Good day, welcome to the Lam Research March 2023 quarter financial conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Tina Correia. Please go ahead. Thank you, operator. Good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and Chief Executive Officer, and Doug Bettinger, Executive Vice President and Chief Financial Officer. During today's call, we'll share our overview on the business environment, and we'll review our financial results for the March 2023 quarter and our outlook for the June 2023 quarter. The press release detailing our financial results was distributed a little after 1:00 PM Pacific Time this afternoon. The release can also be found on the investor relations section of the company's website, along with the presentation slides that accompany today's call. Today's presentation and Q&A include forward-looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified. A detailed reconciliation between GAAP and non-GAAP results can be found in the accompanying slides in the presentation. This call is scheduled to last until 3:00 PM Pacific Time. A replay of this call will be made available later this afternoon on our website. With that, I'll hand the call over to Tim. Thank you, Tina, and welcome everyone. Lam's March quarter results reflect strong execution, with revenues, operating margins, and EPS all exceeding the midpoint of our guidance. Foundry-related system revenues achieved record levels, demonstrating our solid progress in both leading-edge and specialty technology segments. We continue to prioritize investments in long-term technology roadmaps, customer support, and operational transformation, while prudently managing near-term spending and profitability. As our June quarter guidance indicates, the near-term demand environment remains challenging. We expect 2023 WFE spending to be in the low to mid-$70 billion range, with additional weakness primarily from memory customers, partially offset by domestic China-related demand. On the China front, we see incremental strength in mature node logic and memory segments. Recently, the U.S. government notified us of a clarification to the rules issued last October governing exports to China. This notification allows us to ship certain products that we had originally excluded from our expectations. We expect to ship these tools in the H2 of 2023. Overall, memory customers continue to lower fab utilizations, slow technology conversions, and reduce investments in capacity additions to limit bit output and drive inventory down to normalized levels. We expect memory spending for the year to decline approximately 50% from 2022, led by NAND. Memory spending in 2023 is at a historic low as a percentage of total WFE. We believe this level of investment is unsustainable to support long-term growth in bit demand, especially considering the data-intensive applications such as AI are still in the early stages of adoption and can have approximately three times the DRAM and eight times the storage content of a regular server. In addition, advances in memory architecture such as DDR5 are driving process technology evolution and larger die sizes. As these trends accelerate, Lam's established leadership in memory positions us to outperform as we benefit not only from investments in new tools for capacity, but also from the technology upgrades to our large installed base of tools. Our installed base for memory has increased close to 40% compared to the last down cycle. It is a valuable platform for growth when memory customers begin to ramp utilization back to normal levels and convert existing lines to next-generation nodes. While Lam clearly stands to benefit when memory conditions improve, this is the one aspect of our growth opportunity. Rising manufacturing complexity tied to key technology inflections is positive for both overall capital intensity and, more importantly, Lam's areas of product strength. For example, EUV patterning and gate-all-around devices are two important inflections where Lam has made significant investments in new products for processing at the atomic scale. We are gaining traction with these new products, yet they are in the early stages of the ramp, with the majority of growth still in front of us. If we look at patterning, it is already a multi-billion dollar opportunity for Lam. We have a leading share position in this segment, and we are broadening our footprint as EUV adoption scales. Lam's edge solutions have been developed to enhance productivity of EUV by creating well-defined, smooth patterns with minimal EUV photon exposure. Our pulsed plasma capabilities help reduce line-width roughness, which is a particularly challenging problem as EUV resists become thinner at future nodes. Lam's etch portfolio is on track to win close to 75% share of these EUV patterning applications. As the pattern is etched into the film stack, the hardness and stress in the films has a strong influence on pattern fidelity. Precise control of film properties is a hallmark of our deposited hard mask films. We are already the process tool of record for critical applications in the foundry logic segment for EUV patterning, with continued growth expected as EUV adoption expands. Addressing EUV scalability challenges is also the central goal behind our dry resist technologies. Last year, we saw the first adoption of our dry development and underlayer processes for EUV applications by a major memory customer. Our progress extended to include a second large memory player in the March quarter. Today, I am pleased to provide another update. A key foundry logic customer is set to adopt our dry resist deposition, dry development, and underlayer solution for their EUV applications, and we will start recognizing revenues for these products in calendar 2023. Looking ahead, the challenges of EUV patterning will continue to grow at every technology node, and in particular, when High NA EUV adoption dictates the need for