Good afternoon. My name is Chelsea. I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation March quarter 2023 earnings conference call and webcast. All participant lines have been placed in a listen-only mode to prevent any background noise. After the speaker's 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 limit yourself to one question and one follow-up. Lastly, if you should need operator assistance, please press star zero. Thank you. I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead. Thank you, Chelsea, and thank you for joining us for our earnings call to discuss the results of the March 2023 quarter and our June 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 closed. All materials can be found on our IR website. Today's discussion is being presented on a non-GAAP financial basis unless otherwise specified. Whenever we make full year references, they are for calendar years. A detailed reconciliation of GAAP to non-GAAP results is in the earnings materials 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 and quarterly reports on Forms 10-K and 10-Q. Our comments here 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 also subject to those risks. 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 comments and quarterly highlights. Bren Higgins, our CFO, will conclude with our financial highlights, including our guidance and our outlook. I will now turn the call over to our CEO, Rick Wallace. Rick? Thank you, Kevin. Let's start with a summary of KLA's performance in the quarter, along with a few highlights. Further color and detail on my comments and the semiconductor demand environment can be found in our shareholder letter released earlier today. KLA's March quarter results again demonstrate the company's consistency in delivering on long-term strategic objectives and financial targets. Specifically, revenue of $2.43 billion was above the midpoint of the guidance range. This represented 6% growth on a year-over-year basis, although down 18% sequentially. GAAP EPS was $5.03, and non-GAAP EPS was $5.49, with each finishing above the midpoint of their respective guidance ranges. From a customer perspective, demand in the quarter was slightly ahead of expectations. Near-term headwinds related to the global macroeconomy and supply chain remain, but we also see positive offsets emerging as automotive demand and other markets served by legacy nodes remain strong. The silicon wafer industry continues to invest to support long-term wafer demand growth. Our customers are adjusting capacity plans across both foundry logic and memory due to changing demand expectations. We see R&D investments remain a top priority. This is important for KLA as our products are consistently relied upon during the R&D process as well as the early ramp phase when faster time to yield is critical. We had a number of additional business highlights in the quarter. Gartner recently released their latest industry market share analysis, and process control was the fastest-growing WFE market in 2022, growing 30% in the year to $13.5 billion. Within process control, KLA increased market leadership in most segments, resulting in an overall market share gain of approximately 300 basis points in 2022 to over 57%, greater than 4x our nearest competitor. KLA's sustained market leadership is underpinned by our innovation and commitment to high levels of R&D investment. Additionally, the successful execution of KLA's strategies for market diversification are demonstrated by the rapid growth in KLA's automotive-focused businesses. Automotive semiconductor demand is growing in applications where a zero-defect mentality is required to achieve superior standards of quality and reliability. KLA has been working with the entire automotive ecosystem to standardize our in-line defect screening methodology called I-PAT to augment existing reliability test methods. As electrification proliferates, the industry is facing an additional opportunity with the integration of introduction of new compound semiconductor materials such as silicon carbide that offer a significant improvement in power efficiency over silicon. In this category, KLA's revenue has grown 2.5x since 2019, approaching $700 million in annual revenue in calendar 2022, and including 5x growth in silicon carbide-related businesses, which account for almost half of total automotive sales. We expect this growth to continue in calendar 2023. In services, our business grew to $529 million in the quarter, up 8% year-over-year and 2% sequentially. KLA service strength was driven by our growing installed base, increasing customer adoption of long-term service agreements, expanding service opportunities in legacy nodes, and emerging long-term opportunities in acquired businesses. Finally, the March quarter was another excellent period from a cash flow and capital returns perspective. Quarterly free cash flow was $926 million, which drove the latest 12-month free cash flow up 20% to $3.2 billion. Total cash returns over the past 12 months was $5.11 billion or 160% of free cash flow. Dividends and share repurchases in the March quarter were $659 million, composed of $478 million in share repurchases and $181 million in dividends. Our consistent execution despite challenges in the marketplace continue to prove the resiliency of the KLA operating model and the dedication of our global teams. I will now hand the call over to Bren to go through our financial highlights. Bren? Thank you, Rick. KLA delivered on our quarter guidance and commitments, demonstrating consistent execution in a challenging marketplace. Our continued focus on meeting customer needs while expanding market leadership, growing revenue, sustaining industry-leading growth in operating margins, generating strong free cash flow, and maintaining our long-term strategy of conservative capital allocation is what makes us successful. Quarterly revenue was $2.43 billion, above the midpoint of the guided range of $2.2 billion-$2.5 billion. Non-GAAP diluted EPS was $5.49, above the midpoint of the guided range of $4.52-$5.92. GAAP diluted EPS was $5.03. Non-GAAP gross margin was 60.8% at the lower end of the guidance range. While volume and product mix were stronger than expected, persistent end market weakness continues to affect the PCB and display and component inspection businesses to a greater degree than expected, and drove incremental inventory reserve requirements. Factor under absorption also remains a factor across the company as we adjust our capacity down to reflect the current business environment. These issues combined diluted gross margins by approximately 100 basis