in low at 7.5% due to a more favorable jurisdictional mix of income and provision true-ups that occurred at the end of our fiscal year. We estimate the tax rate for the remainder of the 2023 calendar year will be in the low to mid-teens level. And as always, this rate will have some fluctuation quarter to quarter. Other income and expense for the June quarter was approximately $7 million in expense, consistent with the prior quarter amount and primarily related to our strong cash balances, as well as higher interest rates. And I'd just point out, from a return on cash standpoint, we're now realizing higher interest rates on our cash balances than we're paying on the longer-term duration debt in our capital structure. And as we've discussed in the past, OI&E is subject to market-related fluctuations that will cause some level of quarterly volatility. On our capital return activities, we allocated approximately $906 million to open market share buyback and we paid $232 million in dividends in the June quarter. We have $3.5 billion remaining on our Board authorized share buyback plan. For the June quarter, we returned 109% of free cash flow, and we're very much in line with our long-term capital return plans of returning 75% to 100% of free cash flow. June quarter diluted earnings per share came in at $5.98, over the high end of our guidance range. This was enabled from stronger revenue, improved gross margin and that lower tax rate. Diluted share count was 134 million shares, on track with our expectations and down from the March quarter. Let me now pivot to the balance sheet. Cash and short-term investments, including restricted cash, totaled $5.6 billion, which was flat with the March quarter. Days sales outstanding were 80 days in the June quarter. June quarter inventory turns came down from the prior quarter level of 1.9 times to 1.5 times. While we did bring inventory down slightly during the June quarter, the balance is elevated from historic levels. As business volumes reduce, we need to cancel a significant volume of purchase orders with our suppliers. As we work through these cancellations, we're taking more inventory than we need in the near term. This ongoing process will keep inventory higher than we'd like this year, frankly. We do expect inventory to come down though, albeit more slowly than we may have historically been able to drive it to. Non-cash expenses for the June quarter included approximately $68 million in equity compensation, $76 million in depreciation and $14 million for amortization. Capital expenditures were $79 million, which was down from the March quarter by approximately $41 million. Spending mainly centered on product development activities and our global lab infrastructure. We ended the June quarter with approximately 17,400 regular full-time employees, which was a decrease of approximately 1,300 people from the prior quarter. Most of this decrease is related to the restructuring actions we took earlier in the calendar year, with the timing of the headcount reduction showing up in the June quarter. Overall, we're on track with our transformation initiatives to improve our operations. And as we stand at the end of the quarter, we incurred approximately $143 million year-to-date out of an anticipated $250 million estimated range for calendar year 2023. Let me now turn to our non-GAAP guidance for the September ‘23 quarter. We're expecting revenue of $3.4 billion, plus or minus $300 million. Gross margin of 46.5%, plus or minus 1 percentage point. This improvement in gross margin is a function of our operational efforts as well as a beneficial mix. Operating margins of 28%, plus or minus 1 percentage point. We're purposely spending a little more in R&D in the second half of 2023. And finally, earnings per share of $6.05, plus or minus $0.75, based on a declining share count of approximately 133 million shares. So, let me summarize. The results this quarter demonstrate, I think, that we're on a solid path to strengthen our operations and our profitability profile. We're improving and optimizing all elements of the company and solidifying Lam's business foundation to ensure we're well-positioned for outperformance when WFE growth resumes. And I'll just reiterate what Tim said. We continue to see WFE a little bit second half weighted this year. Operator, with that, that concludes my prepared remarks. Tim and I would now like to open up the call for questions.

Harlan Sur:

Hi, good afternoon and congratulations on the solid execution. As we progress through this weaker period for the industry, right, the activity level can be quite noisy, but there will come a period of stabilization of fundamentals and business trends, right, fundamentals being the things that you can track, like your customers' utilization and business-wise, the level of pushouts, reschedules and cancellations. So, I guess, with that, has the team seen utilizations starting to stabilize, albeit at low levels? And has the rate magnitude of shipment pushouts, rescheduling also come down to more normalized levels?

Doug Bettinger:

And Harlan, this is Doug. Maybe the only thing I would add to what Tim said is we haven't really seen utilizations getting any better, quite frankly. You'll remember on the call last quarter we talked about, you'll see that from us in our spares and service components of CSBG. And as we sit here today, you're not seeing that at this point. So it's at a fairly low level and we really don't see it getting any better in the near term.

Harlan Sur:

Appreciate that. And then, I also appreciate you guys highlighting the advanced packaging opportunity. I think it's quite timely right, because you guys called out a slightly better memory WFE trends due to strong HBM DRAM demand. So you guys benefit both in your core memory silicon tools and now your advanced packaging portfolio as you outlined, right? But just given the overall sort of recent and strong demand pull for accelerated compute and AI capabilities, I mean this is driving advanced packaging demand across CPU, GPU, networking, memory, right? And so, your customers are capacity-constrained here. So do you guys anticipate your advanced packaging segment to grow this year? And can you just give us some sense on how big this segment is for Lam?

Harlan Sur:

Thank you.

Operator:

Our next question comes from CJ Muse from Evercore. Please go ahead with your question.

Doug Bettinger:

Yeah, CJ. Actually, I think if you talk to the leadership team at Lam, we're all pretty pleased where we've been able to drive the operational efficiencies in the Company and its gone quicker, I think, than I expected certainly. We're obviously beyond that 100 basis point improvement. Having said that, though, I would point to -- we do have a component of the September numbers that are mix related. I'm not going to, like, quantify it precisely for you, but we're doing real well operationally. I'm not quite ready to guide December for you yet. Except, I'd say I think we're pretty pleased where we're at and we're well beyond that 100 basis point improvement that we talked about, I think on that January call, if I recall, the first time we sort of talked about it.

Tim Archer:

Yeah. I think that as you pointed out, I mean, obviously there is a Reliant component that's right now is quite strong. I talked about sort of at specialty technologies, I mean we're seeing still quite strong demand for our products across all of those different segments. Utilization driving spares and service to much lower levels than we've historically seen. And so, I think as people talk and worry about roll-off in the specialty technologies, maybe that does come at the time that the utilization picks up in the leading-edge and the memory fabs. But actually at this point, I would say we haven't yet seen demand for those trailing edge technologies to really be rolling over. I mean, demand is still quite strong for us, we're focused on new applications, new tool types and it's just not something that we're ready to forecast yet, although, again, as we've said nothing grows forever, but the broadening it feels pretty good to us right now.

Doug Bettinger:

CJ, I guided you to $3.4 billion in revenue, you can do whatever you'd like to do with the competition. You've got the total number.

Tim Archer:

Yeah.

Operator:

Our next question comes from Krish Sankar from TD Cowen. Please go ahead with your question.

