KLA(KLAC) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for the September quarter was $2.4 billion, at the upper end of the guidance range [24] - GAAP EPS was$5.41 and non-GAAP EPS was $5.74, both at the upper end of the guidance ranges [24] - Non-GAAP operating margin was 40.2$884 million, and free cash flow was $816 million [32] - The company ended the quarter with$3.35 billion in total cash, cash equivalents, and marketable securities [33] - The service business grew to $560 million in the September quarter, with high single-digit percent year-over-year growth expected for 2023 [29] Business Line Data and Key Metrics - The service business grew both sequentially and year-over-year, reaching$560 million in the September quarter [29] - The company's process control portfolio showed strength, particularly in legacy node investment globally and industry infrastructure investment [27] - The rapid growth of AI is enabling differentiation and driving industry growth, with the company leveraging AI to improve system performance [28] Market Data and Key Metrics - The company sees strength in markets served by legacy nodes, despite softness in memory and leading-edge logic and foundry investments [25] - China's market mix is approaching 50%, with new entrants and improving yields potentially driving higher investment in process control [6][7] - The company expects China's wafer infrastructure investment to flatten in 2024, but does not anticipate a significant decline [12] Company Strategy and Industry Competition - The company is focused on enabling innovation through technology advancements and transitions, which customers continue to prioritize across all business environments [44] - The company is leveraging AI expertise to improve inspection, metrology, and data analytics systems, helping customers solve challenges associated with current process technologies [35] - The company is well-positioned to support customers in the transition to gate-all-around architecture, with investments in Gen 4 technology and AI capabilities [93][94] Management Commentary on Operating Environment and Future Outlook - The overall business environment remains relatively stable, with strength in legacy node investment and industry infrastructure investment [25] - The company expects demand to stabilize around current levels into the first half of 2024, with no significant changes anticipated in China shipments [57] - The company is monitoring the slowdown in the electronics market and adjusting capacity plans as needed [26] Other Important Information - The company announced an incremental $2 billion share repurchase authorization, reflecting confidence in the business model and growth strategy [34] - The company increased its quarterly dividend to$1.45 per share, marking the 14th consecutive annual dividend increase [41] - The company is focused on employee safety and well-being, particularly in light of the situation in Israel, and is providing resources and support through the KLA Foundation [22][23] Q&A Session Summary Question: Stability in the first half of 2024 and memory recovery timing [56] - The company expects business levels to remain stable in the first half of 2024, with no significant changes in China shipments [57] - Memory customers indicate historical lows in the market, with no near-term changes expected in capacity increases [60] Question: Service business growth and assumptions for 2024 [62] - The company expects service growth to accelerate to the target range of 12% to 14% in 2024, driven by tools coming off warranty and moving into contracts [63] - Utilization rates are stabilizing and increasing in certain parts of the business, which is a positive indicator for service growth in 2024 [68] Question: China business sustainability and outlook [79] - The company sees sustainability in China's legacy node investments, particularly in industries like EV and infrastructure, with no significant changes expected in the near term [80][81] - The company expects China's business to remain elevated, with a meaningful backlog and deposits for future shipments [83] Question: Gate-all-around architecture opportunities [93] - The company is well-prepared for gate-all-around architecture, leveraging Gen 4 technology and AI capabilities to address inspection and metrology challenges [94][95] - The transition to gate-all-around will drive higher process control intensity, benefiting both inspection and metrology [96] Question: DRAM strength and outlook [98] - DRAM strength in the quarter was driven by shipments to China and R&D investment, with no significant decline expected in the December quarter [99] - The company continues to see strength in optical and macro inspection, with process control intensity remaining high [100] Question: 2024 WFE outlook and inventory management [123] - The company expects WFE investment to remain flat in 2024, with no significant changes anticipated in the near term [110] - Inventory levels are high due to long lead-time parts and commitments to suppliers, but the company is well-positioned for future demand [127][128] Question: OpEx outlook for 2024 [134] - The company expects a modest uptick in OpEx in 2024, in line with general post-living adjustments and long-term investment requirements [136][137] Question: Leading-edge foundry/logic weakness and outlook [139] - The company sees stabilization in leading-edge foundry/logic, with no further declines expected in 2024 [149] - The company expects to see more N3 and N2 activity in 2024, with investment focused on R&D and ramp phases [143]