Good afternoon. My name is Chelsea, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation December quarter 2022 earnings conference call and webcast. All participant lines have been placed in a listen-only mode to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, please press star two. Please also limit yourself to one question and one follow-up. Lastly, if you should need operator assistance, please press star zero. Thank you, and I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Sir, please go ahead. Thank you, Chelsea, and welcome to our earnings call to discuss the results of the December quarter and our March quarter outlook. Joining me is Rick Wallace, our Chief Executive Officer, and Bren Higgins, our Chief Financial Officer. During this call, we will discuss our results released today after the market close. All materials can be found on our IR website. Today's discussion is presented on a non-GAAP financial basis, unless otherwise specified. Whenever references are made to full year business performance, they are calendar year references. A detailed reconciliation of GAAP to non-GAAP results is in the earnings material posted on our website. Our IR website also contains future investor events as well as presentations, corporate governance information, and links to our SEC filings, including our most recent annual report and quarterly reports on Forms 10-K and Form 10-Q. Our comments today are subject to risks and uncertainties reflected in the risk factor disclosure in our SEC filings. Any forward-looking statements, including those we make on the call today, are subject to those risks, and KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. Our CEO, Rick Wallace, will begin the call with some quarterly comments and highlights before discussing the semiconductor industry demand environment. Bren Higgins, our CFO, will conclude with the financial highlights as well as our guidance and outlook. I will now turn the call over to our CEO, Rick Wallace. Rick? Thanks, Kevin, thank you all for joining us today. I will summarize KLA's performance in the quarter and summarize calendar 2022. I'll also provide a brief perspective on the overall semiconductor demand environment, as well as outline KLA's priorities for 2023. Before we get in the details, I wanna first acknowledge our global KLA teams who've continued to deliver for customers despite persistent challenges. KLA's results are proof of their commitment. KLA's December quarter had revenue of $2.98 billion, which is above the guidance range, with 27% growth on a year-over-year basis and 10% sequentially. Quarterly non-GAAP net income was $1.05 billion. GAAP EPS was $6.89, and non-GAAP EPS was $7.38, with each finishing above the midpoint of the guidance ranges. Calendar 2022 was another year of record growth, profitability and free cash flow. Specifically, revenue increased 28% in 2022 to $10.5 billion, marking the seventh consecutive year of growth, driven by 36% growth in Semiconductor Process Control systems. KLA also demonstrated strong operating leverage on our revenue growth in 2022, with non-GAAP operating profit up 31% year. non-GAAP incremental operating margin on the revenue growth was 46% for the year. For calendar 2022, free cash flow was up a healthy 18% to a record $3 billion, with free cash flow growth exceeding our 15% long-term target growth rate. I'll summarize some specific highlights from the quarter and the year. First, KLA continued to deliver strong relative outperformance versus peers. KLA substantially outperformed overall WFE market growth in 2022. Looking ahead, our leadership in critical markets such as wafer and reticle inspection are expected to demonstrate resiliency in a year of contraction in overall WFE demand, setting the stage for another year of relative strength for KLA. Second, our patterning systems revenue grew 17% sequentially, which is up 69% year-over-year basis. Third, KLA delivered record revenue in the 10th consecutive quarter of sequential growth in our specialty semiconductor process segment, demonstrating resiliency and expanding market opportunity. Fourth, the KLA Services business grew 14% year-over-year in the December quarter and was up 15% on a full year basis. The December quarter was another exceptional period from a capital returns perspective as we completed the $3 billion accelerated share repurchase component of the $6 billion share repurchase authorization announced last June. KLA's December quarter and calendar 2022 results and strong relative performance once again highlight the critical nature of KLA's products and services. Our consistent strong execution against various challenges in the marketplace, both in terms of macroeconomic uncertainties and addressing persistent supply chain challenges, highlight the resiliency of the KLA operating model, the dedication of our global teams, and our commitment to assertive capital allocation and delivering long-term value to our stakeholders. Looking at 2023, we know that this will be a year of industry capacity adjustments as customers fine-tune their CapEx plan to address decreased demand in some segments. We recognize that the semiconductor industry continues to be positioned for long-term growth, benefiting from the continued advancement of leading-edge technologies, increased investment in legacy nodes, and innovation and growth of new enabling technologies such as advanced packaging. To address this period of adjustment and maintain our commitment to growth, we're emphasizing three main priorities for our teams in navigating 2023. We will continue to make sure that we support our customers by delivering on our commitments and continuing our levels of investment in R&D. We'll stabilize our spending levels. To strategically navigate the current environment, our focus will be on stabilizing spending while maintaining R&D investments to drive market leadership. Our expectation is for R&D investment to increase in calendar 2023. We'll emphasize development of our workforce. After a strong hiring pace, we're currently at approximately 15,000 employees