Tim Archer:

Okay, great. Well, thanks, Krish, and I'll take it first. I think that relative to NAND, as you pointed out, I mean it's -- spending is at very low levels, down more than -- probably more than 75% year-on-year right now. But to this point of cryo etch, and I guess I would just say that at this point, Lam is the only company with cryo etch in high volume production. So it's an area where we do have strength, I mean hundreds of chambers of experience right now. We're the leader in high aspect ratio etch. I know that at the recent conference, competition has been out talking about a DTOR position for one pass at a memory customer for future node. But I think as probably everybody on this call knows, customers regularly engage more than one vendor when you're in the R&D stage for all these critical applications. And in this case, our production decisions are still quite a ways off. I look at Lam and our competitiveness. I mean, we take all of that experience that we have from years of leading in this space. We've developed a robust technology roadmap. We're engaged with the customer on a variety of different hardware and process innovations. But I think most importantly, when I think about our long-term competitiveness, we are still the only vendor that has this huge installed base from which every day we're getting learning about how to take processes from the R&D stage into high-volume production. And that's ultimately what really counts for affecting market share. And so, we've said in the past, we don't win every decision, certainly not always at the DTOR stage. But I think given where we are and where we've come from, we're very confident about maintaining leadership and market share in this space.

Tim Archer:

Yeah. Well, you threw out a couple of numbers. We used to talk about a couple of hundred million dollar opportunity, doubling from there, puts it in the hundreds. I mean, it's growing from that point. I mean, it's becoming a sizable business for us. We just haven't quantified specifically for those two products. I think what you can take away is we talked about our market share position. We know -- I think everybody knows HBM and 3D chip stacking, those products also play into other elements of advanced packaging. It's a very fast-growing part of our business. And so, without giving you our forecast for those markets, I think you can apply what you think about how chip stacking and 3D packaging is building momentum. You know we have 100% market share. I think just -- we're very happy to see what's transpiring in that part of the market.

Tim Archer:

Krish, what I would say is in this environment, it's the -- those are the tool sets that people are actually pulling for in terms of accelerated deliveries. And so I think that gives you some sense of demand in that market.

Krish Sankar:

Got it. Thank you, Doug. Thanks, Tim.

Tim Arcuri:

Thanks a lot. Tim, there's been a lot of debate that I hear on NAND WFE. And obviously, you have the highest share of all the major vendors. And you used to give this model that suggested $14 billion to $15 billion per year to drive sort of mid-30% bit growth, and there was some sensitivity around it. But since then, a lot of the producers have been basically down ticking on long-term NAND bit growth, Micron is now saying low 20s. So if you kind of use that old model, you get to something like $11 billion to $12 billion per year to drive low 20s bit growth. I know you've talked about more steps and so that number has gone up. But that's just optically, it's not a ton higher than the $9 billion or so that we're spending this year. And so I keep on getting a ton of debate in terms of just how much NAND WFE is going to come back. So I'm not asking you for a new model, but can you sort of like handicap what's changed vis-a-vis that old model in a market where bit growth seems to be lower going forward than what [indiscernible]?

Tim Arcuri:

Thanks, Tim. And then, Doug, I guess just as a follow-up, how does your inventory situation play out? I imagine that it's still kind of a drag on gross margin, and you said it's going to come down, you said pretty slowly as you kind of get to the back half of the year. So can you quantify how much of a drag it is as you're -- as you still have pretty high costs, I would imagine, on these parts? And then when do you think it gets back to some sort of normalized level and it's not a headwind anymore to margin? Thanks.

Tim Arcuri:

Thanks, Doug.

Operator:

And our next question comes from Brian Chin from Stifel. Please go ahead with your question.

Doug Bettinger:

Yeah, Brian, I guess what I'd say is it is a little bit second half weighted, and the things we pointed to in our scripts were little bit of upside in China, China domestic and a little bit of high bandwidth memory. I don't think we're going to put a quantification between the third quarter and the fourth quarter of the calendar year, except to say it's a little bit second half weighted.

Tim Archer:

It is. And I think that was even in my answer to the last question was, I think there's still a lot of debate as to how much storage really gets driven in this, but we're a believer that there is some element of demand driven there. I think that when we think about DRAM, there's a couple of things at play in terms of what drives it. One is, of course, the HBM also increases die size, I think, as you know. And that leads perhaps even greater WFE increase associated both with the silicon side of that as well as the packaging side. I'm not sure that same dynamic exists on the NAND side, but in terms of consumption, it feels like there should be some. But again, I'm willing to sort of let this play out a little further to see what the new model should be. And we talk closely to our customers to see what they're seeing in the marketplace as well.

Brian Chin:

Okay. Got it. And probably scale out of these language models probably also could increase that storage potential over time. But thanks for your inputs. Appreciate that.

Operator:

Our next question comes from Toshiya Hari from Goldman Sachs. Please go ahead with your question.

Tim Archer:

Yeah. I think that it's split. I mean, obviously, on the domestic China side between some memory investments as well as a lot of specialty technologies, trailing edge focus on end markets, I think we're all familiar with automotive and industrial and those types of markets. As you mentioned, it's strategic. I mean, these are customers that are giving us long-term forecasts. Doug talked last quarter about deferred revenues are impacted by some of the down payments, at least within the visibility horizon that we need, we feel we have a pretty good view of a fair bit of investment that this continues in China, especially in those specialty technology markets where new fabs are emerging to try to capture some element of those trailing edge end markets.

Doug Bettinger:

Yeah. I think, Toshi, the way to think about it is business is down. Right now, we're not really growing anywhere. I think as we see growth come back, whenever that is, the pivot to that Malaysia factory, which has an opportunity to do more than it's doing today, will be largely what you see from us. Now maybe to help with the restructuring activities, we embarked on plans to kind of restructure the cost footprint of the company. And maybe the best way to think about it, I've given you a forecast. We think we're going to take charges of $250 million at this point. We've taken $143 million at the end of the last quarter. So we still have some things we're working on. Although I would tell you the workforce portion of it is complete. We're done with that aspect of it. So that's behind us, we believe. So there's just some other things you're doing around looking at product, repositioning inventory, maybe a little bit of infrastructure stuff, we are embarked upon what will be a multiyear digital transformation initiative at the company, which will deliver efficiencies over the next several years. So there's a handful of things that are still coming in the future, I guess, is what I would describe.

Tim Archer:

Thanks, Toshiya.

Atif Malik:

Hi. Thank you for taking my questions. I have two questions on leading-edge investments. I thought you gave an interesting data point that 1% AI server adoption leads to $1 billion to $1.5 billion incremental WFE. When I listened to the major foundry in Taiwan, they talked about 50% AI semi growth rate in the next few years but we did not really raise any CapEx this year. And we believe AI server adoption is probably like high single digit, 8%, 9%. So what explains the discrepancy in terms of not seeing a lift in leading-edge investments from the higher server adoption? Maybe it's just underutilization in other end markets.

Atif Malik:

Got it, Doug. And then as a follow-up, you guys are very well leveraged to get all around, particularly on the edge side and they have been waiting for this technology inflection for the last three years. Your peer in Europe is talking about pilot line orders in December quarter this year. And Tim spoke about having better visibility versus six months ago. So my question to you is, when do you see the gate all around opportunity kind of grow meaningful for you? Is it the first half of next year or second half of next year?

Atif Malik:

Thank you.

Operator:

Our next question comes from Joe Moore from Morgan Stanley. Please go ahead with your question.