even thinner EUV resists. With our differentiated pattern etch, hard mask, and dry resist solutions, we see our product portfolio becoming increasingly vital to the industry's scaling roadmap. Moving to Gate-All-Around, this inflection introduces what we consider to be the first true 3D logic device from a processing perspective. It requires new etch and deposition capability to address the geometric complexity of forming the all-around characteristics of the transistor. Processing for Gate-All-Around, just as the name implies, must take place on top of, underneath, and inside the device, where reactants need to reach spaces that are perpendicular to the usual reaction direction. The 3D nature of Gate-All-Around architecture is well-suited to atomic layer deposition and atomic layer etching solutions, making a key inflection that plays to our strengths. For Lam, the transition to the Gate-All-Around node is close to a billion-dollar incremental opportunity per 100,000 wafer start per month capacity. Our expectation is for our share in this market to be at least as good as our overall goals for the company. To address the manufacturing challenges of Gate-All-Around devices, Lam has launched several new products, including our Selis, Prevos, and Argos suite of selective etch tools, with more to come in the future. These tools can etch and treat all surfaces of the device with ALE-like precision. Our selective etch tools have achieved process-of-record positions at multiple customers for gate-all-around applications, and we saw continued momentum in the March quarter with additional shipments to key customers. Atomic-level control is also increasingly critical in depositing films in the complex geometries very close to the transistor. Our differentiated approach uses a radical-based plasma ALD reactor to deliver high-performance films with high-volume manufacturing ready productivity. Multiple customers have now adopted Lam's ALD, low-k spacer, and nitride films, and we see this demand growing in future nodes. In summary, we are working through a lower WFE year in 2023 by managing near-term expenses, strengthening our operational capabilities, and prioritizing R&D investments tied to critical manufacturing inflections. Our focus remains on ensuring that when WFE growth resumes, the criticality of our products to our customers' plans and the value of our installed base, which has grown nearly 40% since the last downturn, put us in a strong position to outperform. Thank you. Now I'll turn it over to Doug. Great. Thank you, Tim. Good afternoon, everyone, thank you for joining our call today. Our March 2023 quarter financial results came in at or over the midpoint of our guidance ranges for all financial metrics. We generated over $1.6 billion of free cash flow during the quarter, which was a record level for the company. Overall, we not only delivered financial performance in line with our guidance for the quarter, but we also made great progress on our business transformation and cost-saving initiatives. Let me now move to our revenue and profitability results. Revenue for the March quarter was $3.87 billion, down 27% from the prior quarter. Systems revenue was the main driver of the decrease given the decline in WFE investments, most notably in memory. As expected, with the improvement in supply chain constraints, we are exiting the March quarter having completed shipments for nearly all of our outstanding backorder systems. Backorders are now at what I would characterize as normalized levels. However, our deferred revenue balance is higher than historic levels, remaining flat with the prior quarter with a balance of $2 billion. This deferred revenue balance reflects the impact of increased customer cash and advance deposits tied to orders from newer customers, which is offset by the decline related to the completed back orders. The advanced payments will remain in deferred revenue until we ship the related tools. I would just mention that we do expect the majority of these deposits to convert to revenue during calendar year 2023. Looking at the revenue segment details for the March quarter, the percentage of systems revenue and memory was 32%, which is a decline from the prior quarter level of 50%. I would mention this is the lowest level of memory concentration for us in a decade. Within memory, the NAND segment represented 23% of our systems revenue, down from the December quarter level of 39%. DRAM decreased sequentially, coming in at only 9% of systems revenue compared with 11% in the December quarter. With the current weakness in memory investments, we anticipate a further decline in both NAND and DRAM revenue in the June quarter. In Foundry, conversely, we had a record dollar level of revenue in the March quarter, representing 46% of our systems revenue, higher than the percentage contribution in the December quarter, which was 31%. We had positive momentum in both leading and mature node devices. I'm pleased with the progress we've made in this segment of the market. We are seeing particular concentration in the mature node investments this year. The logic and other segment had continued strength with a contribution of 22% of systems revenue in the March quarter compared with 19% in the prior quarter. Investments were from a broad array of logic IDMs in multiple regions. Let me now shift and discuss the regional contribution of our total revenue. Korea and China were at the top of the list, with each coming in at 22% of the total. The Korea region had a slightly higher concentration in the March quarter, up from 20% in the December quarter. China was down from 24% in the prior quarter. The reduction was largely attributed to the U.S. government sales restrictions for certain Chinese domestic customers, which were put in place in early October of 2022. Notably, in the United States, we had a record revenue from a dollar perspective in the March quarter, which