worldwide. Optimizing training and developing our workforce will help ensure continued strength for the long term. Now, Bren will review our December quarter highlights and our outlook. Bren? Thanks. As Rick just detailed, we delivered strong December quarter and calendar 2022 results that demonstrated consistent execution by the global KLA team. While supply chain challenges remain an impact on certain products, we continue to demonstrate resourcefulness and the ability to adapt to meet customer requirements. Quarterly revenue was $2.98 billion, $184 million above the midpoint of guidance and just above the guided range of $2.65 billion-$2.95 billion. Revenue outperformance in the December quarter was driven primarily by KLA's broadband plasma optical pattern wafer inspection and mask inspection systems, resulting from favorable mitigation of identified supply chain risks as we moved through the quarter. Non-GAAP diluted EPS was $7.38, above the midpoint of the guided range of $6.30-$7.70. GAAP diluted EPS was also above the midpoint of guidance at $6.89. Non-GAAP gross margin was 61% and just below the guidance range of 61.5%-63.5%, due to the impact of increasing non-cash inventory reserves taken in the quarter as we adjusted our factory output expectations and supply chain commitments to the current outlook, which has weakened at an accelerated pace over the past several months. These reserves were primarily taken against high-volume products and are consistent with shifting customer delivery dates and resulting backlog adjustments in the quarter. Given the diversification of end demand across technology nodes, the extendability of our product platforms, and the expectations for growth in our service business, it is likely that we will realize a benefit from releasing these reserves over time when industry growth resumes. We estimate that these adjustments had a roughly 200 basis point impact on GAAP and non-GAAP gross margin compared to what would have been assessed in a normalized industry environment. This impact was offset somewhat by higher business volume and by a strong product mix realized in the quarter. Non-GAAP operating expenses were $555 million, slightly above our estimated $550 million for the quarter. Total non-GAAP operating expenses comprised $332 million in R&D and $223 million in SG&A. Non-GAAP operating margin was strong at 42.4%. Quarterly non-GAAP net income was $1.05 billion. GAAP net income was $979 million. Cash flow from operations was $688 million, and free cash flow was $595 million. Breakdown of revenue by reportable segments and markets and major products and regions can be found within the shareholder letter and slides. Switching to the balance sheet, KLA ended the quarter with $2.9 billion in total cash equivalents and marketable securities, debt of $6.1 billion, a reduction of $200 million in the quarter, and a flexible and attractive bond maturity profile supported by strong investment-grade ratings from all three agencies. Over the last 12 months, KLA has returned $5.2 billion to shareholders, including $4.5 billion in share repurchases and $689 million in dividends paid. Looking ahead to calendar 2023, we expect industry spending to slow with a continued expectation for CY 2023 WFE demand to be down approximately 20% in the year, down from approximately $94 billion-$95 billion in CY 2022 due to increasing global macroeconomic concerns highlighted by our customers in most end markets and widely reported customer CapEx expectations. This WFE estimate reflects our current top-down assessment of industry demand as follows. In memory, we expect WFE investment to decline by more than the market, with DRAM down more than NAND, as memory customers respond to lower consumer demand by cutting production and factory utilizations to bring device supply in line with demand. We expect foundry logic to decline less than the overall market, with leading-edge investment declining less than legacy. KLA's unique broad portfolio differentiation and primary value proposition are focused on enabling technology transitions which our customers continue to invest in regardless of the business environment. While capacity plans can change, technology roadmap investment tends to be more resilient and aligns with KLA's highest value product offerings, where we continue to have supply chain constraints inhibiting our ability to add the additional volume to meet current demand. This demand adds additional confidence in our business expectations as customers align shipment slots with roadmap requirements. In this industry environment, we will continue to focus on meeting customer requirements, maintaining a high level of investment in R&D to advance our product roadmaps and KLA's market leadership, and align our operating structure with top-line expectations, which we expect to be in line or better on a relative basis while delivering strong relative financial performance. Our March quarter guidance is as follows: revenue of $2.35 billion, ±$150 million. Foundry logic is forecasted to be approximately 85%, and memory is expected to be around 15% of Semi PC systems revenue. Within memory, DRAM is expected to be about 71% of the segment mix, and NAND 29%. We forecast non-GAAP gross margin to be in a range of 60.5%-62.5% as product and segment mix and lower volumes dilute gross margins versus the 2022 baseline in the quarter. Based on current market demand assessments, we do not expect incremental inventory reserve requirements to be a factor in the quarter. For calendar 2023, based on our current industry outlook and the impact on overall volume, segment contribution, and product mix within the Semiconductor Process Control group, we are modeling gross margins to be greater than 60%, with variability quarter-to-quarter attributable to product mix fluctuations. Operating expenses will decline in the March quarter to approximately $545 million. For calendar 2023, KLA will continue to balance investments in technology, headcount, and infrastructure to support our long-term growth objectives while managing the business