Tim Archer:

Yeah, Joe, we had talked last -- at the end -- towards the end of last year, right around the October 7 announcement that the impact to our business this year would be $2 billion to $2.5 billion. We clarified earlier this year that because we were able to make some shipments for trailing etch memory that we had not -- we weren't sure whether we could, that impact was going to be closer to the $2 billion mark. That is still what we estimate the impact of last year's restrictions, the October 7 restrictions on our business, $2 billion of revenues. Now in the same time, as China has shifted its focus towards the areas they can invest, these trailing etch, foundry logic and some of the trailing edge memory, we've seen that upticking a bit as we've moved through this year, and that's what we just spoke about. So I can't really speak to future regulations that may or may not be contemplated. We have a team in Washington DC that's regularly engaged with the government, make sure they understand our business and the details of the semiconductor industry, and that's about the best we can do right now.

Tim Archer:

Thanks, Joe.

Vivek Arya:

Thanks for taking my question. Tim, I'm curious, what should be the signs we should look for, for when memory utilization starts to pick up? And when orders to you guys start to improve? So if you look at historical trends, should we be waiting for like one quarter of pricing improvement, two quarters of pricing improvement? Just what are kind of the external metrics we should be keeping an eye on to try and predict when memory WFE should start to pick up?

Vivek Arya:

I guess that was really the origin of the question because from what I heard on the call, I think you were suggesting there is a scenario in which CSBG revenues do start to pick up sequentially in the next quarter. But then you mentioned that the visibility around memory utilization, right, is not there from an industry perspective. So is there still a delta between the two?

Vivek Arya:

Okay. Sorry. Maybe I misheard. Then maybe for my second question, Doug, the gross margin upside in Q3, right, it was quite sizable. I don't remember the last time you had such a strong gross margin upside. I think you mentioned something along the lines of mix. Is that mix unsustainable? Like is that likely to reverse, right, at some point? What is the right way to think about the sustainability of gross margins at these levels. So let's say if you assume that your sales continue to grow sequentially, then can gross margins continue to be at plus minus these levels? Or is there something that would dramatically change in the mix to change the trajectory of gross margins?

Vivek Arya:

Thank you.

Operator:

Our next question comes from Stacy Rasgon from Bernstein Research. Please go ahead with your question.

Doug Bettinger:

Yeah. I've never said how much of it is in China. I've described it as newer customers, right? Customers that are new that we're not exactly sure of the creditworthiness, we require cash in advance before we build the tools. I haven't put a number on how much of it is China. Although a decent amount of it is. And what I said on how much that turns to revenue, as I said, the majority of it turns to revenue in the second half of the year.

Tim Archer:

No, Stacy, there's a normalized level of deferred revenue that's always here, always has been here, and you should expect to always be here. It's probably $750 million to $1 billion on a regular basis, I think, is what you've seen from us in the past. I wouldn't expect it to be too different than that. We've just got a lot of this cash in advance payments right now. That's why it's elevated.

Tim Archer:

Yeah, we've said that NAND is obviously by far worse. We said about -- about 75% year-on-year. So obviously, that was quite that. I mean DRAM then obviously less than down mid-40s. And I think that in terms of change, we've seen a little bit of improvement, as we've just talked about with HBM and some signs of, at least a little bit more optimism on our part that the DRAM would be the first to recover as a result of some of these trends. And again, just listening to our customers and talking to them, we've heard some customers talk about further cuts in NAND just in the last 24 hours. So...

Doug Bettinger:

It's still at a pretty low level, Stacy.

Doug Bettinger:

You're welcome.

Operator:

Our next question comes from Blayne Curtis from Barclays. Please go ahead with your question.

Doug Bettinger:

Yeah, Blayne, Tim pointed to two things. A little bit more in China and high-bandwidth memory as it's not a huge uptick in WFE, but those are the contributors.

Doug Bettinger:

We described in generally, when you look at WFE down, where it is memory is down mid-40s, and you probably know kind of where that is run rating suggested foundry logic, looks like it's down roughly 10%. And yeah, you're right, just been a little bit of a softening in leading-edge foundry logic. We talked a little bit about that last quarter. I'm not sure we're describing anything incremental. Perhaps we saw some things others didn't see sooner than they did. But that's how we see things setting up right now.

Doug Bettinger:

Thanks, Blayne.

Operator:

And ladies and gentlemen, our final question will come from Vijay Rakesh from Mizuho. Please go ahead with your question.

Tim Archer:

Well, I think it's -- as we're just in the middle of this year, it's too early to talk about '24 from an absolute number. But clearly, as we move through the next couple of years, I talked about this regional -- these regionalization efforts building momentum. I do think that we'll see that becoming a meaningful contributor to spending, not only here but in other parts of the world.

Tim Archer:

Yeah. I mean everything related to advanced packaging is growing right now. And I would say Lam's exposure kind of across the board in etching deposition is very strong. So I called out specifically HBM, but you're right. I mean when you look at the importance of things like CoWoS-2 and AI packaged system, our exposure there even broadens further to the types of tools that we sell in there. And I mentioned this point, if people caught it, even in advanced packaging, we're having to invest in new technologies for atomic scale processing. And so you can see things like ALD being used in advanced packaging now. And so we're really in a world where ALD is being used for advanced packaging, ALE is being used for 200-millimeter GaN. I think that it is creating tremendous opportunities for Lam to leverage our really broad portfolio of technologies for all these new emerging growth opportunities. And it's pretty exciting.

Tim Archer:

Yeah. Thank you.

Operator:

And with that ladies and gentlemen, we'll be turning the floor back over to the management team for any closing remarks. And management, are you able to hear me? Ladies and gentlemen, we'll be closing today's conference call. We thank you for joining. You may now disconnect your lines.

Tina Correia:

Thank you, operator, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we'll share our overview on the business environment, and we'll review our financial results for the March 2023 quarters and our outlook for the June 2023 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time this afternoon. The release can also be found on the Investor Relations section of the Company's website, along with the presentation slides that accompany today's call. Today's presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation. This call is scheduled to last until 3:00 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website. And with that, I'll hand the call over to Tim.