points and offset the volume and product mix benefits mentioned earlier. Non-GAAP operating expenses were $534 million, below our expectation of $545 million, reflecting the impact of modest headcount reductions implemented in the quarter and prudent cost management across the company. Total operating expenses comprised $322 million in R&D and $212 million in SG&A. Non-GAAP operating margin was 38.8%. Other income and expense net was $60 million. The quarterly effective tax rate was 14%. At the guided tax rate of 13.5%, non-GAAP EPS would have been $0.03 higher, or $5.52. Quarterly non-GAAP net income was $761 million. GAAP net income was $698 million. Cash flow from operations was $1.01 billion. Free cash flow was $926 million. As a result, free cash flow conversion was 122%. Free cash flow margin was 38%. The company had approximately 139 million diluted weighted average shares outstanding at the end of the quarter. The breakdown of revenue by reportable segments and end 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 $5.95 billion, 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 $5.1 billion to shareholders, including $4.4 billion in share repurchases and $711 million in dividends paid. The total capital returns amounting to 160% of free cash flow. Turning to our outlook now, we continue to estimate WFE to decline approximately 20% to $75 billion in calendar 2023, from approximately $95 billion in 2022. Our customers' capacity planning remains fluid and indications of end market improvement have limited visibility today. While the timing of a meaningful resumption in WFE investment growth remains unclear, we do see overall demand stabilizing around current business levels for our semiconductor process control systems business. We expect this demand profile to continue through the second half of the calendar year. In particular, we are seeing higher than initially expected investment from legacy customers globally, including in China. We have also received clarification from the U.S. government on the export rules issued last October and can now resume some shipments that we had previously excluded. Furthermore, we see additional wafer and reticle infrastructure spending worldwide. Our WFE estimate reflects our current top-down estimate of industry demand as follows. In memory, we expect WFE investments to decline by 35%-40% as memory customers continue to respond to lower consumer demand by adjusting production to bring device supply in line with demand. We expect foundry logic to decline by about 10% overall, with legacy investment declining less than the segment overall, due principally to automotive and continued demand for legacy design nodes in China. Our June quarter guidance is as follows: Total revenue is expected to be $2.25 billion, ±$125 million. Foundry logic is forecasted to be approximately 77%, and memory is expected to be around 23% of Semi PC Systems revenue. Within memory, DRAM is expected to be about 85% of the segment mix, and NAND approximately 15%. We forecast non-GAAP gross margin to be 60.75%, ±1 percentage point, due primarily to the expected product and segment mix. Given the view of a stabilizing demand environment for the remainder of the year, non-GAAP gross margin should remain in this range, with the expectation of gross margins to be between 60% and 61% for calendar 2023, with product mix being the largest factor in quarter-to-quarter variability. Looking ahead, we will continue to manage costs carefully. The June quarter always represents the first full quarter of our annual salary adjustments. Operating expenses will tick up slightly to approximately $540 million. We continue to see operating expenses trending down for the remainder of calendar 2023, exiting the calendar year in the $530 million-$535 million range. Other model assumptions for the June quarter include other income and expense net of approximately $58 million, an effective tax rate of approximately 13.5%. GAAP diluted EPS is expected to be $4.47 ±$0.60, and non-GAAP diluted EPS of $4.83 ±$0.60. EPS guidance is based on a fully diluted share count of approximately 137.5 million shares. After three years of strong industry growth, our view of total WFE demand remains unchanged at down approximately 20% in calendar 2023. Against this backdrop, KLA is well positioned to continue to outperform the industry, building on the increased market relevancy delivered in calendar 2022. We remain confident that the secular trends driving long-term semiconductor industry demand and investments in WFE are intact. Driving semiconductor demand, the increasing strategic role semiconductors play in influencing national industrial policy, and simultaneous investments supporting growing semiconductor content across technology nodes remain catalysts for growth. Technology investment and node transitions reflect the value that semiconductors and 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, while the global economy and semiconductor industry face headwinds in 2023, we are well positioned to deliver strong financial performance driven by the relative strength of our Semi PC and SPTS businesses and continued growth in services. We will continue to focus on innovation as we execute our portfolio strategy to support our customers' technology roadmaps and multiyear investment plans. With the KLA operating model guiding our execution, we will execute our strategic objectives and drive outperformance. These objectives drive our growth, consistent operational excellence, and differentiation across a diverse product and services portfolio. They are also the foundation that sustains our technology leadership and competitive differentiation. This has enabled us to achieve industry-leading financial and free cash flow performance and deliver consistent and growing capital returns to shareholders. With that, I'll now turn the call back over to Kevin to begin the Q&A session. Kevin. Thank you, Bren Higgins. Chelsea, can you please provide the instructions for queuing and then begin the Q&A? 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 pick up your handset for optimal sound quality. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Our first question will come from Harlan Sur with JP Morgan. Your line is open. Good afternoon, great to see yet another year of strong share gains from the team last year. You've reiterated your full year WFE outlook at down 20%. You also talked about your process control business remaining stable at the June quarter levels through the remainder of this year. I'm wondering if the stable outlook also reflects a stabilization of cancellation and push-out activity from what I assume has been a pretty volatile bookings environment over the past six months. Hey, Harlan, thanks for the compliment. On overall from a bookings point of view, look, their customers are still moving things around in terms of backlog and slotting. There was some scrubbing in the quarter of some adjustments, fairly minor in our overall backlog and our RPO number, which you'll see, which is the remaining performance obligations you'll see in our 10-Q filing that we'll do in the next day or so. Came down about $600 million. That implies that the book-to-bill was a little bit less than one, and then there were some adjustments overall. Some fluidity in scheduling, but consistent with prepared remarks, we do see a stabilization around these levels as we look out over the next few quarters. Perfect. Thanks for that. On your EPC franchise, you know, it's driven pretty strong growth rate, 10%-11% CAGR over the past three years. That's including services. It even grew 7% last year, right, in a, in a slower consumer environment. Coming into this year, though, you guys are already driving an EPC systems profile of down about 20% year-over-year. Do you still anticipate your EPC business to growth this year to outperform WFE growth? Sort of at a high level, how are you thinking about EPC profile second half versus first half? Yeah, it's a great question, Harlan. And certainly over the last few months, we've seen a shift in our expectations for that business. It tends to be short lead time and very consumer sensitive, if you will. As the consumer markets have yet to really recover, we were expecting to see a bounce back in the second half. And while I expect the second half to be a little bit stronger than the first half, and this is really regarding the PCB business, flat panel business, and the ICOS component inspection business, 'cause SPTS has a different profile. I'll talk about that in a second. In those businesses, we expect it to increase and improve modestly into the second half, but that we're likely to, in that segment, that we'll, it'll be a decline year-over-year that's more than what we expect out of the WFE-centric businesses. SPTS, on the other hand, has had a nice growth trajectory. We had a strong year last year, and would expect to see that business be somewhere flat, maybe modestly up this year. It is very exposed to the automotive market, specifically around power semiconductors and some of the new specialty substrates. So there are opportunities for us there. We're pretty pleased with how that business is progressing here, despite the weakness overall in WFE. Well, perfect. Thank you. Thank you. Our next question will come from C.J. Muse with Evercore. Your line is open. Good afternoon. Thank you for taking the question. Excuse me. I guess first question, surprised you haven't changed your foundry WFE outlook for 2023 at all. Many of your peers discussed, you know, modest adjustments there. Would love to hear your thoughts as to what's offsetting that. And as part of that, can you speak to the lead times for optical inspection, which I still think are well beyond 12 months. Is that the kind of the key to the story for KLA, where, you know, you're finding this sustainable level at the June level into the second half? Yeah, C.J. In the overall business, we're seeing more strength than we had expected originally in the legacy parts of the market, so greater than 28 nm, and that's a global statement. China's also stronger in terms of expectations there from a legacy point of view. While we've seen some adjustment in the leading edge expectations, we've seen some strengthening overall in legacy. Obviously, there's some error bars around these percentages as we look out from the March quarter, but that's really what's driving our outlook here. Great. Maybe just to follow up on the legacy part. You talked about native China being 25% of process control. How much of that is silicon wafer versus just traditional front-end equipment? Over the course of the... If we just take an annual perspective and think about it, I would say the silicon wafer part is probably, and this is an estimate, probably about 20%-25% of it. The other thing you asked about lead times around optical inspection. You asked about lead times around optical inspection. I am sorry, I left that out of your the first part of your question. Lead times around optical inspection are still pretty long. There hasn't really been a change there as we are adding new capacity to support demand. Customers are still investing in their technology roadmaps, and that product is pretty essential to that. We continue to see an environment where demand is outpacing supply. In a down WFE market, I expect the high-end optical inspection to grow this year, given those dynamics. Very helpful. Thank you. Thank you. Our next question will come from Vivek Arya with Bank of America Securities. Your line is open. Thank you for taking my question. I'm curious, what is giving you the confidence that sales have bottomed when many of your memory customers still appear to have a lot of inventory and are unclear when their utilization will pick up? Specifically, how's your visibility to the memory demand for the back half of this calendar year? Do you think it'll be, you know, about this level, it'll be lower, above this level? I noticed that in June, the implied memory sales seem to be picking up, you know, off the, you know, small numbers. Just any comments on how you're thinking about memory demand recovery from here as it pertains to what you think about utilization at your key memory customers. Sure. It's a good question. If you look at the March quarter, it was pretty low, right? At 14%. And I look back, and you go back into even our recent history, hasn't been that low really ever. And even as you see it progress through the year into the, you know, into the guidance, you know, sort of the 23% that we talked about in June, and, you know, even as it sort of stays in that range as you move through the second half of the, of the year, it's still, while second half might be a little bit stronger than the first half, given how low the first half was, it's still pretty low overall in terms of our forecast and expectations. There's some wild cards around how customers ultimately spend. We tend to be more technology-centric, there's still roadmap investment that's happening, that we're participating in. There's also some opportunities related to the clarification of some of the export controls, and what that means in terms of some incremental opportunities to support some of the older generation, memory devices in China. That