against the expectation of a softening near-term outlook. As a result, we expect quarterly operating expense levels to decline as we move through the balance of the year. Other model assumptions for the March quarter include other income and expense net of approximately $62 million and an effective tax rate of approximately 13.5%. Based on our current assessment of geographic revenue and profit expectations, you should continue to use 13.5% as the tax planning rate for calendar 2023. GAAP diluted EPS is expected to be in a range of $4.06-$5.46, and non-GAAP diluted EPS in a range of $4.52-$5.92. EPS guidance is based on a fully diluted share count of approximately 139 million shares. Though calendar 2023 will be a year of contraction after three strong years of growth, we remain confident that the secular trends outlined in our investor day last June are driving long-term semiconductor industry demand, and investments in WFE are durable and compelling. Broad-based customer demand across multiple production nodes, the increasingly strategic role semiconductors play in influencing national industrial policy, a robust design environment at the leading edge, and growing semiconductor content across technology nodes remains important trends. These are long-term secular growth drivers for the industry, as technology investment and node transitions reflect the value that semiconductors in our industry have in lowering costs for our customers and enabling a broader application universe for semiconductor-based technology across multiple end markets. For KLA, we have a strong historical track record of delivering relative outperformance across industry cycles. Furthermore, KLA Services has continued to grow consistently over multiple decades due to the critical nature of KLA products to improving yield learning and driving fab productivity. Our operational execution, coupled with the power of our portfolio strategy, positions us to continue to deliver sustainable relative performance over the next several years. We will continue to maintain our R&D investment and our product development roadmap to enable market share expansion, support customers' technology roadmaps, and multiyear fab investment plans. This provides an element of stability that shores up our confidence in the demand outlook for the future. These factors, combined with the KLA operating model that guides our execution, positions us well as we execute our strategic objectives. These objectives fuel our growth, consistent operational excellence, and differentiation across a diverse product and services offering. They are also the foundation of our sustained technology leadership, consistent industry-leading financial performance, and growing capital returns to shareholders. With that, I'll turn the call back over to Kevin to begin the Q&A. Kevin? Thanks, Bren. Chelsea, if you could, please give instructions to queue for questions. Yes, sir. At this time, if you would like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star two. We remind you to please unmute your line when introduced, and if possible, to also please pick up your handset for optimal sound quality. In the interest of time, we will ask that you please limit yourself to one question and one follow-up. We'll now take our first question from C.J. Muse with Evercore. Your line is open. Taking the question. I guess first question, you talked about expectations to outperform WFE again here in calendar 2023. Curious, can you kind of walk through, is that a comment on total revenues or just process control? Within that, how should we be thinking about the benefit from, you know, backlog/deferred revenues, you know, particularly into the March quarter? Try to make sure I calculate that right in my model. Hey, C.J. I'll start, and we'll let Rick chime in, if there's more. You know, I think there's a few factors as you, as you think about KLA's performance generally as we're looking at this year. Obviously, we had a very strong 2022 from a relative point of view. When we talk about that, we're really talking about the compares against WFE, right? Because there's, you know, the other industries we're in, it's less clear. Given the Semi PC compared to WFE, if you look back historically, we've always done well in down years for WFE because our customers across all our segments pull back on capacity, but continue to invest in technology and their technology roadmap. That's always a positive factor for us. We also see PC intensity moving up because where you generally see more cycling is in memory. Given the relative PC intensity in logic and foundry, that tends to be something that's good for us as well. Relative to EUV and the dynamics around EUV, Reticle and VV, our optical pattern inspection business are inflecting, so that gives us incremental, I think, support in terms of growth as we expect both those businesses to be better performers relative to the overall industry, and they're big parts of KLA. China impact's another factor, right? I think as you look at some of the peer companies and some of the export, control dynamics, as a percent of the total, I think they're impacting some of our peers, perhaps at a little greater degree than KLA. I think for all those factors, we feel pretty good about our position as we think about just our performance relative to the overall market, despite the strength of what we saw in 2022. In terms of Q1 and backlog, I mean, the deferred revenue hasn't really changed. We haven't had the issues that others have had in terms of having those, the deferred revenue blow up, related to some of the supply chain challenges that were, that were well chronicled. That's fairly normal in terms of how we look at 2023. The backlog did come down. We did some scrubbing related to the China export principally, we saw some reductions there. We'll see the performance obligations come down about $1 billion overall. Some of that being the effect of the China dynamic, but also, we did revenue at a level that was above the new bookings. Not a lot, and there's still a significant amount of backlog, and I think that, you know, we'll see, you know, that play through as we move forward here. Some of that is tied to longer terms of facility projects out beyond 12 months. 