Doug Bettinger:

Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today. Our March 2023 quarter financial results came in at or over the midpoint of our guidance ranges for all financial metrics. We generated over $1.6 billion of free cash flow during the quarter, which was a record level for the Company. Overall, we not only delivered financial performance in line with our guidance for the quarter, but we also made great progress on our business transformation and cost-saving initiatives. Let me now move to our revenue and profitability results. Revenue for the March quarter was $3.87 billion, down 27% from the prior quarter. Systems revenue was the main driver of the decrease given the decline in WFE investments most notably in memory. As expected, with the improvement in supply chain constraints, we are exiting the March quarter having completed shipments for nearly all of our outstanding back order systems. Back orders are now at what I would characterize as normalized levels. However, our deferred revenue balance is higher than historic levels remaining flat with the prior quarter with a balance of $2 billion. This deferred revenue balance reflects the impact of increased customer cash and advanced deposits tied to orders from newer customers, which is offset by the decline related to the completed back orders. The advanced payments will remain in deferred revenue until we ship the related tools. And I would just mention that we do expect the majority of these deposits to convert the revenue during calendar year 2023. Looking at the revenue segment details for the March quarter. The percentage of systems revenue in memory was 32%, which is a decline from the prior quarter level of 50%. I would mention this is the lowest level of memory concentration for us in a decade. Within Memory, the NAND segment represented 23% of our systems revenue, down from the December quarter level of 39%. And DRAM decreased sequentially, coming in at only 9% of systems revenue compared with 11% in the December quarter. With the current weakness in memory investments, we anticipate a further decline in both NAND and DRAM revenue in the June quarter. In foundry conversely, we had a record dollar level of revenue in the March quarter, representing 46% of our systems revenue, higher than the percentage contribution in the December quarter, which was 31%. We had positive momentum in both leading and mature node devices. And I'm pleased with the progress we've made in this segment of the market. We are seeing particular concentration in the mature node investments this year. The logic and other segment had continued strength with a contribution of 22% of systems revenue in the March quarter compared with 19% in the prior quarter. Investments were from a broad array of logic IDM in multiple regions. Let me now shift and discuss the regional contribution of our total revenue. Korea and China were at the top of the list with each coming in at 22% of the total. The Korea region had a slightly higher concentration in the March quarter, up from 20% in the December quarter. China was down from 24% in the prior quarter, and the reduction was largely attributed to the U.S. government sales restrictions for certain Chinese domestic customers which were put in place in early October of 2022. Notably, in the United States, we had a record revenue from a dollar perspective in the March quarter, which represented 16% of our total revenues an increase from the prior quarter level of 10%. And finally, Taiwan decreased to a concentration of 18% as compared with 19% in the December quarter. Our Customer Support Business Group generated revenue in the March quarter, totaling approximately $1.6 billion, which was a decrease of 7% from the December quarter but 14% higher than the March quarter in calendar 2022. CSBG continues to be a resilient part of our business model, representing over 40% of our March quarter revenue. We saw utilization level -- excuse me, utilization levels decline at the memory customers which negatively impacted both spares and service businesses, but Reliance Systems and upgrade revenues increased in the March quarter given the demand strength we're seeing in mature node devices. The specialty technology market is performing better than overall WFE, and I expect this part of the business to continue to perform well during calendar year 2023. Let me now pivot to our gross margin performance. The March quarter came in at 44%, right at the midpoint of our guided range and down from 45.1% in the December quarter. The quarter-on-quarter decrease was tied to lower business volumes as well as customer and product mix. The Company is focused on improvements in cost and efficiency to enhance profitability which is aligned with our plan to expand gross margin by at least 1 percentage point exiting calendar year 2023. Operating expenses were $608 million in the March quarter, down 11% from the prior quarter amount of $686 million. We executed on cost savings actions and have managed spending across the Company while prioritizing investments in support of our customers' road maps. R&D expenses comprised nearly 70% of our operating expenses, which is a high point for the Company. The March quarter operating margin was 28.3% and above the midpoint of guidance, mainly because of the cost saving actions and expense management that we undertook. Our non-GAAP tax rate for the quarter was 13.1% and in line with our expectations. Looking into calendar 2023, we believe the tax rate will be in the low to mid-teens with fluctuations expected quarter-to-quarter. Other income and expense came in for the quarter at $8 million in expense lower by approximately $30 million from the prior quarter. The decrease in expense reflects increased interest income due to the higher cash balances as well as rising interest rates. OI&E will continue to be subject to market-related fluctuations that will cause some level of volatility each quarter. On the capital return side of things in the March quarter. We allocated approximately $483 million to open market share repurchases. Additionally, we paid $234 million in dividends in the quarter. We continue to track towards our long-term capital return plans of returning 75% to 100% of our free cash flow. March quarter diluted earnings per share was $6.99 and at the higher end of our guided range. Diluted share count was down to 135 million shares on track with our expectations and obviously lower a little bit than the December quarter. For the balance sheet, cash and short-term investments, including restricted cash at the end of the March quarter totaled $5.6 billion up from $4.8 billion at the end of the December 2022 quarter. The increase was largely due to collections offset by cash allocated to share buyback and dividends and capital expenditures. Days sales outstanding were 77 days in the March quarter, an increase from 70 days in the December quarter. Inventory turns declined from the prior quarter to 1.9x, and we ended the March quarter with a slightly higher inventory dollar balance. We will continue to manage inventory balances during the calendar year. Non-cash expenses for the March quarter included approximately $74 million in equity compensation in depreciation and $14 million for amortization. Capital expenditures for the March quarter were $119 million, down from the December quarter level by approximately $44 million. March quarter investments were mainly for our Malaysia factory, the Korea Technology Center and other product development activities. As we discussed in the January earnings call, we had a workforce reduction within the March quarter of approximately 1,400 people. Additionally, we reduced 700 temporary workers. We incurred a charge for the workforce actions in the March quarter of approximately $99 million, primarily reflecting severance-related payments. This charge was somewhat higher than our original estimate due to more impacted people with a somewhat higher seniority level. We also incurred other one-time charges in the quarter for product rationalization decisions as we prioritize technology investments within the Company and for transformation costs related to projects to improve our systems and operations. We anticipate we'll incur one-time costs in the range of $250 million within calendar year 2023 and which is inclusive of the $144 million that we expensed in the March quarter. We ended the March quarter with approximately 18,700 regular full-time employees, which is a slight decrease in the prior quarter. Due to the timing of our quarter end and our restructuring actions, a significant amount of the head count reduction we undertook won't be reflected in the headcount number until the June quarter. Now let's turn to the non-GAAP guidance for the June 2023 quarter. We are expecting revenue of $3.1 billion plus or minus $300 million. The sequential decline reflects a soft memory environment and the normalization of back order systems that occurred in the March quarter. Gross margin of 44%, plus or minus 1 percentage point; operating margins of 25.5%, plus or minus 1 percentage point; and finally, earnings per share of $5, plus or minus $0.75 based on a share count of approximately 134 million shares. So then let me summarize. 2023 is proving to be a challenging environment for our memory shipments, but I'm pleased with the progress we're accomplishing against this challenging backdrop. We continue to make progress on growing our technology leadership and focusing on our operational efficiencies. We will emerge from this memory-led downturn, is stronger better positioned, more efficient company. In closing, I just mentioned one more thing. that as we look at the profile of WFE spending this year, it now appears to be a little bit second half weighted. Operator, that concludes our prepared remarks. Tim and I would now like to open up the call for questions.

C.J Muse:

I guess the first question would be on deferred revenues. Exiting last quarter, I think you talked about trying to get to $1.5 billion and then we'd normalize there, whereas on this call, you said you expected to revenue the majority of these deposits in calendar '23. So can you help us understand the moving parts there? And what kind of contribution in the June quarter guide will come from a deferred revenue line?

C.J Muse:

Okay. Very helpful. And then I guess to follow up on your last comment around WFE being a little bit more second half weighted. That seems like a seismic shift. I guess, is that just the magnitude of the cuts that you've seen kind of in the first half? Or has anything else changed? And I guess as you think about that, if you do have the benefit of deferred revenues in the second half and WFE higher, it certainly would suggest that second half total revenues should be nicely higher than the first half.