represented 16% of our total revenues and increased from the prior quarter level of 10%. Finally, Taiwan decreased to a concentration of 18% as compared with 19% in the December quarter. Our Customer Support Business Group generated revenue in the March quarter totaling approximately $1.6 billion, which was a decrease of 7% from the December quarter, but 14% higher than the March quarter in calendar 2022. CSBG continues to be a resilient part of our business model, representing over 40% of our March quarter revenue. We saw utilizations level, excuse me, utilization levels decline at the memory customers, which negatively impacted both spares and service businesses. Reliant systems and upgrade revenues increased in the March quarter given the demand strength we're seeing in mature node devices. The specialty technology market is performing better than overall WFE, and I expect this part of the business to continue to perform well during calendar year 2023. Let me now pivot to our gross margin performance. The March quarter came in at 44%, right at the midpoint of our guided range, and down from 45.1% in the December quarter. The quarter-on-quarter decrease was tied to the lower business volumes as well as customer and product mix. The company is focused on improvements in cost and efficiency to enhance profitability, which is aligned with our plan to expand gross margin by at least one percentage point exiting calendar year 2023. Operating expenses were $608 million in the March quarter, down 11% from the prior quarter amount of $686 million. We executed on cost savings actions and have managed spending across the company while prioritizing investments in support of our customers' roadmaps. R&D expenses comprised nearly 70% of our operating expenses, which is a high point for the company. The March quarter operating margin was 28.3% and above the midpoint of guidance, mainly because of the cost-saving actions and expense management that we undertook. Our non-GAAP tax rate for the quarter was 13.1%, in line with our expectations. Looking into calendar 2023, we believe the tax rate will be in the low to mid teens, with fluctuations expected quarter to quarter. Other income and expense came in for the quarter at $8 million in expense, lower by approximately $30 million from the prior quarter. The decrease in expense reflects increased interest income due to the higher cash balances as well as rising interest rates. OI&E will continue to be subject to market related fluctuations that will cause some level of volatility each quarter. On the capital return side of things in the March quarter, we allocated approximately $483 million to open market share repurchases. Additionally, we paid $234 million in dividends in the quarter. We continue to track towards our long-term capital return plans of returning 75%-100% of our free cash flow. March quarter diluted earnings per share was $6.99 at the higher end of our guided range. Diluted share count was down to 135 million shares, on track with our expectations and obviously lower a little bit than the December quarter. For the balance sheet, cash and short-term investments, including restricted cash at the end of the March quarter, totaled $5.6 billion, up from $4.8 billion at the end of the December 2022 quarter. The increase was largely due to collections offset by cash allocated to share buyback, dividends, and capital expenditures. Day sales outstanding were 77 days in the March quarter, an increase from 70 days in the December quarter. Inventory turns declined from the prior quarter to 1.9 times, and we ended the March quarter with a slightly higher inventory dollar balance. We will continue to manage inventory balances during the calendar year. Non-cash expenses for the March quarter included approximately $74 million in equity compensation, $78 million in depreciation, and $14 million for amortization. Capital expenditures for March quarter were $119 million, down from the December quarter level by approximately $44 million. March quarter investments were mainly for our Malaysia factory, the Korea Technology Center, and other product development activities. As we discussed in the January earnings call, we had a workforce reduction within the March quarter of approximately 1,400 people. Additionally, we reduced 700 temporary workers. We incurred a charge for the workforce actions in the March quarter of approximately $99 million, primarily reflecting severance related payments. This charge was somewhat higher than our original estimate due to more impacted people with a somewhat higher seniority level. We also incurred other one-time charges in the quarter for product rationalization decisions as we prioritize technology investments within the company and for transformation costs related to projects to improve our systems and operations. We anticipate we'll incur one-time costs in the range of $250 million within calendar year 2023, which is inclusive of the $144 million that we expensed in the March quarter. We ended the March quarter with approximately 18,700 regular full-time employees, which is a slight decrease in prior quarter. Due to the timing of our quarter end and our restructuring actions, a significant amount of the headcount reduction we undertook won't be reflected in the headcount number until the June quarter. Let's turn to the non-GAAP guidance for the June 2023 quarter. We're expecting revenue of $3.1 billion ± $300 million. The sequential decline reflects a soft memory environment and the normalization of backorder systems that occurred in the March quarter. Gross margin of 44% ± 1 percentage point. Operating margins of 25.5% ± 1 percentage point. Finally, earnings per share of $5 ± $0.75, based on a share count of approximately 134 million shares. Let me summarize. 