clarification that we received, from the government will enable the second half, some second half shipments. That's in our outlook as well. Yeah. Just to add to that, if you look at the business that we have that's more tied to capacity and memory, that's not really showing up. What's showing up, as Bren said, is more on technology. Even as those customers are not or even have low utilization, not adding capacity, they are very motivated to continue to work on technology development. That plays to, as Bren said, it's a relatively small number, but there's some stability in that. Got it. For my follow-up, I realize it's early, but I thought that given that you have long lead times and you are engaged in the technology side with many customers, you probably have a, you know, a decent view of how calendar 24 might look like. I'm not asking for numerical guidance, but what's your. You know, gut right now that is WFE likely to grow next year? Is it, you know, supposed to be flat or down? Like what could be just a kind of qualitative puts and takes as we start thinking about WFE next year? Obviously, just to start off with the obvious, we don't have a lot of visibility in next year, but we can tell you about the conversations we're having with customers, which have to do a lot with their view that things are kind of stabilizing at this level for the most part. In some cases, it's because things are down quite a bit, but there's a lot of activity still in, for example, in advanced logic nodes or advanced foundry nodes of design starts and a lot of work going on there. We're still having conversations about supporting projects that are due to happen at the end of this year, early into next year. You know, if you had to pin us down on it, I think we're kind of at these kind of levels plus or minus for a while, and hopeful that during calendar 2024 we'll see some recovery. It's obviously too soon to know that. I think that that's the general way we're thinking about it going forward. Thank you. Thank you. Our next question will come from Krish Sankar with Cowen. Your line is open. Yeah. Hi. Thanks for taking my question. I have two of them. First one, Rick or Bren, you spoke about, you know, resuming some shipments to China. Can you quantify in terms of millions of dollars, how much that you're gonna expect to recoup in second half? Is that baked into your view that revenue stays around these levels into the calendar second half? Along the same path, you know, this China shipment assumption, it strikes me kind of lagging as memory, and I'm kind of curious what exactly you mean by lagging as memory, because I thought memory is always at leading edge. I have a follow-up. Yeah, Krish. We expect to be somewhere greater than $200 million in terms of the opportunity in the second half. We're working with the customer to make sure that we have what we need to be able to support that activity. That's how we're sizing it right now overall. Look, I think on the technology question is that not everyone's at the leading edge, there's activity that's happening in legacy markets, and there's some market opportunities out there from an end market point of view to support some of these investments. That's what's driving that investment. Like I said, we see it somewhere in that $200 million range. Got it. Got Got it. Super helpful. Then a quick follow-up. You know, should we still expect your service revenues to grow this year? How to think about the service between the semi and the EPC portion? Yes, this is Rick. Yes, we should see growth in service, and I think this is one of the differentiators for KLA is how our service behaves in slowdown. We're seeing a lot of interest from our customers to keep that capability. Even when capacity might go off, what customers wanna focus on is yield and making sure that they're continuing to develop new technology, and so that plays to our strength. Obviously, we talked about some of the slowdown we've seen in EPC, so this is much more about semi process control. Yeah, we're still modeling the growth that we've talked about in the past for service, and that's a big part of our value that we provide for our customers, so we feel good about where we are there. Yeah. For the Semi PC part of the business, given the reduction or softening industry environment, some idling of capacity, the dynamics around the memory business that people have already asked about, I wouldn't expect service to grow in line with the long run target of 12%-14%. As we said last quarter, we see it somewhere in the mid to high single-digit growth rate this year. Obviously, some headwinds from the export controls as a factor in that, but still growth to Rick's point. On the EPC side, probably flat, maybe modestly up a little bit. Service business behaves a little bit differently. There are some long-term opportunities for us to try to drive that business over time, given our global footprint. That's obviously a longer-term play, but the service business generally, you know, is not declining, but not growing a lot this year. Got it. Thank you, Rick. Thanks, Bren. Thank you. Our next question will come from Joe Quatrochi with Wells Fargo. Your line is open. Thanks for taking the question. Just the first is a clarification. For the clarification on export restrictions that you received, that $200 million you're thinking about for the second half of this year, did that reenter your backlog or RPO this quarter? Never came out because it was a clarification issue, we were, as I've said in prior quarters, until we had certainty, we weren't gonna scrub out anything out of our backlog. In this case, we required a clarification, until we had certainty, we left things in. No change from that point of view. Got it. Thanks. As a follow-up, on the gross margin side, how should we think about inventory reserves for the rest of this year? Can you just remind us how do we think about the timing of those reversals? Yeah. I think, you know, the last couple of quarters you've had some meaningful adjustments from what we were driving the company to the current demand levels. If you recall back in 2021 and 2022, given the supply chain shortages that were out there, we were making fairly significant commitments in our supply chain that in a lot of ways drove the performance that we saw in 2021 and 2022 from a growth point of view. From a growth point of view. As we've had to adjust down to different demand levels in a fairly quick pace, it has driven some incremental reserves related to just excess supply. What I would expect looking to happening is, over time, as we see a meaningful resumption in demand, given