45%-55% of our backlog is for delivery outside the 12-month window. Hopefully that gives you a little bit of color on the overall and our expectations for 2023. Yeah. CJ Muse, maybe just to add one thought. When we laid out our investor plan for 2026, at the time we did that, we actually anticipated that there would be a contraction between 2022 and 2026. We obviously didn't know when, but we just felt that that was gonna happen. Our assumptions for that model were based on our% of WFE, which as you know, is a combination of the process control intensity and our share. We don't see any degradation of that in 2023 based on what we see. We see holding% of the WFE or maybe continuing to make progress. We still feel pretty good about the trajectory that we laid out in 2026. Even though there'll be these puts and takes based on projects that come and go, I think we feel pretty good, and we don't think 23 will be a problem relative to that longer term plan. Very, very helpful. As my follow-up, you talked about expectations for gross margins, north of 60% for the whole year, guided 61.5% for March. I guess this is kind of a two-part question. I guess, how do you see kind of the trough revenue quarter here, if you can answer that, and does that mean that we would be below 60% in the back half of calendar 23, or you think you can stay north of 60% every quarter for the year? Thanks so much. Yeah. I think we can stay above 60%. Look, there could always be quarter-to-quarter dynamics in a given quarter, depending on the mix of the business, that could drive us beneath that level. Our expectation is that for the year we'll be better than that overall. I would expect, and as we said over the course of last quarter, that we thought that Q1 was likely the higher quarter in the year, and that we would see a drifting down in terms of the run rate. Just to make the math work, you would see a lower second half than the first half. I think you likely stay north of a couple billion USD in terms of revenue levels, and we should be able to hold 60% in terms of a run rate, from a gross margin point of view. Thank you. Our next question will come from Joe Quatrochi with Wells Fargo. Your line is open. Yeah. Thanks for taking the question. I wanted to kind of double-click on your WFE expectations and then how you think about your model. You know, are you thinking about first half or second half WFE being relatively balanced for the year and then within your kind of forward revenue expectations for KLA as well? Well, I think, you know, my statements earlier were more, were KLA-centric, but I don't think we're gonna deviate that much from overall WFE. Obviously, that gets into the other businesses and markets that we don't participate in. Generally, I would expect that we're at a higher run rate, a WFE run rate, in the first part of this year than we are in the second. Yeah, I would think that it's probably down. I don't know how much it's down, but it's probably lower in the second half than the first half. Got it. And then just kinda maybe a bigger picture, you know, one of your larger customers has talked about, you know, a temporary decline in the 7 nm utilization rates, but at the same time also, you know, talking about, you know, working with their customers to introduce, to backfill capacity, introduce new products over the next few years. I guess, how do we think about that dynamic in the context of, like, your PrintCheck business in the mask shop? You know, I think that it's much more. It's baked into our assumptions on the overall reduction in WFE that they're gonna be shifting. I don't think the mix between our products is really gonna change for that period if you think about where Logic is positioned. The other thing, Bren mentioned, as you know, as EUV gets increasingly adopted, even if it's at lower capacity, we'll see more demand for PrintCheck and in Reticle in general. You know, the strength of those businesses, we think continues on a relative basis, albeit in a declining overall market for some period of time. Those are product lines that right now we're still supply constrained in terms of our ability to support customer needs on those products. If 7 nm capacity demand falls off, right, and we don't expect in fact you would expect to see wafer starts maybe come down at that node. You know, most of the investment we expect to see is at the more advanced nodes. Customers are always looking to optimize the productivity of their capacity. Depending on their views, it could be temporary, in which case they'll idle some of that capacity or run it at a lower utilization rate. Then if in the longer run they feel like they can move it, they'll try to move it. They do have the technical challenges though, that if you were to move from 7 nm to 5 nm, you have the introduction of EUV from node to node. The technical challenges of trying to reuse that capacity is much more difficult in this environment than it was, let's say, 10 years ago. Thank you. Our next question will come from Harlan Sur with JPMorgan. Your line is now open. Guys, thanks for taking my question. You know, your services business last year was strong, right? It was up 15%. Historically, like this segment does not decline during downturns, right? Very stable subscription services contracts, expanding support opportunities, legacy nodes, more software attach, et cetera. You do have a transactional part of the business, right, tied to manufacturing activity. You've got your EPC services business in there as well, and the impact from China export controls. Lots of puts and takes. Does the team believe it can grow services revenues this year? Yes. Yeah, you're right. We do have some puts and takes. If you look at the, and just for some history, right, if you look at our service business overall as it relates to semi process control, we've only had one down year going back at least the last 20, maybe 25 years, and