2023 is proving to be a challenging environment for our memory shipments, but I'm pleased with the progress we're accomplishing against this challenging backdrop. We continue to make progress on growing our technology leadership and focusing on our operational efficiencies. We will emerge from this memory-led downturn a stronger, better positioned, more efficient company. In closing, I just mention one more thing, that as we look at the profile of WFE spending this year, it now appears to be a little bit H2 weighted. Operator, that concludes our prepared remarks. Tim and I would now like to open up the call for questions. Thank you. If you would like to signal with questions, please press star one on your touch tone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that will be star one if you would like to signal, star one. The first question will come from CJ Muse with Evercore. Good afternoon. Thank you for taking the question. I guess the first question would be on deferred revenues. Exiting last quarter, I think you talked about trying to get to $1.5 billion, and then we'd normalize there. Whereas on this call, you said you expected to revenue the majority of these deposits in calendar 2023. Can you help us understand the moving parts there and, you know, what kind of contribution in the June quarter guide will come from the deferred revenue line? Yeah. CJ, I got a little bit wrong last quarter is what I would tell you. The cash advance deposits from some of our newer customers ended up being a little bit more than we expected. Offsetting that to a certain extent was the decline in back orders. We got that part exactly right, but what I didn't give when I told you 1/2 would be the normalized level was this cash advance deposits. I think that is gonna be around for a little while. Like I said, I think the majority of that will revenue during calendar year 2023, clearly in the H2. I don't think a whole lot of it shows up in the June quarter, if any of it. Okay, very helpful. Then I guess to follow up on your last comment, around WFE being a little bit more H2 weighted. That seems like a seismic shift. I guess, is that just the magnitude of the cuts that you've seen kind of in the H1, or has anything else changed? I guess as you think about that, if you do have the benefit of deferred revenues, you know, in the H2 and WFE higher, it certainly would suggest that H2 total revenues, you know, should be nicely higher than the H1. Yeah, CJ. I mean, I think that, you know, commentary on H2 being a little bit higher, I think has something to do also with the fact that we talked about incremental weakness. You know, clearly our June quarter has been weaker than what we probably thought as we came into the year. You know, some of that shows up in the back half. You know, I think it is simply a case of customers continuing to make pretty aggressive adjustments both to utilization of tools as well as overall spending. That's what we're seeing here in the H1. We also talked about the fact that with the some clarification on China restrictions, there would be additional shipments that occur through China in the H2 that weren't originally anticipated. That does help us with WFE in the H2 as well. Thank you. The next question will come from Timothy Arcuri with UBS. Thanks a lot. Tim, if I take your comments, and I combine them with Applied's and ASML's earlier today, obviously there's this huge explosion in demand coming from China, you know, lagging edge. How sustainable do you think this is? It sort of feels kind of like given the restrictions, they're just taking what they can get, which is now they're pouring all their money into lagging edge. Does that worry you that maybe that's not sustainable, or is there something going on there where there's, you know, real demand backing that? Well, I believe that there is real demand. I mean, every region I think is trying to build up, you know, regional capability to manufacture all types of semiconductors. As you just said, I mean, in China, this is one area that they have the ability to create that capability, and also they have the demand to consume it as well. You know, I think, you know, from that standpoint it's, you know, it's good demand for us and for others in the industry. I think, you know, in a bigger sense, this regional self, call it self-sufficiency or regional resilience that's being built, I think is gonna have a long-term impact on spending in the industry. You know, we're not trying to sort of play the game of is it or is it not sustainable. We're talking to our customers and, in some cases, these are new projects that are coming up. We do our own assessment of whether or not they will be able to invest if they have the technology. I think that with not only U.S. Chips Act, but recent news on the European Chips Act, I think that this is something that is, it's gonna have a positive impact on spending for the industry across both leading edge and these trailing edge specialty technology segments for quite some time. Thanks. I guess Doug or Tim, can you just provide more color on, you said that there's been some clarification of the export rules. Can you give an example of what can ship now that was assumed to not be able to ship in the past? It's, uh- Go ahead. It's exactly the same as what was issued in the October seventh rules in terms of technology limits. You know, we want to be very clear on Lam staying compliant with the restrictions. You know, at the time we had given the guidance for the year, we said $2 billion-$2.5 billion of impact. We knew we were looking for clarification on how to determine whether some shipments that were in there could be made. That's why there was a range. Now with that clarification on how you determine what can and can't ship, we've added those tools back into our forecast for this year. If you look at the rules that are there, it's exactly what was printed on October seventh. Yeah. Tim, just to put some numbers around it's a few $100 million I think as we look at revenue for the year for Lam. Okay. Doug. Perfect. Thank