Operator:

And the next question will come from Timothy Arcuri with UBS.

Tim Archer:

Well, I believe that there is real demand. I mean every region, I think, is trying to build up a regional capability to manufacture all types of semiconductors. And as you just said, I mean, in China, this is one area that they have the ability to create that capability and also they have the demand to consume it as well. And so I think from that standpoint, it's good demand for us and for others in the industry. But I think in a bigger sense, this regional self -- call it self-sufficiency or regional resilience that's being built, I think, is going to have a long-term impact on spending in the industry. And so we're not trying to sort of play the game of is it or is it not sustainable? We're talking to our customers, and in some cases, these are new projects that are coming up. We do our own assessment of whether or not they will be able to invest if they have the technology. And I think that with not only U.S. chipset, but recent news on the European chipset, I think that this is something that it's going to have a positive impact on spending to the industry across both leading-edge and these trailing and specialty ecology segments for quite some time.

Tim Archer:

It's exactly the same as what was issued in the October 7 rules in terms of technology limits. We want to be very clear on Lam staying compliant with the restrictions. And so, at the time we had given the guidance for the year, we said $2 billion to $2.5 billion of impact. We knew we were looking for clarification on how to determine whether some shipments that were in there could be made. That's why there was a range. And so now with that clarification on how you determine what can and can't ship, we've added those tools back into our forecast the year. But if you look at the rules that are there, it's exactly what was printed on October 7.

Operator:

And our next question will come from Krish Sankar with TD Cowen.

Doug Bettinger:

Yes. I mean, Krish, what I said is it's a slightly second half-weighted WFE year. And by the way, I just clarify if there's any confusion about the deferred cash and advanced deposits that are sitting there, that's in the WFE number. So that's part of the second half weighting as well, just so everybody's clear about that. And then, Krish, yes, when I look at what we're doing with the cost structure and how we're sort of pivoting where we do what we do, I've been talking, I think, the second quarter about a view that we should exit the year at least a percentage point gross margin higher than where we are. I still believe that is the trajectory that we're on.

Tim Archer:

It's a good question because I guess the point is we have a very strong position in ALD across a number of different types of films. And what I tried to speak to is there are specifically new types of challenges to introduce. And in the end, customers select tools based on the film performance, the deposition capabilities, the tool productivity reliability and manufacturing, lots of different factors. And I think these are areas that just over the years, Lam has excelled, and we -- I think we can in ALD as well. Thanks, Krish.

Joe Moore:

I think you mentioned you saw some impact from utilization on the CSBG business in the March quarter. Can you talk about what that looks like for the next couple of quarters? Are you seeing impact from lower memory utilization within those numbers? And then as a follow-up, can you give us some sense of as Reliant keeps getting presumably bigger, how much of the -- what's in CSBG is actually kind of more on the Reliant tool side?

Joe Moore:

Great. And then sometimes of the Reliant as a release qualitatively, how much of the business is from Reliant now?

Operator:

And the next question will come from Harlan Sur with JPMorgan.

Tim Archer:

Yes. Harlan, I think we're seeing -- we're obviously seeing a combination of both. I mean share gains, and it's not isolated to any one customer when I dedicated a lot of my prepared remarks to was the progress we're making, expanding our SAM and our product portfolio primarily focused on foundry logic. We recognize and we've said that this is an area that we've been under-indexed, which means that it's an area of significant growth opportunity for the Company. And you see just a number of new products we've introduced whether it'd be through the EUV inflection or it's the gate-all-around inflection. And so it's SAM expansion driving our growth, and it's also share gains within that expanded SAM. And it's across all foundry and logic customers had some element of both.

Tim Archer:

Yes. Well, yes, what I announced -- sorry, if you missed it, was the last year, we had announced on memory customer who adopted some elements of dry resist this technology solution. In March, a second memory customer did as well. And then more recently, a large foundry logic customer has chosen to adopt the resist deposition drive development as well as the underlayer processes. And -- so those are -- that's a really nice expansion across both memory, which is obviously DRAM using EUV, memory and foundry logic. And I think it sets us up well for continued momentum. Customers, look, everybody knows that EUV adoption is growing. And as I commented, it's becoming more challenging as people look for better productivity. They look for better technology capability within the resist. And I think that these are trends that are setting up well for us. I mentioned we'll be revenuing some tools starting this year, so that's a very nice milestone for us. And then I just would point you back, we have sized this at approximately $1.5 billion in revenue over a five-year time frame. And I think as adoption continues to grow the size of the subrogate and continue to grow for Lam.

Vivek Arya:

The first on just the memory market, is second half better or worse than the first half for you in terms of your memory shipments? I'm just trying to gauge whether June is also kind of a bottom for memory? Or is there more to fall on the memory side? And I think related to it, one of your customers have said that for them, their WFE and memory could be down even in the next fiscal year. And I know it's a fiscal and not a calendar year view. But do you think that's an industry-wide view or just in terms of how customers are thinking about 24 WFE on the memory side. So, just kind of a near and longer term memory questions.

Vivek Arya:

And on the 24 WFE, again, not trying to get a 24 view specifically, but I think one of your customers has been public about reducing memory WFE even in their fiscal '24. Do you think that's a customer-specific view? Or is that an industry-wide view that Memory WFE could stay under pressure next year? Or is it too early to make that assertion?

Tim Archer:

I think three quarters early might be a little early for '24. So I don't think we're going to give WFE for '24. But what I'd point to is that, as I just said, you look at from we signaled last -- in the September quarter call, the $23 million would be down in WFE. I think we wanted the first to do so is because we saw this decline in memory, we're already -- our revenue from December 22 to the June guide we just gave down 40%. So we're well into this cycle. And just as I laid out, I think we're going to see as we move through the remainder of this year and into next year, utilizations eventually come back, technology conversion start to occur. And then finally, WFE starts to tick back up. The great thing about the cost cuts that Doug talked about is we put ourselves in a position that we don't feel we have to be able to call the exact quarter when that's going to happen. But we think we're well into it and operating the Company well at these levels and with some upside to come.

Doug Bettinger:

Yes, Vivek. I think the majority of the cost actions we've taken, certainly, I talked about $99 million of non-related severance. That's largely complete. So I think a lot of it is already kind of in the run rate. Certainly, if you look at where we're at in June, it's down again quite a good amount.

Operator:

And moving on to Stacy Rasgon with Bernstein Research.

Doug Bettinger:

Yes, Stacy, the end markets are primarily foundry and logic, the mature nodes, Andre and logic. And I will acknowledge it's got a decent Chinese footprint to it.

Tim Archer:

Yes, Stacy, there's a very large overlap is what I would say. And I said the majority of that cash and advance payment will revenue in the second half. I didn't say all. I said the majority. And then the other thing I said a moment ago, the incremental clarification we got from China was a few hundred million dollars. So you got to think through where I left.

Doug Bettinger:

Yes, Stacy, I told you in March, it was at a decade long low point for us, and it's down again in June. It's -- frankly, my personal thing, it's hard to see down much more than we're describing in June, frankly. It's at a very low level.