that was in 2009, where we were facing a extremely challenging macroeconomic environment. You're right that when things slow down, particularly in memory as an example, customers will scale back in terms of the utilization of their equipment. We still have a lot of equipment that's coming off of warranty that's going into contract that's been shipped over the last few years. Customers continue to run the install base typically, to support, even if they're not investing in new capability. EPC is a little more transactional, and I would expect EPC service to be flatter year-to-year. I don't think we're gonna grow like we did this year, where we grew 15%. I would expect to see a mid to high single-digit growth rate in services overall. I think when you look at our overall business, and we talked about Semi PC growing, you know, roughly in line overall with the market, maybe a little better than that. Service is growing mid to high single-digits. I think EPC systems is gonna be somewhere in less than have a decline, but a decline that's less than what we're seeing on the WFE side. Because we have had a weaker 2022, that business is much closer to consumers. I think they entered into some of the more challenging environment a little bit sooner. That's how we're thinking about the overall. The other factor, Harlan, when you consider our business, our service is pure service, as we talked about, and also it's really not about consumables. From the standpoint of if their capacity goes down, some of the consumable related service business will go down as a result. Ours, because of the nature of what we do, and often even if customers are constraining capacity, they're trying to optimize yield. That's why I think our service fares pretty well in this kind of environment. Great. I appreciate that. you know, strong patterning growth in 2022. I think patterning was up like 50%. Obviously, part of that is being driven by EUV, deep UV, litho adoption. you know, if you look at ASML's results, I mean, that continues strong. What I think they're looking for EUV litho systems being signed off, you know, units being signed off this year to grow like 40%, both for EUV and deep UV. Litho shipments are always sort of a good forward indicator for your business. You've got positive exposure via your wafer, your reticle inspection systems, Print Check, litho metrology. It was clearly a bigger driver last year. Is this gonna be one of the bigger drivers of the potential outperformance this year for the team? I think, you're right in some regards, and certainly when it comes to technology transitions, a lot of what's driving the metrology is related to those tech transitions, such as gate-all-around, right? The work that's going on there is driving it. There is a part of that business that's tied to capacity, so, you know, that's really puts and takes inside of that business. It's not entirely just related to the tech. You know, when you look at the overall market growth in the, in the different segments, you know, our view of lithography as part of WFE is a little different than what was stated maybe overall because of the deferred revenue component of that. Again, I think KLA is gonna do well as we go forward in 2023. The metrology as it pertains to technology advancement development will be strong in both. That is both metrology and overlay related as companies, our customers try to advance in terms of the tech nodes that have a lot of challenges in those two areas. Thank you. Our next question will come from Vivek Arya with Bank of America. Your line is open. Thanks for taking my question. You know, if we look at the full year WFE view of down 20%, right? kind of the mid-$70 billion. That view, that overall view doesn't seem to have changed in the last three months, but something else seems to have downshifted in the commentary from you and your peers. I'm just curious if Rick or Bren, if you would take a look back in the last three months, what has changed from an assumption perspective? Is it a certain part of the market that you are exposed to? Like, has there been any change in the last three months? Because the overall number doesn't seem to have changed. Yeah, Vivek, it's a good question. You know, not much has changed, frankly, in terms of how we've looked at it. Obviously, we had the strength of Q4, which contributes to the marginal weakness in the March quarter, where we had $184 million rev in incremental revenue above the midpoint in December. That clearly came out of the March quarter. That puts, you know, a little bit of pressure on the March quarter. As we look at the overall year, it generally looks very similar to what we had three months ago. I don't think that much is different. It feels pretty consistent. Well, I guess, yes, it's kind of similar to what we said, but at the time, it wasn't what a lot of customers were saying yet, right? At that time, there hadn't been as many announcements for CapEx reductions. We kind of forecasted that was going to happen. With that kind of the news, it kind of got to this point where we're about where we said. That wasn't the case when we first viewed what was probably gonna be a correction in 2023. I would say it's kind of landed where we thought, but there was a fair amount of news in getting there as people said they're gonna cut their CapEx. Got it. For my follow-up, if I'm hearing you know, March is perhaps not the trough quarter for the year, but I don't know, maybe it's June or September? Any way to gauge what that kind of, you know, conceptually the trough quarter could be? When I look at memory, I think it's only, what, 15% of, you know, process control in Q1. Is that the trough for memory, or can it get even lower than that? Vivek, I'm not gonna guide each of the quarters. It feels today like, you know, things are stronger likely in the first half. There's some investments at the very end of the year that could cause, the December quarter to be stronger, depending on the timing of the fab construction. So there's some things in I'll call it in Q4 that could, you know, swing the quarter