you so much. I appreciate that. Yep. Our next question will come from Krish Sankar with TD Cowen. Yeah. Hi. Thanks for taking my question. I told them first one, just to follow up on the China question. Doug, just like trying to like put all the comments together with back half load at WFE, you know, some of the relaxation of China constraints and, you know, strong demand from lagging at China. As you've said, assume June quarter is the trough quarter for you from a revenue standpoint, and heading into back half, your gross margin should improve as you start shipping more to China. Then I had a follow-up. Yeah. I mean, Krish, what I said is it's a slightly H2-weighted WFE year. By the way, I'd just clarify if there's any confusion about the deferred cash in advance deposits that are sitting there, that's in the WFE number. That's part of the H2 waiting as well, just so everybody's clear about that. Then Krish, yeah, you know, when I look at what we're doing with the cost structure and how we're sort of pivoting where we do what we do, I've been talking, I think this second quarter about a view that we should exit the year at least a percentage point gross margin higher than where we are. Still believe that is the trajectory that we're on. Got it. Super helpful. Just a technology question for Tim. You know, you had the slide on Gate-All-Around, and you spoke about the opportunity in ALD and ALE. I'm kind of curious because, you know, ASM International is a leader in ALD, and why would customers shift to someone else versus the incumbent just because of Gate-All-Around? Are there any Gate-All-Around specific technology issues that your ALD is addressing that the incumbent is not? Thank you. Well, thanks. It's a good question because I guess the point is we have a very strong position in ALD across a number of different types of films. What I tried to speak to is there are, you know, specifically new types of challenges to get introduced. In the end, customers select tools based on the film performance, the deposition capabilities, the tool productivity, reliability in manufacturing, lots of different factors. I think these are areas that, you know, just over the years, Lam has excelled, and we, I think we can add an ALD as well. Thanks, Tim. Yep. Thanks, Chris. The next question will come from Joe Moore with Morgan Stanley. Great. Great. Thank you. I think you'd mentioned you saw some impact from utilization on the CSBG business in the March quarter. Can you talk about what that looks like for the next couple of quarters? Are you seeing impact from lower memory utilization within those numbers? Then, as a follow-up, you know, can you give us some sense of, as Reliant keeps getting, presumably bigger, you know, how much of the, what's in CSBG is actually kind of more in the Reliant tool side? Thank you. Yeah. Let me take a crack at the utilization. I mean, obviously, you've heard a lot within the memory industry about utilization cuts and even some, you know, throughout different segments of the market. That clearly hits our spares and services business as customers look to save money in the near term, the idle tools. They also burn off some of the inventory they might have built up over the last couple of years. That's clearly showing up in CSBG. Eventually, that runs its course, and our expectation is that, you know, there's gonna be, especially on the memory side, you'll start to see CSBG revenues improve, likely long before you start to see us talk about much higher WFE. That's because customers will start to bring those tools back online, and you'll see CSBG revenues increasing. You'll then also see customers start to do some of the technology upgrades that they've been kind of holding off on doing in the installed base. That'll also show up in our CSBG revenue. Finally, you know, we will ultimately see increases in WFE for capacity additions. I think that's where, you know, we'll see continuous improvement in CSBG. We're not gonna put a timeframe on it, but it is causing us to be a bit low now. I think we'll get back to that point where we say CSBG is the business we think grows kind of year-on-year, just not this year with utilization cuts. Great. Some sense of the Reliant, as a, at least qualitatively as how much of the business is from Reliant now. Yeah. Joe, I'll chime in on that one. I think I started saying last quarter that the two biggest components to CSBG are now spares and Reliant. That continues to be true in the most recent reported quarter. Reliant is doing extremely well with the more mature specialty node investments that we've been talking about. That's benefiting. The utilization stuff that Tim talked about is a little bit of a headwind for spares. They're still the two largest components to CSBG. Thank you. Yeah. Thanks, Joe. The next question will come from Harlan Sur with J.P. Morgan. Hi. Good afternoon. Thanks for taking my question. You know, your North American business again drove strong growth, right? Part of it is your share gains, but how much of the growth is simply, you know, you've got the one big U.S. customer that wasn't contributing to WFE intensity for six years because they were stuck on one node, but now they're back on track, right, trying to drive five node migrations in four years, so strongly contributing to foundry and logic WFE intensity. How much of the growth is share gains versus just this customer back driving WFE intensity? Yeah. Harlan, I think We're obviously seeing a combination of both, I mean, share gains, and it's not isolated to any one customer. You know, what I dedicated a lot of my prepared remarks to was, you know, the progress we're making expanding our SAM and our product portfolio, primarily focused on foundry logic. We recognize, and we've said that this is an area that we've been under-indexed, which means that it's an area of significant growth opportunity for the company. You see just the