Lam Research Aktie

I'm Vivek Arya from our semiconductor semi-cap equipment team. I'm really delighted to have the team from Lam Research join us for this fireside and Doug Bettinger, the Chief Financial Officer. And as always, I'll go through my questions, but please feel free to raise your hand if you would like to bring something up. Before we start, Doug, I believe you have a safe harbor.

Yes. I need to start with the safe harbor to keep my legal team happy. Let me give me a couple or a minute here. Today's discussion may include forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. Additional information concerning factors that could cause results to differ materially from those forward-looking statements can be found in the risk factors disclosed in our public filings with the SEC, including our most recent 10-K and 10-Q. And I'm done.

Wonderful. Thank you. So that's the exciting part of that.

I know people are always excited to see how fast I can read that.

So maybe just let's start, Doug, with kind of a state of the union, right? Since the start of the year, we have seen Lam consistently the wafer fab equipment market this year. So from started in the mid -- low 130s, now it's kind of over 140, right, plus.

That we said.

Before this year. What do you think have been the incremental drivers of growth since the start of the year?

I think the first thing to understand is the industry, from our point of view, is constrained by clean room space availability. I think you're hearing that statement from everybody. And you're absolutely right, Vivek. We started the year thinking WFE was going to be 135 is a specific number. On the last call, Tim and I updated it to 140, perhaps with a bias to a little bit of upside.

And what's changed is it's been across all segments of the business. There's just a little bit more clean room, maybe projects got pulled in a little bit. One of our customers bought a fab and was able to take equipment a little bit sooner. Everybody is trying to figure out in this constrained environment, how to get a little -- how to squeeze a little bit more out of what's there. And that's exactly where we saw the upside.

It wasn't any one specific thing. Just a little bit everywhere. And I'm not saying there's going to be a little bit more, but everybody is working on trying to get a little more output. That's what showed up.

Is there a way to think about what the unconstrained WFE might be this year, like if there was enough clean room space.

Yes. Listen, everybody wants to know the answer to that question. And frankly, I don't have a specific number for you, except I would tell you, the industry is undersupplied right now. You're seeing it in memory pricing, absolutely in profitability. advanced foundry is constrained, advanced packaging is super tight. I don't have a specific number for what unconstrained WFE might be.

But what I will tell you is this bodes pretty well for what WFE is going to be next year because this is going to roll into next year as projects come more available into '27. I think it's going to be a pretty darn good year in '27 and maybe beyond that. But I don't have a specific number for you, Vivek.

Got it. Okay. If you look at visibility, right, that seems to be extending out, right, over the next number of years. Is there a way to quantify, Doug, what is kind of your usual unit of visibility and what it is right now?

I think what I would tell you is, right now, given the environment I described, there's very deep conversations occurring with every one of our customers. About, okay, what does the next several quarters look like? What do you have? What could push or pull in or out and so forth based on these clean room projects that are underway.

And then the conversation almost immediately transitions to, okay, what does that mean for next year? Because at the end of the day, our customers don't want us to be what constrains them, and we certainly don't want to be in that position either, right? So okay, that project looks like it's showing up in '27 in the second half. And so what might that mean for what do you need from us? It doesn't necessarily mean I've got a purchase order for next year, but the robustness of these conversations is as strong as I've ever seen it, frankly, in all the time I've been in the industry. That's what's happening.

And it's pretty easy to understand, okay, that new fab project is scheduled to be completed next year. And so we can also do our own assessment of, okay, the customer is saying this, and we look at it and say, yes, okay, that generally makes sense. That's what's happening right now. And then it follows on, obviously, for us, then we're going to go talk to our supply chain partners. We're going to plan our own physical bricks and mortar consistent with what is the customer saying they're going to need from us. That's what's happening right now. And like I said, the richness, the conviction in these conversations is as strong as I've ever seen it.

Got it. And the fact that it's the data center end market that is driving.

It's AI.

It's AI, right? Versus in the past, many of the growth cycles have been more consumer-driven, right, whether it was PCs or phones and such.

It was Internet, it was mobile, yes, all of those things. And now AI is layered on top of it. And frankly, the longevity of this to me feels like it's here for quite a good amount of time.