Operator:

And the next question comes from Toshiya Hari with Goldman Sachs.

Doug Bettinger:

Yes. And I'll give it a quick response. It's hard for me to envision it being lower than it is this year. I mean, it's down 50% memory in total, right, Tim. I think had that in the scripted remarks. That's done a lot. I can't ever remember it being down that much on a year-over-year basis. You might say, hey, last year might have been a little too high or somewhat too high? Probably to -- it's -- I'm not going to get into a precise number, but it's certainly higher than it is this year, maybe not the size it was last year, though.

Tim Archer:

Let me take a shot and Doug can clean up as needed. I think the question about gross margin. We're not backing off on the financial models we put out in the past. And as you pointed out, we were getting big close to operating there while Malaysia was still a headwind. And so obviously, it will require a combination of some increased volumes. We've done a tremendous work to transfer a lot of our volume into lower-cost regions, really get a much more efficient supply chain. The COVID period was a real setback as you, again, sourced and grew in every possible location. But I think over the next period of time. And I hate to put a time frame on it again, to give a 24 outlook. But if we exit this year with the incremental improvement of 100 basis points, as Doug talked about or more and we have further volume and contribution coming through our new Asia facilities. I think that will drive right back towards those goals that we set back in 2020, which was in kind of that 47%, 48% gross margin range.

Atif Malik:

Similar to the last question on gross margins, Doug, can you help us understand by the end of the year, what percentage of your manufacturing will be in Malaysia and what are the steps you're taking in terms of asset optimization?

Toshiya Hari:

Got it. And then generative AI is a topical topic these days. Are there products in your portfolio on high bandwidth memory or packaging side that you're seeing outside growth? Or is it roughly in line with your lodging exposure?

Operator:

And we have a question from Blayne Curtis with Barclays.

Tim Archer:

Yes, I don't think we're going to comment about any specific customers, but I did make the comment that we see incremental weakness, I said, primarily from memory. And then I said we saw incremental strength in mature nodes. So obviously, primarily from memory, implies there's additional weakness elsewhere. So, I think leading edge foundry is a bit weaker. Obviously, our exposure and our insight into that market is a little bit less than it is in memory, but we are seeing some weakness there as well.

Tim Archer:

Well, obviously, it's -- this is where we get a little bit stuck around the challenge of trying to forecast WFE for the industry. Obviously, we don't have product insight into every element of WFE, including tool lead times and demand in different markets. So we try to give you our best view. But I think if you sort of translate this to what really matters to us in running the Company, we've talked about the fact that we see -- assuming -- we see at some point memory coming back in terms of utilization starting to tick up at some point, but that's in the second half or it's fun four, we'll see. Technology conversions in memory will be extremely good for Lam from the standpoint of how much we capture of every dollar of spending on technology conversions. We talked about strength in mature node logic foundry, where Doug talked about these advanced payments, and we also talked about some trailing-edge shipments to China that we can now make after clarification of the rules. So all those things kind of contribute to how we think about Lam in second half. Then we try to translate that to an industry WFE, but I don't think we can spend a lot of time trying to dissect all of that low to mid $70 billion for you with great accuracy.

Sidney Ho:

First question is, can you give us an update on your expectations of revenue performance for the CSBG group? I think you previously said it will be down somewhat, but there seems to be some moving parts here with memory utilization lower, but China revenue being less restricted. Just want to get some color would be great.

Sidney Ho:

Okay. That's helpful. Maybe another question on the -- just thinking about the recovery in memory spending. Is the utilization level, the first thing you guys monitor ahead of the CapEx recovery? And how much of a lag do you expect memory CapEx to recover once utilization starts to improve?

Tim Archer:

Yes. I think it's difficult to put a time frame between -- I think what you're asking is when it starts to when you start to see WFE investments. I think that depends on the shape of that recovery, which, again, we are confident that we'll be probably the first and greatest beneficiary of recovery. And we'll see what the shape of the recovery looks like once we have a better in demand.

Operator:

We'll take that question from Vijay Rakesh with Mizuho.

Doug Bettinger:

I think it's probably down a little bit in the June quarter from a percentage standpoint, although don't hold me to that. We don't always get that exactly right, but I think it's probably down a little bit in June.

Tim Archer:

Yes. I think as we've described, clearly, technology conversions occur first since that's the most capital efficient way for customers to not only add some additional bids but also to get better cost structure. So clearly, capital -- technology additions will come before capacity additions.

Operator:

Well, thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.

Tina Correia:

Thank you, operator, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer; and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today’s call, we will share our overview on the business environment and we will review our financial results for the December 2022 quarter and our outlook for the March 2023 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time this afternoon. The release can also be found on the Investor Relations section of the company’s website, along with the presentation slides that accompany today’s call. Today’s presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please see accompanying slides in the presentation for additional information. Today’s discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation. This call is scheduled to last until 3:00 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website. And with that, I will hand the call over to Tim.

Doug Bettinger:

Great. Thank you, Tim. Good afternoon, everyone and thank you for joining our call today during what I know is a busy earnings season. We had a record financial year in calendar 2022. And revenue came in at $19 billion and we delivered an all-time high for earnings per share of $37.31, which was a 15% growth in earnings per share over calendar year ‘21. Overall, I am pleased with the operational performance we achieved this past year delivered while navigating a challenging business environment with global supply chain constraints, significant inflationary headwinds and fluid regulatory restrictions. Lam also achieved record levels of performance in the December quarter across multiple metrics, including revenue, operating income dollars and earnings per share. Revenue for the December quarter was $5.28 billion, an increase of just over 4% from the prior quarter. We delivered higher levels of system sales in deposition and etch offset somewhat by a decrease in CSBG revenue. Deferred revenue at the end of the quarter was $2 billion, a decline of $770 million from the September quarter. Supply chain constraints have improved and we were able to fill shipments of many critical parts that’s required for revenue recognition. Our expectations are that the deferred revenue balance will continue to decrease in the March quarter as we fully complete shipments related to outstanding backordered systems. The deferred revenue balance decrease I just spoke about was partially offset by some increases in deferred due to customer cash and advanced deposits, which I also noted last quarter. As we sit here today, I expect to have some level of these type of deposits in the deferred balance throughout calendar 2023, keeping deferred revenue at somewhat higher levels than we have historically seen. I anticipate that the deferred revenue from backorders will be at a normalized level as we exit the March quarter. Let’s turn to the revenue segment details for the December quarter. Memory represented 50% of systems revenue, which is slightly down from the prior quarter level of 52%. Included in memory, the NAND segment represented 39% of our systems revenue, flat with the September quarter. The spending was primarily focused on 192-layer and above class devices. The DRAM segment concentration decreased sequentially from the prior quarter, coming in at 11% of systems revenue compared to 13% in the September quarter. The DRAM investments were mainly targeted towards 1z and 1-alpha nodes. I expect that we will see both NAND and DRAM revenue decline meaningfully in the March quarter. For calendar 2023, I expect NAND spending to decline more than DRAM. We continue to see strength in the Foundry segment with the December quarter concentration comprising 31% of our systems revenues. While this percentage is a little bit lower than September quarter level of 34%, the dollar amount was flat with a mix of investments in both leading and mature node devices. The Logic and Other segment revenue came in at a high watermark for the company, contributed 19% of systems revenue in the December quarter compared with 14% in the prior quarter. Investments were focused on microprocessor, image sensor and advanced packaging technologies. Lam had strong momentum in Logic and Other throughout calendar 2022. I expect we will continue to perform well in this segment. I’d mention that this was a record revenue level for us in microprocessor related revenue. We have been talking about momentum here for a while and it’s clearly showing up. With respect to the regional composition of our total revenue, the China region was 24% of the total, down from the prior quarter level of 30%. This reduction was due to the U.S. government sales restrictions for certain domestic customers which were put in place in early October of 2022. Rounding up the top region of revenue locations, Korea comprised 20% of total revenue, up from 17% in the prior quarter and Taiwan decreased to a concentration of 19% compared to 22% in the September quarter. The Customer Support Business Group results in the quarter were approximately $1.7 billion, which was down 9% from the September quarter, though it was 16% higher than the December quarter of calendar 2021. As I have noted in the past, CSBG revenues will fluctuate on a quarterly basis. And in the December quarter, we experienced declines in the CSBG product lines with reductions in utilizations and system spending. Going into calendar 2023, we have the impact of China regulatory work restrictions in addition to memory spending at well below historic levels and elevated customer device inventory. These factors are resulting in customers having underutilized factories and taking actions to manage their supply levels in 2023, negatively impacting our spares and services business. While we continue to believe the mature node segment will perform better than overall WFE spending, we are in an unprecedented business environment and expect the CSBG business could be down somewhat in calendar year 2023. Let me now pivot to our gross margin performance. The September quarter came in at 45.1% over the midpoint of the guided range, but down from September quarter’s gross margin of about 46%. The decrease from the September quarter was tied to customer and product mix. With the decline in business volumes in March 2023 quarter, we expect lower factory and field utilizations to unfavorably impact our gross margin on a sequential basis. Operating expenses were $686 million in the December quarter, up 6% from the prior quarter amount of $647 million. The higher spending was mainly in R&D projects, which comprised nearly 67% of our total spending. Supporting our customers’ roadmap continues to be a top priority for us while we focus on managing other areas of discretionary spending within the company. December quarter operating margin was 32.1% over the midpoint of guidance due to the higher level of revenue and gross margin. Our non-GAAP tax rate was 11.9%, in line with expectations. Looking into calendar 2023, we believe the tax rate will be in the low to mid-teens with some fluctuations quarter-by-quarter. This rate estimate does not include any impacts from potential U.S. or global tax policy changes. Other income and expense came in for the quarter at $38 million of expense, approximately $9 million higher from the prior quarter, mainly due to negative foreign exchange fluctuations which was somewhat offset by higher interest income because of increasing returns on our cash and investments. OI&E will continue to be subject to market-related fluctuations that will cause some level of volatility quarter-by-quarter. On the capital return side in the December quarter, we allocated approximately $483 million to open market share repurchases. Additionally, we paid $236 million in dividends in the quarter. For the 2022 calendar year, we returned 119% of our free cash flow, totaling $3.5 billion which was somewhat higher than our long-term capital return plans of 75% to 100%. December quarter diluted earnings per share, was $10.71, which was at the high-end of our guidance range. Diluted share count was 136 million shares, which was lower than the September quarter and in line with our December quarter expectations. During 2022, we lowered share count by nearly 6 million shares through our share buyback program. Now moving to the balance sheet. Our cash and short-term investments, including restricted cash, were up to $4.8 billion versus the prior quarter level of $4.6 billion. Operating cash flow of $1.1 billion in the December quarter was offset by cash allocated to share repurchases, dividend payments and capital expenditures. Inventory turns were 2.4x. Days sales outstanding were 70 days, a decrease from maybe 2 days in the September quarter due to strong collections and improved linearity within the quarter. I would point out that we expect 2023 to be a strong cash-generating year as working capital comes down with lower business levels. Our non-cash expenses for the December quarter included approximately $73 million for equity compensation, $73 million in depreciation and $12 million in amortization. Capital expenditures for the December quarter were $163 million, a slight increase over the September quarter spending of approximately $140 million. The expenditures were in R&D and manufacturing, including our Korea Technology Center and our Malaysia factory. We ended the quarter with approximately 19,200 regular full-time employees, which was an increase of approximately 500 people from the prior quarter. Our growth was in the factory and field to support the manufacturing as well as installation of tools at our customers’ fabs. Also included in this headcount growth were 150 employees from the SEMSYSCO acquisition that was completed in the December quarter. As you heard from Tim and saw in our earnings release, we will be reducing our regular full-time headcount by approximately 1,300 employees. We expect these reductions to be largely reflected in our June quarter ending headcount. In addition to the full-time reductions, we expect to be lowering our temporary workforce by approximately 700 people in the March quarter. We’ve already adjusted our temporary workforce down by 700 people in the December quarter. Let me now turn to our non-GAAP guidance for the March 2023 quarter. We’re expecting revenue of $3.8 billion, plus or minus $300 million. I’ll also just mention that we currently think revenue will be somewhat first half weighted this year as we consume the reduction in deferred revenue in the March quarter. Gross margin of 44%, plus or minus 1 percentage point. The decrease in this is the result of lower business volumes. Operating margin of 27.5%, plus or minus 1 percentage point; and finally, earnings per share of $6.50 plus or minus $0.75 based on a share count of approximately 135 million shares. We will be taking a charge of approximately $80 million in the March quarter from headcount reduction. Including this impact, and the other near-term actions that Tim spoke about, we are anticipating a total of $150 million to $250 million in charges to be incurred over the next 12 months. In addition to headcount, we anticipate potential charges from facilities restructuring, business realignment and transformation and product rationalization. On top of the cost savings activities, we are driving a greater focus from our senior leadership team through inclusion of additional profitability metrics in our annual incentive compensation structure. Currently, we’re at low volumes given the business environment. These initiatives will structurally improve our profitability. As Tim already laid out, we expect gross margin to be higher by roughly 1 percentage point and to expand operating margins by a little more than that as we exit the calendar year and complete these activities. Over many years in cycles, Lam has established a proven track record of successfully managing this business. With the actions we plan to execute throughout the year, we expect to strengthen our operations and technology leadership and further enhance our profitability profile with the company’s returning growth. When business improves, and we know it will, Lam will be a stronger, better positioned, more efficient company. Operator, that concludes our prepared remarks. We would now like to open up the call for questions.

Harlan Sur:

Good afternoon. Thanks for taking my question. Given the 20% pullback in WFE spend this year, significant memory spending pulled back within that, does the team still believe that the memory mix and spending expansion in memory will accelerate exiting this year? What’s your view? And then what’s your view on the supply-demand environment in memory and normalization of excess inventories in the industry?

Harlan Sur:

Perfect. And then on the impact from China regulatory and export controls, YMTC was formally put on the entities list in mid-December. Did this move change your prior view of a $2 billion, $2.5 billion impact to revenues this calendar year due to the China restrictions?