the extendibility and lifetime of our platforms, the strength of our service business will ultimately consume those parts. It's not like you throw the parts away, it's just you have more than you need for the demand window in terms of how you do the assessment. On a go-forward basis, I expect it to normalize and not be a issue for us. EPC was a bit of a surprise, as I mentioned in the prepared remarks, this quarter, and that was really driven by just this weakening overall expectation into the second half that we previously thought we'd see stronger demand. We think that we've adjusted now, the impact moving forward, assuming the outlook that we provided, normalizes and isn't an incremental factor one way or the other. Perfect. Thank you. Thank you. Our next question will come from Atif Malik with Citi. Your line is open. Hi, thank you for taking my questions. I have two questions on China. First, is the number of customers you're engaged domestically in China on trailing edge higher this year versus last year or year before? I wouldn't say higher, n o. There's a lot of projects. Okay. Yeah, Rick's right. I wouldn't say higher. Okay. I mean, on the multinational companies in China, Rick, in your discussions with these companies, how are they looking at their future capacity expansions, given that the license period for the export restrictions is coming, I mean, due in September, October? I mean, how are they looking strategically, on investments in China? Well, it's hard enough for us to get the clarification. I think for them, that's they're working on the same thing as getting clarification on exactly what they'll be able to do. I think they're, you know, they have conversations with us, but frankly, the discussions they're having that matter the most to them are not with us. We're able to support them no matter which way that goes. I think that's something they're all working through, and there's some stuff in the press about it, you can imagine that there's a fair amount of anxiousness around that. Understand. Thank you. Thank you. Thank you. Our next question will come from Timothy Arcuri with UBS. Your line is open. Thanks a lot. Bren, I had two. First, I'm just trying to tie your process control systems commentary to WFE. It sounds like Orbotech systems, I mean, you're not explicitly saying this in June, but it sounds kinda like they're pretty flattish. Process control systems have to be about $1,550, you know, down maybe $175 million from March. In the shareholder letter, you're saying that it's gonna sort of remain flat into the back half of the year at that level. If I just take the $1,720 you did in March, and then I take the, you know, $1,550 in June, and I kinda flatline that, and I use $75 billion this year in WFE, that implies you're like 8.5% this year for WFE share. That's, I mean, that's a record high. I guess the question is there something structural going on that you think there's, you know, staying power to where your WFE share could stay that high? You know, usually I think six in the trough and eight in the peak, but you're at sort of like 8.5. Maybe is it that your $75 billion number's too low? Tim, I, you know, we do this every quarter. I'm not gonna guide the individual segments, your math is reasonable. Again, with our comments, we're on stabilizing, you know, it's plus or minus, you know, relative to the current business levels. That's how we see things moving forward. In terms of your, you know, and we talked about this a little bit over the last, you know, number of months, is that we felt pretty confident about our ability to maintain our share of WFE. That there were drivers in terms of as we look at 2023, you need to see customers continuing to invest in their roadmaps, particularly product lines that are inflecting some of the fastest-growing product lines in overall WFE would be factors of, for growth for us. Our exposure to the, to the bare silicon or the silicon wafer industry is a driver of WFE that we're exposed to that others aren't. The infrastructure investment that's happening in China from a wafer and reticle point of view is also an inflection point. I think what's exposed to export controls overall as a percent of the total for us is a little bit lower than some of the other peers. Finally, we're seeing a very strong share performance overall, as we talked about in the prepared remarks. When you add all that up, and share is also important because in a downturn when budgets are limited, customers tend to buy best of breed, and that tends to play KLA's favor as well. When you add all that up, as I've been saying for a number of months, I felt pretty confident that despite all the adjustments out there that folks were making in deferred revenue and partial shipments and all those kinds of dynamics that were adding some confusion overall, that we felt pretty comfortable about our ability to maintain our share of the overall market. Process control intensity is stronger in a foundry logic environment, and certainly more of the WFE spend is there, and so that's always a factor for us in any downturn, and why typically in down WFE years, KLA has. I think if I go back even decades, we've always outperformed the market in down years. I think there's a number of factors that's contributing to it. Just to build on it, Tim, you know, I think as Bren mentioned, process control intensity is up some, I think the share story is maybe even more significant. Then where it's really shown up has been optical inspection. A lot of that is around relevancy of our optical inspection to some of the new nodes that people are dealing with. It took a while for some of our customers to really fully appreciate the capability of both the Gen 4 and Gen 5 platforms. Those two, I mean, frankly, we're still constrained. We're capacity constrained on those. Those would grow more if we had more capacity. The reason for that is, I think we are demonstrating to our customers value. When we thought originally it'd be mostly logical foundry, even there, we're seeing some strength, albeit, you know, memory is very low, but we're seeing adoption of advanced inspection. I think that's another way to look at it. When you look at the performance last year overall for process control, I don't think it was an accident. It's relevancy of our solutions. Thanks a lot. I guess I had a question also on WFE, and some people are trying to get at this, I think. WFE is still sort of flat in the 75 range. I think, Bren Higgins, you said that there's $200 million for you that can ship that sort of an, you know, add back of, you know, stuff that was banned in the past. If you're less than 