number of new products we've introduced, whether it be through the EUV inflection or it's the gate-all-around inflection. It's SAM expansion driving our growth, and it's also share gains within that expanded SAM. It's across all foundry logic customers that have some element of both. I appreciate that. Tim, you also mentioned in your prepared remarks, I'm sorry I missed some of that, but you announced some new wins with your dry photoresist, process module, system solution. Can you just talk more about that? When do you expect customer adoption curve to start to drive some meaningful revenues for the team here? Yep. Well, yeah, what I, what I announced, sorry if you missed it, was, you know, Last year, we had announced one memory customer had adopted some elements of the dry resist technology solution. In March, a second memory customer did as well. More recently, a large Foundry Logic customer has chosen to adopt the resist deposition, dry development, as well as the underlayer processes. That's a really nice expansion across both memory, which is obviously DRAM using EUV, memory and Foundry Logic. I think it sets us up well for continued momentum. You know, Look, everybody knows that EUV adoption is growing. As I commented, it's becoming more challenging as people look for better productivity, they look for better technology capability with thinner resists. I think that these are trends that are setting up well for us. I mentioned we'll be revenuing some tools starting this year, so that's a very nice milestone for us. I just would point you back. We had sized this at approximately $1.5 billion in revenue over a five-year timeframe. I think as adoption continues to grow, the size of this opportunity can continue to grow for Lam. Thank you. Yep. Thanks, Harlan. The next question come from Vivek Arya with Bank of America Securities. Thanks for taking my question. The first one on just the memory market. Is H2 better or worse than the H1 for you in terms of your memory shipments? I'm just trying to gauge whether June is also kind of the bottom for memory, or is there more to fall on the memory side. I think related to it, one of your customers has said that, you know, for them, their WFE in memory could be down even in the next fiscal year. I know it's a fiscal and not a calendar year view, but do you think that's an industry-wide view or just in terms of how customers are thinking about 2024 WFE on the memory side? Just kind of a near and- Uh- memory question. Yeah, Vivek, I don't wanna get into which segment is doing what in the first or H2. I mean, memory is at a pretty low level right now, and we did say in the prepared remarks, June is even lower than March, and March was at a 10-year low in terms of our shipment and revenue anyway into that space. Hard to see it a whole lot lower than we're seeing right now. I don't wanna get into the parsing the little bit of growth in the H2, where it comes from, but memory is at a pretty low point right now, I would say. On the 2024 WFE, again, not trying to get a 2024 view specifically, but I think one of your customers has been public about reducing memory WFE even in their fiscal 2024. Do you think that's a customer-specific view, or is that an industry-wide view that memory WFE could stay under pressure next year, or is it too early to make that assertion? Yeah. I guess I could say that, you know, in 2022, you know, you might recall we gave you the 2023 outlook about a quarter early. I think three quarters early might be a little early for 2024. I don't think we're gonna give WFE for 2024, but what I'd point to is that, you know, as Doug just said, you look it's, you know, from We, we've, we signaled last in the September quarter call that 2023 would be down in WFE. I think we were one of the first to do so. That's because we saw this decline in memory. You know, we're already, our revenue from December 2022 to the June guide we just gave, down 40%. We're well into this cycle. You know, just as I laid out, I think we're gonna see, you know, as we move through the remainder of this year and into next year, you know, utilizations, you know, eventually come back, technology conversions start to occur, then finally WFE starts to tick back up. You know, the great thing about the cost cuts that Doug Bettinger talked about is we've put ourselves in a position that we don't feel we have to be able to call the exact quarter when that's gonna happen. You know, we think we're well into it and operating the company well at these levels and with some upside to come. All right. Just a quick follow-up, Doug, maybe one for you on the OpEx side. Is this sort of, you know, reflecting all the OpEx actions, or do you think that in September or December, OpEx could decline further? I mean, the last time you guys were at this OpEx level, you were able to report revenues that were significantly higher. Kind of just two parts. Is this kind of the bottom in OpEx? Then, should we see a lot more leverage, right, as the end markets start to grow? Yeah, Vivek. I think the majority of the cost actions we've taken, certainly, I talked about, you know, $99 million of headcount-related severance. That's largely complete. I think a lot of it is already kind of in the run rate. Certainly, if you look at where we're at in June, it's down again quite a good amount. Vivek, I'd also just add to that. I, you know, I spent a lot of time talking about the work we're doing to broaden our product portfolio and expand, you know, really Lam's strength, you know, beyond memory into some of the fast-growing inflections that are occurring elsewhere. I think this quarter was nearly 70% of our OpEx spent in R&D. You know, we're absolutely committed to supporting technology roadmaps to grow this company. You know, we're watching that. Obviously, if we see further deterioration, I think you can count on us to manage this business prudently. At this point, we want to also be prepared for when the market does come back, and we know it will come back, that we're prepared to support our customers with the engineering capabilities and the new products and all the technology that they're gonna wanna buy at that time. You know, we're really, you know, working that balance, and that's what you see in our spending levels right now. Thank you. Thanks, Vivek. Moving on to Stacy Rasgon with Bernstein Research. Hi, guys. Thanks for taking my questions. For the first one, I wanna go back to these new customers that are in the deferred balance. I guess, are they all Chinese? Can you give us a view of which end markets that additional deferred revenue is in? Like, is it all foundry and not memory? 