Got it. Okay. Because it's AI-driven, where everyone wants to build as soon as possible, do you think there is an acceleration in how quickly customers are willing to adopt the high end of the stack, so to speak, right, your leading-edge technology, right, versus in prior times?

Where demand is showing up from these AI compute -- I mean, these accelerator chips are very, very big die, maybe not the most advanced node, but pretty close. And so that generally means it's the most advanced equipment. It's the newest capability required to deliver these very advanced features, very small high aspect ratio features and things that you look at. It's high-bandwidth memory. It's a lot of DRAM needed in the compute infrastructure. And it's -- NAND is also being to show up, right? You got to store these tokens, not just generate them. And so -- it's showing up everywhere, and it's primarily showing up at a pretty advanced process node, which generally needs our most advanced equipment.

Okay. In terms of Lam-specific outgrowth, right, Lam has been a market share gainer. I think in the past, you said that the goal was to go from kind of the mid-30s WFE SAM towards the high 30s. Where is Lam in that transition? And do you think your SAM kind of expands?

It absolutely has been and will continue to be. I mean that's the unique story about our company. Everybody benefits in equipment when WFE raises. That's great, rising tide lifts everybody. The unique position we sit in, and maybe we're a little bit lucky, but also we're executing extremely well. You look across the totality of advanced process nodes in foundry, in logic, in DRAM, in NAND, things are inflecting in the third dimension. Right?

High-bandwidth memory is a 3D structure. 6F squared going to 4F squared is a 3D structure. 3D DRAM is being worked on is an even more 3D structure. The NAND stack keeps growing. That's a 3D structure. Gate-all-around is an advanced 3D structure. Advanced packaging is a 3D structure. When things inflect in the third dimension, etch and deposition intensity grows. That's all we do. And so 1.5 years ago, we began describing this growth in our addressable market. And what we said back then in early '25, we did our last Investor Day, then we were coming off a year where we address low 30% of overall WFE. So call it, $0.32 of every dollar spent on WFE was spent on etch and deposition.

We said we see a path over the next several years for that to grow to the high 30s. That's what you were just describing, Vivek. As we sit here today, it's in the mid-30s, right, 1.5 years later, after we said low 30s, we're already in the mid-30s because of the evolution of these architectures. This is going to continue.

There's a couple of cool data points, I think, from my point of view, anyway, cool data points where we said in foundry from 5-nanometer to CFET, our SAM per wafer will double because of the intensity of creating this very complicated CFET structure. Gate-all-around is a step towards that. Backside power is another step towards that. These are just examples of what I'm describing. So we sit in a unique position within the equipment sector in that everything we do is growing. That's wonderful.

On top of that, the strength of our product portfolio has never been stronger from my point of view and from the executive team's point of view. And so as we see this growing SAM, based on our products that are coming out like Akara, like Vantex, like the ALE tool, like Halo, we call it, we believe we're going to win half of this growing SAM, right? So low 30s going to high 30s, we believe because of what we're able to deliver, we're going to do really well in winning that growing SAM.

That's the unique story about Lam Research. Everybody in equipment is going to do well over the next several years. We're going to do even better. We outperformed WFE last year. We're going to outperform it this year. We're going to outperform it for the next several years based on what I see. And what I've been pointing out actually, I think people that know the company know that NAND flash is our strongest end market. That is growing a good amount, but growing slower than the other leading edge process nodes. And yet we're still outperforming with NAND still sort of on the come line.

So I feel great about where we're positioned, about what we've invested in, about how we're executing. We're going to keep delivering on that.

Got it. I think you peaked at my next question. So let me ask it again, which is...

I get excited about.

Yes, I can see. So despite NAND having a relatively slower year, right, versus DRAM, foundry logic packaging, what do you think is helping Lam outgrow? I can only imagine it's mostly share gains, but people do associate Lam more with NAND than with DRAM.

So despite NAND being a softer year, what do you think is helping Lam outgrow the market? And what if NAND is softer next year also, can you still outgrow the market?

Listen, everything I just rattled on about all of these 3D architectures is what's happening. And the strength of the product portfolio is what is enabling us to win a good amount of that. One thing I'll point out that, yes, people think of us as the NAND company or the memory company from an equipment standpoint. Last quarter, 54% of our systems revenue was in foundry. The quarter before, 59% was in foundry.