10% of WFE, that's probably like a few billion dollar add back from just from China there, and then there's all this, you know, lagging edge stuff happening in China. Is it that the lagging edge China stuff, like it's not helping this year, it's more helping next year? I guess I'm a little surprised that the $75 billion number is not higher, just given the, you know, massive increase in, you know, bookings that we're seeing from, you know, lagging edge China. Thanks. Yeah, we'll Tim, we're in April. It's an estimate, an approximation at ± around $77 billion or $75 billion is a way to think about it at this point. We don't put a lot of extra effort. You know, we focus a lot on running our own business and executing this one. We just try to do what we can to do an assessment of the overall market, and we'll share that with you. There are a lot of moving parts, right? We'll get some clarity in terms of ultimately what that impact is. I sized it. Could it be more? Could it be less, perhaps. Just overall, and I think the other factor that could impact this year is just some of the construction dynamics where facilities are being built, and when customers actually receive tools. If you have delays in construction schedules, that could affect what shows up when, and there's a number of greenfield projects that are out there. A lot of moving parts in it, but we're comfortabe with the ±75, and we'll firm it up as we go here. Awesome, Bren. Thanks so much. Thank you. Thank you. Our next question will come from Sidney Ho with Deutsche Bank. Your line is open. Great. Thanks for taking the question. I wanna follow up with the previous question about when you talk about the stabilizing demand and maybe a similar profile for the rest of the year. Are you expecting your revenue for the back half of the year to be roughly flat quarter-over-quarter, inclusive of that $200 million of recoup revenue? Are there other factors to consider, whether it's on the service business, on the EPC side of things? Yeah, Sidney, we just did $2.432, right? Or $4.33 in the March quarter. The commentary was focused on current business levels at $2.25. It might put a little bit of pressure on the second half from a half-to-half point of view. We are talking about kinda low single digit, low to mid single digit given that guidance. Again, we're not guiding the second half. We're just giving a view of this, of stabilization here. It's possible, right? It'll be close. I think just given the strength of the March quarter, if you end up with roughly the same numbers in the second half, you might be half to half down modestly. That's helpful. My follow-up question is, one of your largest customer in Taiwan talked about higher levels of tool reuse between the 5 nm and the 3 nm How is this factored into your second half outlook and maybe even the longer term outlook? Do you think that's anything incremental to what the industry's current level of capacity reuse between nodes? Thanks. It's a good question, Sidney. I think that those are always conversations customers have had in terms of when they look at their utilization and they look at the differences from node to node, I think it is something that is always being evaluated. They're always trying to optimize the portfolio. The work that we've done in modeling our 2026 plan and the work that we do, even looking through the rest of the year and next year, have contemplated all of that. There's nothing really in there that's new from our perspective about, you know, the amount of consumption of process control or process control intensity. It does highlight the need for us to continue to invest in R&D and bring out new capabilities and continue to support our customers. N othing really new in what we see in those statements. Okay. Thank you. Thank you. Our next question will come from Toshiya Hari with Goldman Sachs. Your line is open. Thank you so much for taking the question. I had a follow-up question to Sidney's question. Given, given the depth and breadth of, you know, design start activity you're seeing in the leading edge foundry space, what are your expectations for process control intensity into 2024? Is there a bias potentially to the upside from where you are in 2023? Well, look, Toshiya, we process control density has been very strong for the reasons you talked about. If you think about the number of design starts and what that means in terms of our customers managing a number of different designs that test design rules in different ways, and then having to deliver yielded wafers in fairly tight market windows, it all drives a higher level of inspection and metrology. You also have different process flows that are expected to, those are all have been drivers for process control. The design starts at the previous node is also a factor, new tech, right? New tech with the introduction of more EUV to drive scaling, but also more layers here moving forward. Those are all positives for us. Depending on the mix of the revenue, die size is also a factor, so if you end up with exposure to markets with larger die, you put more at risk with the same chip effect density, so that creates a driver for process control as well. There are a number of factors. We feel for you, if you just back up and look at the overall share of the market as it relates to Foundry Logic, we've seen an inflection here, and we think that we can sustain that inflection as we move forward. Got it. That's helpful. As my follow-up, I think you commented specifically on China as it pertains to your business with wafer suppliers and, you know, reticle suppliers as well. Curious on a global basis, you know, how big are those businesses today, and how should we think about sustainability over the next 12 months or so, again, on the wafer side as well as both merchant and captive reticle customers? Thank you. Most of the reticle infrastructure, like new infrastructure, is being added in China to support legacy activity. That's probably a, you know, a driver of an incremental, you know, couple hundred million or so of revenue for us. Overall wafer, I'm separating it this way 'cause I don't wanna double count, overall wafer should grow meaningfully this year compared to last year. It's a, you know, it's a pretty sizable business for KLA. We haven't broken it out before, we're an expensive or a big part of the CapEx for wafer suppliers, we would expect to see that growing this year. Thank you. Thank you. Our next question will come from Joe Moore with Morgan Stanley. Your line is open. Great. Thank you. You talked about kind of qualitatively about services, not being down this year, maybe up a little bit