KLA(US:KLAC)2024-12-04 00:10KLA Corporation Conference Call Summary Company Overview - Company: KLA Corporation (NASDAQ: KLAC) - Event: Wells Fargo 8th Annual TMT Summit Conference - Date: December 3, 2024 - Participants: - Bren Higgins - CFO - Brian Lorig - Head of Global Support and Services - Joe Quatrochi - Wells Fargo Analyst Key Points Industry and Market Dynamics - China Export Controls: KLA is currently analyzing new export controls from China, which are expected to have a preliminary impact of approximately $500 million on revenue for 2025, with 70% from systems and 30% from services [4][5][6] - Revenue Decline: The overall business from China is projected to decline to the low 20 percentile year-over-year, compared to previous estimates of 15-20% [6][7][23] - Long-term Semiconductor Revenue Growth: KLA anticipates a growth rate in semiconductor revenue exceeding 7%, driven by end-market demand rather than capacity [13] Business Segments - Service Business: - Represents about 25% of KLA's overall revenue and has shown consistent growth for 49 consecutive quarters [41][48] - 75% of service revenue comes from long-term subscription contracts, with a renewal rate of approximately 95% [42] - The service business is characterized by a high mix of complex tools, leading to lower vulnerability to fluctuations in utilization rates [45][46] Financial Guidance and Projections - 2025 Revenue Impact: The preliminary estimate for the impact of new regulations is $500 million, with a potential range of plus or minus $100 million [5][6] - Growth in Advanced Technologies: KLA expects significant growth in advanced packaging and high-bandwidth memory, with revenue from these segments projected to increase from $300 million in 2023 to over $750 million in 2025 [10][31] Strategic Insights - Process Control and Architecture Changes: The transition to 2-nanometer technology is expected to increase process control intensity, benefiting KLA's market position [25][28] - Service Model Differentiation: KLA's service model is distinct from competitors, focusing on high availability and performance, which is critical for customers operating complex systems [41][44] - Regionalization of Chip Production: The shift towards regional fabs presents both challenges and opportunities for KLA's service business, as customers require more support during geographic expansions [81][86] Customer Engagement and Contract Dynamics - Service Contract Penetration: There has been a notable increase in service contract penetration, particularly for leading-edge products, reflecting the growing complexity and performance demands from customers [74] - Flexibility in Offerings: KLA offers customizable service contracts to accommodate customer budget constraints and operational needs [78] Conclusion - KLA Corporation is navigating complex market dynamics, particularly regarding China, while maintaining a strong service business that is integral to its overall revenue. The company is optimistic about growth opportunities in advanced technologies and is well-positioned to leverage its service model to meet customer demands in a rapidly evolving semiconductor landscape.