So yes, I love our memory strength. I love our memory customers immensely. But we've done extremely well in advanced foundry and logic because of investments we made 3 or 4 years ago. We saw some of these inflections coming. We knew we were going to be really well positioned to win, and we've delivered on it, right? It's gate-all-around. It's backside power that really hasn't meaningfully showed up quite yet. It will. It's advanced packaging where we do the through silicon via steps. I call it the drill and fill. We etch the silicon to create the space for the interconnect. And then we have a wonderfully strong electroplating business. That's the fill, the drill and the fill.

We own a good amount of that across the totality of the industry, HBM, CoWoS, Foveros, all of those things we enable with the TSV. And we do other things in advanced packaging, but we're just really well positioned.

On the memory side, Doug, if we were to think of a scenario where, let's say, if memory pricing goes down next year for whatever reason, do you think your memory customers would still be as incentivized to put money in all these fabs, build all these clean rooms? Or do you think their thinking is very sensitive to the pricing of memory?

I think everybody is being very purposeful about investments that they're making. And honestly, if you think about everything around AI, there are many things that are constraining the ability of everybody in the industry to supply of true end demand, be it power, be it data center, be it leading-edge foundry being high-bandwidth memory, all of these things right now, the demand is beyond what supply is able to support.

And so I see everybody legging their way into trying to step that forward to a certain extent, but also with a clear eye on profitability. That's important. And so as long as everybody is as profitable as they are, they're going to invest, and they are investing.

Got it. And one thing we have seen is several of these memory companies starting to do more long-term agreements with their customers. So I imagine that...

Good for everybody.

Yes, it kind of helps extend that visibility. So has the nature of their discussions with their suppliers, i.e., Lam, have they changed because now they are on the hook to provide and assure that assurance of capacity for the next few years?

I think that's probably a part of what's behind these very rich, robust longer-term conversations that I was describing earlier in our talk, Vivek. I mean, like I said, confidence in these conversations is very, very high. And this is probably certainly part of it.

Got it. On DRAM, how is your content changing from HBM 3 to 4? And I saw yesterday, Samsung talk about HBM 5 as well. So how is your kind of content evolving along these different HBM generations?

Yes. As the stack grows and as the dimensionality of the holes we're drilling gets tighter, the need for equipment grows. Obviously, right, if you go from 8 to 12 to 16 die you're putting together for the same construct, you need more equipment.

And again, we own the TSV. We do most of the TSV for everybody in the industry. And so that's a big part of what's showing up. And then you layer on these die get bigger, the trade ratio changes, you've got the process node in and of itself going from 1 beta to 1C to 1 gamma and beyond, our SAM grows just in the process itself, and then you layer HBM on top of it.

Got it. Does your opportunity change, Doug, if memory goes from kind of more conversions and upgrades towards more greenfield? If you could kind of walk us through, does it make any difference to Lam?

You're really asking a NAND question now because largely what we see happening in NAND are conversions, right? The installed base is converting from one process node to the next is what's happening right now.

I'll take you back to 1.5 years ago, we described a view that the industry would need to spend $40 billion over several years to go through these conversions. On our last call, Tim updated that statement to be, okay, that $40 billion, we believe, will be largely complete by the end of next year. So it's happening sooner. And so at the point that you get through, okay, things have been converted, you're going to need wafer capacity added.

We're happy with conversions. We get a bigger share of spending. When wafer capacity gets added, the customer base will need to spend more. Our share is still quite strong. So we're almost agnostic between one or the other. We're here to support customers in whatever makes sense for them. Right now, that's largely oriented around conversions. But at some point, you're going to need a little bit more wafer capacity.

Do you think the allocation of new clean room to NAND kind of lags because most memory companies are a lot more profitable in DRAM. So it makes more sense for them to allocate DRAM.

That's what I observe happening, whether people are consciously saying this or not. Right now, clean room is a constraining item. Three of my customers do both NAND and DRAM. And to the extent that there's clean room constraining things, what are you going to invest in? Well, you're going to invest in where the highest profit opportunity is. And right now, that's DRAM. NAND is getting closely caught up, though, and profitability is quite attractive in NAND right now. So NAND will accelerate at some point. But right now, DRAM is getting the priority is what I observed happening.