Doug Bettinger:

No change at all, Harlan.

Tim Archer:

Thanks, Harlan.

Joe Moore:

Great. Thank you. I guess I wanted to ask about the deferred. And if you draw it down to sort of normal levels in March, it implies shipments that are kind of well below the revenue level. I guess with CSBG running at close to $1.7 billion, it doesn’t seem like the June quarter could fall that much. But can you just kind of give us a little bit more clarity on what it means that you’re drawing down that much deferred in March?

Joe Moore:

Okay. And I think you’ve described normal in the past as being around $700 million, and you said it would be a little higher than that? Is that the right math?

Joe Moore:

Great. Thank you very much.

Operator:

We will take our next question from Timothy Arcuri with UBS Securities. Please go ahead.

Doug Bettinger:

Yes, that’s fair, Tim. I think maybe I’ll answer a slightly different question. When I think about WFE in the mid-70s that Tim described, I think it’s fairly balanced through the year. Revenue somewhat first half weighted because we’re drawing down that deferred revenue balance. So I just wanted to point that out, which is why I scripted it that way.

Doug Bettinger:

Yes, Tim, I think that’s part of it. When I look at WFE down more than 20% this year, memory is down a good deal more than that. Foundry Logic, a lot less. Litho is a heavier percent of the Foundry Logic spend. And I want to specifically point out the biggest decrease from a segment standpoint is in NAND, which, as you guys all know on this call, is our strongest segment and that is etch and deposition at Lam. So that’s kind of important to understand, I think, and why I specifically pointed to that as I went through the commentary.

Doug Bettinger:

Thanks, Tim.

C.J. Muse:

Hey, good afternoon. Thank you for taking the question. I guess first question, I was hoping you could provide perhaps a little more granularity on the restructuring. You talked 100 bps gross margin and a little bit more than that. Is there any way to kind of give a sense of how we should see that play out throughout calendar ‘23? And what kind of leverage should we see specifically on the OpEx side?

C.J. Muse:

Is there any way to quantify what that might look like?

C.J. Muse:

Okay. Great. I guess a follow-up question. As you think about the moving parts for CSBG, obviously, you’ve got a year-over-year China headwind, you talked about Reliant. I guess, how do you see the rest of that core business? Does that core business grow? And is there a way to maybe perhaps rank order what’s doing well and then what’s doing worse?

C.J. Muse:

Very helpful. Thank you.

Operator:

We will take our next question from Krish Sankar with Cowen & Company. Please go ahead.

Tim Archer:

Yes. Okay. I’ll start and let Doug add I think that, obviously, there have been utilization cuts. I mean I think right now, if you look – at least by our estimate and listening to what our customers say, we’re at very low levels of supply growth this year as a result of the lack of additions and utilization cuts, so I don’t think you could quite get to the scenario you’re talking about where you just bring utilization – unutilized tools back online. There is a second factor though, which is, remember, I mean, customers make investments also to move their technology forward. And that’s a pretty substantial portion of why WFE gets spent, not often just about capacity addition. And so I think that customers are going to only go so long before you have to invest in the technology to move to that next node and gain the efficiencies that you do there. So I think that, of course, we will work with our customers to bring tools back online and get utilization work on productivity, but I think there’ll be – I think spending will return at some point.

Doug Bettinger:

Yes, Chris, I hope we’re kind of bouncing along the bottom right now. I can’t guarantee that, but specifically, what we try to describe both Tim and I, is that with these actions we’re taking, we believe there is upward momentum to gross margin as we exit the year. We’re trying to get kind of capacity right staffing of the capacity rights so that as we exit the year, we think there is a point of gross margin upside, plus or minus where we’re at.

Doug Bettinger:

Yes. Thanks, Krish.

Stacy Rasgon:

Hi, guys. Thanks for taking my questions. My first one, I just wanted to touch on the deferred again. I just want to make sure I have it right. So you’re running $2 billion now. It sounds like you think normalized deferred might be $1 billion. So you got $1 billion that’s potentially coming out in March? Is that the right way to sort of think about the underlying demand, like where it is just like $1 billion like short of where we are or short of where the guide is and then going forward…

Stacy Rasgon:

It’s like $1.5 billion? Or can you give us a little more color on that?

Stacy Rasgon:

Okay. That’s helpful, thanks. My follow-up, I just – I do want to ask a little more philosophical question on the workforce reductions. And maybe as it relates to WFE, I mean, like we probably did, I don’t know, $40 billion in Memory WFE in ‘22 and it’s going to be down a lot in ‘23. Like, even if it grows in ‘24, how long does it take to get back to that sort of ‘22 level, like if ever? And do the cost cuts that you’re doing, are they in some sense, a function of how you might view like that long-term sort of steady state WFE for memory versus where we’re coming off in ‘22?

Stacy Rasgon:

But why don’t you need to cut more than because the cuts only take you back to where headcount was like six months ago, right?

Tim Archer:

I think Stacy, not all those heads were added in the volume side of the business as well. And so I talked about – and I think you will see when you look at the P&L, where we are trying to preserve what is strategic spending on the R&D side and the products that we think are important for the future growth of the company and competitiveness of our business. We are still committed, as I have said at the beginning, through our model of gaining market share in both the Memory and the foundry logic side of the business and some of the spending is there as well. So, these are the cuts we think that are appropriate for how we think the business seems to be run through this cycle.

Tim Archer:

Thanks Stacy.

Toshiya Hari:

Great. Thank you so much. I had one clarification and then a follow-up question. On the clarification, last quarter, I think you guys sized the potential impact from China export restrictions to your business in calendar ‘23 at $2 billion to $2.5 billion, I believe three quarters on the systems side, a quarter in services. Are those numbers still your expectation for calendar ‘23? Any change there?

Toshiya Hari:

Got it. And then my question probably for Doug in terms of gross margin, last year, you talked about freight and component costs being a headwind and you also talked about pricing as a potential lever to offset some of the headwinds. How should we think about those dynamics as we progress through ‘23, any progress? Thank you.

Toshiya Hari:

And when you talk about the 100 basis point improvement exiting the full year, is that an all-in number, embedding all those factors?

Toshiya Hari:

Got it. Thank you so much.

Operator:

We will take our next question from Vivek Arya with Bank of America Securities. Please go ahead.

Doug Bettinger:

Toshiya, I guess sorry – Vivek, the best I can do is just say what I have already said. Revenue is somewhat first half weighted, largely because we are pulling the deferred down in March. In March, it’s pulled down to where it’s going to be. And so you got to kind of think about that plus the fact that I told you, we think WFE is fairly balanced first half, second half. And I think if you think that through, you will get it pretty close to where it should be.

Doug Bettinger:

Yes. In December, trying to remember the number. More than half of it certainly was domestic China. I forget the exact number, Vivek, to be honest with you, but more of it was domestic China. As we go through, China is going to be impacted to the $2 billion to $2.5 billion from the customers we can’t ship to. I think – when I think about China WFE, that means China WFE is going to be down somewhat in ‘23.