this year. Can you talk about the utilization impact on that? As you see utilizations coming down in both, foundry and memory, you know, I guess I would think that has less impact on you than it does for some of the other guys, but, you know, can you just talk to how utilization might weigh on that number? The utilization rates have clearly come down, particularly in the memory space. It seems like they're fairly stable at this point. We don't see them continuing to decline from where they are. That's why we see the overall revenue because customers are not running the tools to start or in some cases idling capacity, so you don't have the opportunities, the service opportunities that you would have in a higher utilization environment. That's what's driving the overall growth rate down from what a normalized or a trend line expectation is. We're not seeing it really getting worse at this point, and there are pockets from time to time of improvement. I think it's stabilization is the right word. It's why we chose to use it, but it feels like that's really what we're seeing today. That's helpful. Thank you. Separately, on China, you guys have talked to the sort of China trailing edge logic opportunity a couple of different times here. The, you know, your sense for whether there's building ahead there, I mean, I would assume you have customers there that have anxiety about future export controls. You know, could they be putting in capacity? You know, I guess maybe a different way of asking the question, do you see utilization that kind of validates the requirement of the spending, or do you worry that it could be, you know, a building ahead of supply? Yeah, it's possible. I mean, we don't have great, you know, clarity on all of it, but it does seem unlikely given the recent history of when, you know, you've lost support of a equipment provider, the tools aren't very useful. I think the expectation is the controls will remain on the leading edge, and they'll be able to continue to develop some of these mature technologies. Remember, there's a very active EV market in China, there's a lot of need for some of that more mature technology as it applies to some of those markets. It does seem to be based on some real demand around things that are not leading edge, and that's really what we're seeing and have for quite a while in China. It doesn't feel like it's necessarily that. There are companies that are ramping up, and in that sense, they might not have won the markets that they hope to win yet, but we've kind of factored that into our overall forecasting for China anyway. Very helpful. Thank you. Thank you. Our next question will come from Blayne Curtis with Barclays. Your line is open. Hey, thanks for taking my question. I was curious, I mean, you talked about in the outlook, legacy growing faster than leading edge. Just curious if you could give us a perspective where that mix is within Foundry Logic today, and maybe a perspective of where it's come from. It's declining less. It's not, it's not growing, it's really just declining less, in terms of the overall outlook. I mean, for KLA, if you just thought about what's, you know, less than 28 nm versus what's above in our mix profile. About 60% of our revenue is, we'll call it less than 28 nm, and about 40% of it is above. That's normally it. It's closer to 75% leading, 25% lagging. Give you a sense of it being a bigger part of our mix, this quarter. It's broad-based, and certainly China is a pretty big factor in it all, but you also have a fair amount of investments happening from, you know, the analog guys and supporting some of the automotive markets, sensor investment, some industrial, you know, markets and so on. There's steady investment, and then these are markets where semiconductor content is rising, and so you're seeing more investment in those areas that we frankly didn't ship a lot into over the last couple of years, given the strength of demand at the leading edge and our largest customers, given the supply-demand imbalance, taking most of the slots. In some ways, as we've seen the leading edge adjust, this is a logic and memory statement, we've seen some adjustments in our largest customers, over the last six months or so and into this year. Some of that capacity is getting consumed by folks that wanted earlier slots, and we weren't able to deliver to them. Thanks. I wanted to ask you on the, on the inventories on the balance sheet, I think it's record level, near record in days as well. I guess it kind of everybody has this phenomena going on. How are you thinking about managing that? If the top line kind of flats it down, I'm kind of curious if inventory will still grow and any impacts on gross margin as you work it down. Yeah, you know, I've said this many times, but we're not the company that you look to for asset velocity as it relates to inventory. There's a reason for that. It starts with the business model that KLA has around driving innovation and differentiation, and that drives a fair amount of custom componentry into our systems and very unique supply relationships, where our suppliers are trusted partners more than a transactional supply chain. As a result of that, what we optimize for is we optimize for that differentiation. What we accept is we accept that we're going to need to make commitments. Lead times are long. We're going to take parts when we put orders out to take them. In the long run, we believe that economically, we're in a pretty good place that given the strength of service, extendability of the platform, that we'll consume the parts that we're buying against our volume products. We've seen it trend up, and it's trending up. I would expect it to start to flatten out, maybe drift a little bit, but I'm already starting to buy, you know, parts for new products that are coming out for things that, you know, will have some unique parts for new products that'll be coming out over the next 12 to 18 months or so. I don't expect it to turn very much. That's why even in these very strong upturn environments, we've rarely gotten above, much above 2x from an inventory turn point of view. We'll continue to manage it, but it's sort of fundamental to our supply chain strategy. As a result of that, you know, when you're buying parts to support products they are living for 20 to 30 years, there's a lot to buy to support that, and we carry it. Thank you. Thank you. Our next question will come from Brian Chin with Stifel. Your line is open. Hi, there. Good afternoon. Thanks for letting us ask a question. Maybe for Rick. Trailing edge, you know, clearly is thought of as less process control intensive. I guess