to quarter one way or the other. As I said earlier, I think that the second half is likely lower than the first half. You know, I'll stick with that for now. Thank you. Our next question will come from Brian Chin with Stifel. Your line is open. Hi there. Good afternoon, and thanks for letting us ask a few questions. Maybe just to double back on the performance obligations, it sounds like I could be a little bit off here, but in terms of 12 months RPOs, maybe end of the December quarter, kind of at a $6 billion-ish kind of level. Is that about right? Is there a point in terms of that as you draw that down a little bit, maybe over the next few to several quarters, is there a point in the year you can kind of point to where you think that number will stabilize? We're gonna report, we'll likely file our Q, you know, sometime in the next day or so you'll have the specifics on it. Your math is about right. It's a little bit higher than that, and, you know, would still expect 45%-55% beyond 12 months. As I said, you know, some of the adjustments that were made were related to some more clarity around China export restrictions. That was a factor in some of our adjustments. I think as we progress through the year, look, we'll see how the order flow plays out over time, but and there, you know, there's still, you know, work to be done in terms of whether we are able to continue to get some licenses that we're still working through, and so how that could have an effect as well. I don't expect to see it. I think it's gonna level off. I don't expect to see it come down all that much. I think it'll level off as we move forward over the course of the year. Look, things can change, and that's the best visibility I have today. Okay. Yeah, that's fair. Yeah, this is probably just digging into a question that was recently asked, I mean, I think the math might suggest that in the March quarter, the memory system revenue could be something like $250 million, maybe $250 million-$300 million. Maybe that's not trough, but it seems pretty low, comparable to recent periods going back a little ways. Yeah, maybe not trough, but not too far off. Is that kind of an unfair conclusion? Yes, you're right. I mean, it's lower than it has been for a few years. I don't know if it was lower in any given quarter back, let's say, in late 2018 or early 2019, in that time frame. I'd have to look, but it certainly as a% of the total, as low as it's been for some time. Thank you. Our next question will come from Sidney Ho with Deutsche Bank. Your line is open. Great. Thanks for taking my question. The revenue decline in the March quarter is a little more severe than we kind of expected. I guess we had thought the revenue is relatively stable, especially given the large backlog you had going into the quarter. Is it just that you were able to pull in some of the revenues into the December quarter, or was it my assumption that revenue could be stable in the near term was incorrect? No, Sidney, it's a great question, and you're absolutely right. It pulled in into the December quarter. When we started the quarter, we had risked out some of the. It seems we have lost speaker connection. Please hold. Ladies and gentlemen, please stand by as we work through this technical difficulty. Ladies and gentlemen, please stand by as we work through this technical difficulty. We are now back live. Thank you, Chelsea. Sorry we got cut out there. I know in the middle of Bren's answer to Sidney. Sidney, let me just start again. Your question was about just the quarter-to-quarter changes. You're absolutely right that we did see this strength in Q4, and that was a pull forward from the March quarter. As we were looking at the business back in October, we had some systems where we were dealing with some supply chain issues, particularly as it relates to broadband plasma and reticle inspection products. As we worked through the quarter, we were able to work with those suppliers, get the parts we need, run through our qualification processes, and complete those tools. Customers, given the demand imbalance we've been dealing with for some time on these products, our ability to supply relative to where demand is, we're more than willing to take the products when we have them finished. When you add the two quarters together, the number is basically the same. Our view here is we're gonna keep the line moving, particularly as it relates to getting these systems out the door, to meet customer requirements. We finish them, and we ship them at the end of the quarter. Okay, that's helpful. Thanks. I can ask the second question. You talk about expecting operating expenses to come down throughout the year. What is a good level to think about exiting this calendar year? Talk about maybe what are the areas you see more of the cuts. Are there any of the actions impacting the gross margin positively as well? Thanks. I think the gross margin guidance we gave earlier stands for itself and reflects some of the actions that we're taking just to deal with. you know, one of the challenges in our, you know, factories is we're coming off which drove our inventory issue that we had this quarter, as well as we're coming off pretty high growth expectations in a pretty short period of time. It wasn't that long ago when people were talking about $100 billion of WFE this year and $105 or more into 2023. $100 billion in 2022. There's been about $30 billion plus of WFE that's come out in a relatively short period of time. That had an effect on some of the buying that we've done to drive our supply chain the way that we have. Also, it will have to deal with some of the underutilization of the factory resources that were put in place to support higher volume levels. The guidance I gave in terms of gross margin reflects those actions and what we plan to do. I would think that by the end of the year, we'll probably be looking at a quarterly run rate based on how we're running the business today and our expectations for top line, somewhere in that, I'll say somewhere around $530 million-$535 million. We'll see it trend down as we