Got it. The fact that over time, more clean rooms -- if, let's say, there is a lag with which clean rooms get allocated to NAND, does that extend your growth cycle kind of further out, right, versus right, some of your peers who might be more DRAM exposed? Is that?

No, I think so. But listen, everything is tight right now. And so that's going to extend the investment profile until these constraints start loosening up, which I just don't see happening in the near term.

Okay. And then within the clean room that customers have, do you see them upgrade their tools faster? And I'm talking more DRAM rather than NAND.

Listen, there's always upgrades that happen. That's a high-return way to get the next-generation tool capability is if there's an upgrade path for a tool, almost always the first priority is going to be do the upgrade before buying new equipment.

Okay. What do you think has helped Lam do so well in foundry logic, right? You mentioned over half the business was in foundry the last 2 quarters.

Is it all share gains? Is it just that the pace with which technology is rolling out? You mentioned the change in transistor geometries and transistor forms. What has helped Lam?

Yes. It's back to what I tried to describe earlier. Things are inflecting in the third dimension. In the most advanced foundry, you have a FinFET structure going to gate-all-around. And if you look at the little pictures of this, there's these nanosheets that need to get created. They get created by depositing material and then etching it, sometimes selectively etching it. So it's a different way of etching. You're doing it sideways. That's etch and deposition.

So our SAM grows, the opportunity to sell more equipment grows because of the technology inflections that show up. So that's one statement, right? There's ALD steps in there. There's selective etches in there. There's always conductor and dielectric etch in there. It's just -- it plays to the strength of what we do. And the product portfolio is very strong.

We are the unequivocal leader in conductor etch in this industry, unequivocal by a lot. And so when you see that showing up, that helps. And then you layer on top of that advanced packaging. Again, back to the TSV, these are 3D structures. It's just what we do.

Got it. One other very key part of your business is the customer service and business group, right, CSBG.

In many ways, Vivek, it's my favorite part of the business model is the customer support business group.

Right. And now over $2 billion, right, on a quarterly.

One last quarter.

Why do you think the growth rate -- when do you think the growth rate there starts to converge with your tool business? Or it is -- that's just a natural consequence of this is kind of a long tail kind of secular, right, embedded base business as opposed to something that's exposed to new tools?

Yes. So let me unpack it a little bit for those that might be new to the story. The customer support business group, we call it CSBG, 4 components of that business. It's upgrades, it's service. It's spare parts, spare parts is a pretty large component of it. And so when you think through why is it so strong right now, utilization in the industry is very high, right? It's basically running at 100%. So you think about spares and service, the consumption of spares and service is modulated by the number of chambers in the field as well as utilization. Utilization is 100%, can't get any higher.

So in the March quarter, that's why it grew so much. 100%, you can't grow beyond 100%. So those two things in the near -- the more near term are going to grow, but not as much as you saw in the March quarter. So that's why I tried to pull people back a little bit. Relative to what's going on. The place we're innovating in this is what we call advanced service. It's using equipment intelligence and cobots to deliver service in a different, more predictable way that, frankly, customers like quite a lot.

So that portion of -- when you think about service, that drives incremental growth on top of everything else. But I love this part of the business model. And in fact, a lot of these meetings I've been doing today and last week, people don't ask about this part of the business. It's 1/3 of the business. Very profitable, very recurring, right? Fabs are always running, which means they consume spares and service.

So like I said, in many ways, to me, as the CFO of the company, this is my favorite part of the business model. It just keeps -- it keeps running. People are often surprised to hear that our tools literally will run for decades. The Reliant product line I didn't talk about, but this is the part of the business where we're selling tools that have been around for a long time. It used to be refurbished tools. Today, there's almost no refurbished because nobody has given up equipment, but it's selling older model equipment into fabs.

That's a really good part of the business model because the tool was designed a long time ago, requires not a lot of R&D. We're just building the same tool that we built 10 years ago and selling it. So you see that in the analog space, in power, in CMOS image sensors, a lot of the business that we have in the China region is the Reliant product line, great part of the business. So anyway, when you put this all together, -- it's quite profitable. It's quite cash generative, and it's very recurring.

