Financial Data and Key Metrics Changes - For 2025, revenue grew 17% to a record $12.745 billion, with earnings per share increasing by 29% year-over-year, indicating strong profitability and leverage in the business model [4][5] - Gross margins and operating margins were reported at 62.8% and 43.6%, respectively, maintaining industry-leading levels [4] - Free cash flow increased by 30% to $4.4 billion, with total capital returns of $3 billion through dividends and share buybacks [4][9] Business Line Data and Key Metrics Changes - The process control systems business revenue grew 19%, while the service business grew 15% for the year [5] - In the December quarter, KLA reported revenue of $3.3 billion, with non-GAAP diluted EPS of $8.85 and GAAP diluted EPS of $8.68, reflecting a 17% year-over-year revenue growth [5][10] - Advanced packaging revenue for calendar 2025 was approximately $950 million, representing over 70% year-over-year growth [8] Market Data and Key Metrics Changes - The advanced packaging market is expected to grow in the mid- to high teens percentage range for calendar 2026, driven by faster-than-market growth for process control products [8][13] - The core wafer fabrication equipment (WFE) market is projected to grow in the high single- to low double-digit percentage range, reaching the low $120 billion range in 2026 [12][13] Company Strategy and Development Direction - KLA is focusing on supporting AI infrastructure demand and expanding its market share in advanced packaging, which is seen as a critical growth vector [5][9] - The company aims to maintain its leadership in process control systems while investing in next-generation product development and infrastructure to support expected revenue growth [18][20] - KLA's strategy includes addressing all growth phases in WFE and advanced packaging, optimizing yield in high-volume production environments [21][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to outperform the market in 2026, driven by multiple tailwinds and increasing process control intensity [20] - The first half of 2026 is expected to see mid-single-digit revenue growth compared to the second half of 2025, with accelerating growth anticipated in the latter half of the year [14][19] - Supply constraints are impacting growth potential, particularly in the first half of the year, but management is optimistic about ramping business in the second half [34][35] Other Important Information - KLA's effective tax rate for the quarter was 15%, with a planning tax rate of 14.5% for 2026 [11][19] - The company ended the quarter with $5.2 billion in cash and cash equivalents, and $5.9 billion in debt, maintaining a flexible bond maturity profile [12] Q&A Session Summary Question: Clarification on WFE growth forecast - Management explained the differences in WFE growth forecasts compared to peers, noting that their forecast includes traditional core WFE and advanced packaging, projecting a total market in the mid-$130 billion range for 2026 [25][27][28] Question: Supply constraints impact - Management indicated that supply constraints are primarily due to long lead times for optical components, affecting first-half growth potential, but they expect to see acceleration in the second half of 2026 [52][54][56] Question: Growth in inspection and patterning - Management expressed confidence in continued growth in inspection and patterning, driven by increased demand for advanced inspection technologies and the build-out for AI applications [40][42][43] Question: DRAM process control intensity - Management noted that while DRAM process control intensity is increasing, it is still not at the level of advanced logic due to design complexities, but they are optimistic about future growth in this area [71][72] Question: Foundry Logic growth expectations - Management highlighted that foundry logic is expected to grow, but the intensity of process control will depend on technology nodes and die sizes, with expectations for increased investments from customers [73][74]