go, according to, you know, each quarter, more or less. You know, it depending on how we see the top line evolving, not only as we look at the second half of the year, but as you start to look at at 24 and size 24, then, we'll come to a determination whether that is appropriate level for us to be at or whether we need to do more or less from there. Thank you. Our next question will come from Atif Malik with Citi. Your line is open. Hi, thanks for. All right, one moment. All right, Atif, your line is open. Sorry, can you hear me? Yeah. Yeah, we can hear you. All right, I have a question on the memory investments. Are you expecting memory CapEx reductions to be broad this year or just one or two memory makers? I'm expecting it to be pretty broad. It'll vary by customer. As you know, it's not our strongest market in terms of overall exposure, and we tend to be more focused on the technical part, right, the technology roadmap, less so than capacity. When we look at it, I think it's pretty broad across all our customers, but varies according to some of them, right? I don't think they're all completely consistent. Got it. In China WFE, are you expecting China WFE to be down as much as overall WFE? What's holding China WFE? Is it the trailing edge investments? What's driving higher investments on the trailing edge? Is it the auto end market or maybe higher process control intensity? You know, most of the logic investment has been at the legacy nodes. The other thing that gives us some confidence about 23 that I didn't mention in the earlier answer was the infrastructure investment that's happening in China for mask investment, mask infrastructure, and for wafer infrastructure, which is parts of WFE that we're exposed to that some of our peers aren't. When I look at the overall inclusive of, for KLA, inclusive of what we expect in export restriction, which hasn't changed from what we talked about a quarter ago, I think overall we'll see our business in China likely decline less than the overall WFE. Thank you. Thank you. Our next question will come from Timothy Arcuri with UBS. Your line is open. Hi, guys. Thanks. Rick, there was a question before about EUV, and I'm wondering if you can sort of, help give a number in terms of how much of your revenue attaches directly to EUV. There's not a ton of inspection in the litho cell, but you certainly get pulled along with anything that helps sort of, you know, horizontal scaling. And, you know, obviously, EUV, does that. I'm kind of wondering if you can handicap how much of your revenue gets carried along with EUV. Then I had a follow-up. Thanks. Tim, we don't really break it out like that, but I can kind of give it a shot and talk about applications that are related. The main one, the most obvious one that's new is PrintCheck, and that is inspection that's directly related to EUV. I think the other one is, of course, all the reticle stuff. There is some overlay work that also happens relative to some of the matching challenges associated with EUV. I would say, you know, part of each of those markets, and if you had to add them all up, probably 15%-20% of what we're overall, what we're doing in those markets is probably related directly to EUV as opposed to additional scaling. We can do some work and come back on that 'cause it has been growing. The PrintCheck part has been driving a lot of the growth that we're seeing in the Gen 5 in particular work that we're seeing. That's kinda how I handicap it. Bren? I think that's good. Awesome, Rick Wallace. Thank you. Super helpful. Bren Higgins, I had a question for you on process control systems. Well, actually it's a, you know, two-part question. It seems like the March guidance implies something in the $165 range for process control segment systems. I wanted you to confirm that, first of all. Then the real question is the timing of when the process control systems, Bottoms. Lam's bottoming in March. It seems like if I take, you know, low to mid-$70 billion WFE, I assume you don't lose much WFE share. It's kind of hard to see the number not bottoming until you get to $110 billion roughly. You're still at $160 billion. Can you sort of answer those for me? Thanks. Yeah. Your first question about margin, of course, we don't guide the individual segments, but your assumption of where we are in March is about right. Obviously, we're gonna manage the whole company to the top-level numbers that we provided and not necessarily focus on the individual pieces. The drop off, again, I'm not gonna get into each of the quarters from a guidance point of view, but that would imply a fairly low number, then imply that I think that we would drop off more than overall WFE, current WFE expectations, which are down about 20% overall. It's hard to say, you know, how much happens when, but, you know, one-one feels like a pretty low number. Thank you. As a reminder, that is star one to ask a question. Our next question will come from Krish Sankar with Cowen and Company. Your line is open. Yeah, hi. Thanks for taking my question. Rick, I just my first question is just to play the devil's advocate. Last quarter, you said the process control argument was tied to tech roadmaps and transition, and not as much as to capacity, i.e., less cyclical. At the end of the day, it seems like process control is not immune to the cyclicality. I'm just kind of curious, like are these just like regular cyclical issues? Was process control actually really driven by tech and not capacity purchases, and long lead time for inspection doesn't matter anymore? I'm just kind of curious, how do you think we get back to trend line in a couple of quarters? Any color on that would be helpful, and then a follow-up. I mean, I think it is, it is the case that process control, our business in particular is tied, both to capacity, but also to tech transitions, and it's certainly not just to tech transitions. I think you'll see the people that are more tied to capacity coming down more in this environment, and the people that are tied more to pure tech holding up, we're kind of in the middle of those