'Cause I know you got one of the big Chinese memory players on the entity list. I'm assuming you're not able to sell anything to them. Just a little bit of color on Is all Chinese or not? What are the end markets that are actually driving it? Yeah, Stacy, the end markets are primarily foundry and logic, the mature node foundry and logic. I will acknowledge it's got a decent Chinese footprint to it. Got it. Got it. I guess the, you've got this... I guess it's $500 million, right? 'Cause I mean, the deferred is, like, $2 billion, and you said the, the $500 million reduction that you expected it to be there before is actually there, and this was offset. So I guess about $500 million. Is this coming back in the back half? This China revenue shipping, I'm trying to get at are they the same things? Is the incremental China revenue that you've got, like, because you can ship more because of the sanctions, is that the same as the, as the incremental balances in the deferred? Is that, like, kinda adds to the back half? Or are those things... I just wanna make sure I'm not double counting anything. Yeah, Stacy, there's a very large overlap, is what I would say. I said the majority of that cash advance payments will revenue in the H2. I didn't say all, I said the majority. The other thing I said a moment ago, is the incremental clarification we got from China was a few hundred million dollars. You gotta think through all that stuff. Got it. Okay. No, that's super helpful. Maybe if I could squeeze in just one more really quick. I know you said memory's down again sequentially, but there can't be very much memory in there at all, right? If you're guiding $3.1, and I mean if, you know, I mean, your foundry plus logic in this quarter was almost $1.6. You can't be guiding equipment revenues much different than that. I mean, are we just literally chopping memory, kind of scraping the bottom of the barrel in June quarter at this point? I mean, I know we don't know how long it stays there, but presumably it can't get much lower than it's gonna be in June. yes, Stacy. I told you in March it was at a decade long low point for us, and it's down again in June. It's frankly, my personal opinion, it's hard to see it down much more than we're describing in June, frankly. Yeah. It's at a very low level. Got it. Stacy, I'd just add, I mean, Stacy, I was just gonna add that. Uh-huh. You know, the fact that in many cases the, you know, we see customers even delaying technology upgrades in order to, one, not necessarily make the investment, but also not to add further bits into the market. That's a pretty rare case. I mean, technology investments usually proceed because that's the path to lower cost and better capabilities. You know, I would agree with Doug's comment. It feels like we're getting about as low as, you know. I made the comment below maintenance levels, I think, here. That's our view on memory. Yeah. Got it. That's helpful, guys. Thank you. Thanks, Stacy. The next question will come from Toshiya Hari with Goldman Sachs. Hi, guys. As a follow-up to the last question, I'm curious how you're thinking about, you know, normalized levels of spending across the memory industry. You know, when we look at your business, I think you did close to $7 billion in memory systems revenue in calendar 2022. And given, you know, how things are going now, I don't know, maybe roughly $3 billion this year, maybe a little bit below that. Assuming hypothetically, you know, if your customers are done shipping out of inventory exiting this year and, you know, DRAM bits are growing kind of in the mid-teens and NAND bits are growing kind of in the mid-twenties, like how significant, how big would your memory business be in that sort of, in that sort of state? Is it kind of the midpoint between $7 billion and $3 billion, or is it higher? How should we think about that? Yeah. I'll give it a quick response, Toshiya. You know, it's hard for me to envision it being lower than it is this year. I mean, it's down 50% memory in total, right? Tim, I think, had that in the scripted remarks. That's down a lot. I can't ever remember it being down that much on a year-over-year basis. You might say, hey, last year might have been a little too high or somewhat too high. Probably true. I'm not gonna get into a precise number, it's certainly higher than it is this year, maybe not as high as it was last year, though. I appreciate that. As my follow-up, Doug, just on gross margins, I appreciate the calendar year-end, you know, target of 45%. Curious how you're thinking about gross margins beyond that. You know, a couple years ago, you guys were doing, you know, 47%, you know, some quarters close to 48%. You know, you're introducing, you know, pretty differentiated product, you know, between EUV patterning, dry resist, I know those are pretty small businesses still, but you know, you're putting out these products. You've got Malaysia, which hopefully with the recovery, you know, continues to ramp. Is there a path to, you know, call it 47%-ish percent in calendar 2024, or, you know, are there headwinds that we should be aware of? Thank you. Yeah, let me take a shot at it. Doug can clean up if needed. You know, I think the