to what extent does the immaturity of these production lines, particularly in China, there's a lot of greenfield situations and also the desire for faster time to market. How do these factors kind of counteract, that, you know, typical kind of lower intensity for trailing edge? Well, I think that a couple ways. One is it depends on the applications for the fab. If you're an automotive fab, you actually have a different kind of need for process control than you do if you're just a traditional legacy fab. That's one thing. That actually, process control intensity can be a little bit higher. Then depending on the scale and the size of the fab on a relative basis, it's harder to have, if, you know, you get more efficiency on a large fab, and so these fabs tend not to be as mega fabs. Then you actually get a little bit of intensity as a result. They're also looking for solutions that have been proven in the market. You know, for us, those are established product lines that we've been supporting for a long time that might not need as much advanced application support. Those are all factors that make it, I think, both good for our customers, but also good business for KLA. Yeah, it's not as intensive as a leading edge fab, but they still have a ways to go to catch up. There's always value in getting higher yield. Whenever they change process nodes, we see interest in upgrading their process control. Great. Thank you. Maybe just quick, a quick follow-up. In terms of the% of memory increasing in the June quarter, and it looks like also on a $ basis as well, I think you suggested it's pretty focused towards DRAM. Can you characterize the nature of that uptick? Is it just more of a kind of a classic case of coming off such lows in March that this is really more of a bouncing along the bottom kind of situation? Yeah, I think it's more the latter. I wouldn't characterize it as anything other than just, you know, some investments that, and some timing of particularly tool deliveries with our customer base. It's very technology-centric, so I wouldn't characterize it as given the level of it. It's been a while since it's been this low, even with the uptick quarter to quarter. It's pretty technology-centric. Yes, great. Thank you. With the exception of some of the China opportunities we missed earlier. Yeah, got it. Thank you, Brian. Operator, we have time for one last question. Our last question will come from Mehdi Hosseini with SIG. Your line is open. Yes, thanks for taking my question. It's two follow-ups from me. If I just take your commentary regarding the revenue trends first half and second half of the calendar. It seems to me that the peak to trough decline in revenue is in the 25%-30% range, and I'm not asking you for a guide, but what I wanted to better understand, if you did close to $3 billion in December of 2022 with a WFE in the $90 billion-$95 billion, can you go and hit those revenue run rates without WFE or traditional WFE having to go to $90 billion? Does your diversification looking forward, especially with, well, semiconductor material and others, would enable you to hit 30, to hit $33 billion without having WFE to grow to $90 billion plus? I have a follow-up. Yeah, Mehdi, I mean, one of the things, and this ties back to the rising share of WFE that we've seen over the last couple of years, is that, you know, we're gaining share of the overall market, so we should be able to do more revenue with lower WFE levels as that sustains. There are mix dynamics and other factors that affect it, but given the dynamics that have driven it, we believe there's a fair amount of sustainability to it. There are new products that we believe can continue to solve problems for customers. We have exposure to markets that are inflecting and are pretty critical to the scaling roadmaps out there. Our share, we improved share by almost 300 basis points and, you know, that's a lot in one year. We talked a lot about a half a point to a point a year in terms of our objectives. We do think that, you know, that that is a clear indicator of the differentiation that we have. If we're able to be successful with some of the new products that are coming, and the mix generally stays as we talked about in our at our investor day of 60-ish% foundry logic in terms of overall mix of WFE, that there's an opportunity for us to continue to grow our share opportunity. Okay. Just, one quick follow-up. If any of your customers were to reuse some of the equipment, how should we think about, you know, process diagnostic content, for that application? Well, as Rick said earlier, this is nothing new that customers are always looking to optimize their capacity. Given what this equipment costs and the amount of investment they're making, they're always looking to do that. There are certain product types where there's more opportunity than others. It was easy for customers to reuse capacity when they only had a very limited number of designs and no major technology drivers. As you look out going forward, given scaling dynamics and increase in EUV layers, we think that there's a technology element that will drive our customers to continue to upgrade their capabilities. I am sure they will look for opportunities if in the long run they believe that there's a sustainable drop in the wafer start requirement to try to relocate that capacity or try to reuse it. You can't move it overnight, right? Particularly if you're moving it to a different facility. you know, these tools have to be disassembled, it has to be shipped and reassembled and then calibrated and brought up. Those tend to be longer term decisions. Structurally, they have to feel pretty good about the longer term setup for that fab or at that node to move the equipment. What they typically do in the short run is they idle capacity if they don't need it for a period of time, but with an expectation that it'll come back online. Given the design start environment at seven and five and three, there's still a fair amount of designs out there that it's just volumes are low. We'll see how it plays out, but it's nothing new. As Rick said, it's modeled in our view of, of growth and KLA opportunity moving forward. Okay. Thank you. Thank you, Mehdi. Thank you everyone for your time today. We know it's a busy earnings season. Appreciate it. We'll be seeing many of you at some of the upcoming conferences. With that, I'll turn the call back over to Chelsea so she can provide any final instructions. Thank you, ladies and gentlemen. This does conclude the KLA Corporation March quarter 2023 earnings call and webcast. Please disconnect your line at this time and have a wonderful day.