two. Obviously, we have capacity businesses as they relate to, say, you know, metrology that gets added as you add wafer starts. The work that's going on in reticle and in advanced patterning inspections will be related much more to the Gen 4, Gen 5 stuff, which won't see as much of a decline. I think we're kind of, we have some more upside to capacity than maybe we did years ago, but we have, at this point, certainly a large part of our business is associated with technology transfers, and there's more transfers happening now than there have been in quite a while. The DRAM guys, you know, memory, as low as their level of investment is in capacity, as in none, they're still driving technology transitions. We know there are multiple players now in logic trying to move forward on that. I'd say it's a balanced approach, which is why we think we'll outperform this year, but not, you know, we're not gonna hold flat relative to that 'cause we definitely had some capacity components. No, I don't say that we're immune to it, but I think we're less sensitive than pure capacity plays. Yeah, Krish, we did share the market move in 2021, right from below the 6th percentile to the high 7th percentile. That clearly was driven by not just the technology transitions that we talk a lot about, but also higher exposure to capacity opportunities. We talked about this at Investor Day, that with scaling with a more robust design environment, less reuse overall, that and more process flows, that our customers were investing more in capacity from KLA and capacity environments 'cause they're managing each design test, design rules in different ways, different process flows adds change in complexity into the fab. For all those reasons, we were seeing more adoption of process control in what we'll call a more mature state in the fab. Obviously, that's the part that falls off as customers adjust those capacity plans. To Rick's point, you know, most of our leverage is in the development area and it has the fab scales. That's why we feel pretty good about the dynamics driving our relative performance this year, and a continuation of the SAM expansion that we've seen over the last couple of years. Got it. Super helpful. Thanks, Bren, for that, and thanks a lot, Rick. As a quick follow-up, you know, Intel just said a while ago they're gonna extend their depreciation from five to eight years. I'm just kind of curious, does it mean they're extending the useful life of semi-cap equipment from five to eight years? What does it mean for semi for process control tools, if you can extend the use of the equipment, does it mean that less purchases over the longer term? The actual useful life of equipment has been going up for years. And we show that in some of our service work. Part of why our service business is growing is because the life extends well beyond, you know, the typical, the historical view of that. I don't think that this is anything other than some recognition. There are different practices around the world with how customers choose to, you know, amortize or depreciate their equipment. No, it has no effect. I think we're back to the same conversation about what drives reuse and what drives the next generation has to do with node migration and the ability for customers to, in the case when they, you know, what we've seen a lot of now is filling in of the nodes that historically might have been just moved forward. No, no change in the long-term view based on that decision by one customer. You're seeing demand rise in the legacy parts of the market, and that's been good for not only the service business and extending useful life, but we're also restarting older generation tools. It's allowing us to extend the life of existing platforms that we're selling. Some of our challenges around supply chain has been restarting some of those older generation tools to meet those demands. I think it's a reflection of, at least to Rick's point and how it affects equipment overall, reflection of the strength of some of those markets and those opportunities. The good thing is, as we are able to sell those tools, the incremental R&D to support those markets is fairly low. It creates a nice vector of not only of growth for us, but also of growth in our profitability and leverage in our model. Thank you, Krish. Chelsea, I believe we're coming close to the bottom of the hour, top of the hour. Probably time for one more question. Yes, sir. Our last question will come from Toshiya Hari with Goldman Sachs. Your line is open. Hi. Thank you so much for taking the question. I just had a couple of housekeeping questions, if that's okay. The China impact, the export restriction impact in the December quarter, and what you're assuming for calendar 2023. Brian, sorry if I missed this, but if you can remind us how big the impact could be or was in Q4 and how. Yeah. No change to what we talked about last quarter overall. We talked about a range of $500 million-$900 million across the business in terms of its, the impact to 2023. I don't have an update to that or a different view at this point. We'll see as we go. Active engagement. Got it. On DRAM versus NAND, I think when you were going through the WFE assumption, you mentioned your expectation for DRAM to be down more than NAND. When you think about your own business, KLA's business, I would expect DRAM to be a little bit more resilient given, you know, EUV adoption, insertion, and the benefits there. Is that the right way to think about your business in calendar 2023 on a relative basis? Yes. Yes. Okay. Yeah, I would expect our DRAM business to be stronger than our NAND as a%. Yep. Okay. Thank you. Sure. Great. Thank you, everybody, for your time. We know it's a really busy day of earnings. We also apologize for the technical difficulties we had during the call. We will be catching up with all of you here afterwards. Appreciate the interest, and speak soon. Thank you, ladies and gentlemen. This concludes the KLA Corporation December quarter 2022 earnings call and webcast. Please disconnect your line at this time, and have a wonderful day.