question about gross margin, we're not backing off on the financial models we've put out in the past. As you pointed out, we were getting pretty close to operating there while Malaysia was still a headwind. You know, obviously it will require a combination of some increased volumes. We've done a tremendous work to, you know, transfer a lot of our volume into lower cost regions, really get a much more efficient supply chain. The COVID period was a real setback as you again sourced and grew in every possible location. I think over the next, you know, period of time, and I hate to put a timeframe on it, you know, again, to give a 2024 outlook, but if we exit this year with the incremental improvement of 100 basis points that Doug talked about or more, and we have further volume and contribution coming through our new Asia facilities, I think that we'll drive right back towards those goals that we'd set, back in 2020, which was in kind of that 47.5%-48% gross margin range. Great. Thank you. Thanks, Toshiya. The next question will come from Atif Malik with Citi. Hi. Thank you for taking my question. Similar to the last question on growth margins, Doug, can you help us understand Translate this to what really matters to us in running the company. We've talked about the fact that, you know, we see, you know, assuming, we see at some point memory coming back, in terms of utilization starting to tick up at some point, whether that's in the H2 or it's 2024, we'll see. Technology conversions in memory will be extremely good for Lam from the standpoint of how much we capture of every $ of spending on technology conversions. We talked about strength in mature node, logic foundry, where Doug talked about these advanced payments, and he also talked about some trailing edge shipments to China that we can now make after clarification of the rules. All those things kind of contribute to how we think about Lam's H2. We try to translate that to an industry WFE. You know, I don't think we can spend a lot of time trying to dissect all of that load mid $70 billion for you with great accuracy. Thanks for that. Thanks, Brian. We have a question from Sidney Ho with Deutsche Bank. Great. Thanks for taking the question. First question is, can you give us an update on your expectations of revenue performance for the CSBG group? I think you previously said it will be down somewhat, but there seems to be some moving parts here with memory utilization lower, but China revenue being less restricted. Just wanna get some color would be great. Yeah, Sidney, I think what I said last quarter, and I'll reiterate the same thing, we expect CSBG will be down a little bit this year, but obviously a lot more resilient than overall WFE. No new statement relative to that outlook. Okay, that's helpful. Maybe another question on the just thinking about the recovery in memory spending, is the utilization level the first thing you guys monitor ahead of the CapEx recovery? How much of a lag do you expect memory CapEx to recover once utilization starts to improve? Yeah, maybe I'll come and then Tim feel free to add on. You know, normally the way this works, Sidney, first thing I'd say is I cannot remember utilization being as low as it is right now. Usually the fabs keep running, right, and other stuff gets adjusted. Right now utilization is obviously down. The first thing the industry will do to get output growing again will be to move that utilization back up. That will benefit our spares business and probably a little bit of the upgrades, maybe a little bit. The next thing they will do is convert the installed base, which when that happens, the industry gets fairly cost efficient output, and we get a disproportionate amount of that spending when it's in memory, obviously, because we tend to be the bottleneck tools. We get that upgrade business first, and then WFE comes back. You gotta think of that progression showing up in that order. We will benefit first in CSBG before you'll see it in WFE. Yeah, I think it's difficult to put a timeframe between. You know, I think what you're asking is when you start to see WFE investments. I think that depends on the shape of that recovery, which again, you know, we are confident that, you know, we will, we'll be probably the first and greatest beneficiary of recovery, and we'll see what the shape of the recovery looks like once we have better and demand. Okay, thank you. Thanks, Sidney. Yeah, thanks. Operator, we have time for one more question, please. Thank you. We'll take that question from Vijay Rakesh with Mizuho. Hi. Just a quick question on the China side. I know you mentioned China revenues were 22%, looks like there are some U.S. restrictions. As you look out, do you expect that segment exposure to go down or stay flat? If you can give some color to the puts and takes as to how you're approaching that. I think it's probably down a little bit in the June quarter, from a percentage standpoint, although don't hold me to that. We don't always get that exactly right, but I think it's probably down a little bit in June. Got it. On the memory side, I know you mentioned spending is a 10-year low, probably comes in a little bit again in June. In terms of where you see the bounce coming, is you think that's driven more by technology transition or capacity ads? How do you see that? Because I think broadly, memory OEMs are still hemorrhaging cash, I believe. Just wondering how you see that bounce. Yeah, I think as we've described it, you know, clearly technology conversions occur first since that's the most capital efficient way for customers to not only add some additional bits, but also to get, you know, better cost structure. Clearly technology additions will come before capacity additions. Got it. Thank you. All right. Thanks, Vijay. Yeah. Thank you. Operator, I think that concludes our time here. We can wrap the call up. Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.