Got it. I know we have had this discussion before, but do you think you would ever feel comfortable giving like a backlog, right, for -- because if this business is to be rated as, let's say, a SaaS, right, subscription type business, then people would also love to know what is the backlog?

No, we don't give backlog.

Okay. answered.

Listen, I think the thing everybody when you ask me about backlog, you want to know the visibility we have into the business. I already described what's going on there, right? Industry is constrained. Industry is going to grow again next year, right? I mean the nature of the conversations showing up are very robust.

You don't need backlog to hear me describe that. And I'm a pretty conservative guy, generally speaking. I'm talking as optimistically as you've ever heard me if you've listened to me talk for a while. Because I've not seen it as rich as it is right now with these conversations.

Right. One thing that I think Lam has perhaps said or some of your peers have said is that there is the potential for just fab equipment to grow faster in '27 than in '26. Is that still a reasonable expectation, do you feel?

I think '27 is going to be a pretty good growth year, again, because we're constrained this year, all of the unmet demand will roll into next year. Clean rooms will become more available. If you look at the totality of projects in the industry, '27 should be a pretty good year.

And do you think the mix changes in any way? Does it favor any one of the areas?

I think you're going to see continued investment in leading edge foundry. You're going to see continued investment in DRAM and you're going to see NAND begin to catch up a little bit to those other two.

Okay. One of the question that, Doug, as you've seen come up is, are semi caps extracting as much value as every other player in the ecosystem. And then we have definitely seen gross margins that used to be in the mid-40s have now come up, right, towards.

Into the low 50s.

Yes, low 50s. Do you think that's a durable trend? And how much more upside is kind of left in this margin expansion journey?

Yes. Listen, I think we're very focused on right now, making sure we're getting fairly paid for the value we're delivering. And that's not a new phenomenon. That's always been the case with our business. We're always working on that. And your observation is exactly right, right? For the first decade I was at the company, our gross margin was pretty consistently in the middle 40s. And then we moved into the high 40s, and we're now touching mid -- or excuse me, low 50s.

And we've got inflationary headwinds we're dealing with when you got oil above $100 a barrel, right? We fly stuff all over the world. You got to manage all of those type things that show up both for us directly as well as in our supply chain. We're dealing with a little bit of a headwind in customer mix, right? Some of the most profitable customers aren't growing nearly as much as the biggest customers who tend to get a little more favorable pricing, a little bit anyway. And so as you think through that, I went out of my way on the last call to say, listen, as we go through the year, we see these headwinds. We're working on efficiencies. We're working on pricing.

And so I said, keep gross margin right where it is in that 50-ish percent, 50.5% is what we just guided to. We're managing the headwinds that we see in the short term through a variety of things, including pricing.

Historically, WFE and semi CapEx have kind of grown in that 8%, 10% range. But here we are in front of multiple years of 20%, 25%, right, plus.

Strong growth.

Much stronger than before. How is Lam prepared, right, from an operational perspective, from a capacity perspective? Where are you seeing the constraints in your ability to kind of execute to that growth?

Listen, I think, again, also on our last call, we went out of our way to say, hey, we're building a second manufacturing facility in Malaysia. So that's part of this. We anticipated what was happening, and we're getting ready for it. Like I said, we are spending a lot of time with customers working on the demand signal they're providing to us such that we can then make sure that propagates back through our own supply chain. And so I don't want to say it's working flawlessly perfectly. When you build this complicated a product as we build, there's always things that you're having to expedite and work on and it costs money to expedite things.

And so we're managing all of that pretty effectively. It's not to say that it's easy. It's absolutely requiring a ton of time, a ton of effort to make sure every single component in the bill of material shows up when it is required and needed, and we're having to expedite lots of different stuff, but we're managing it pretty well. And I -- my team listens to me when I talk at these things. I want to thank the global operations organization at Lam Research. I know everybody that works there is working super hard on all of this stuff. And it's enabling execution that is extremely good for us.

Got it. Hypothetically, if next year WFE grows 35%, 40-plus percent, what would Lam need to do differently today?

We're doing everything we can do to make sure we are not going to be the constraining item in the industry based on the demand signal we're getting from our customers. So we're actioning everything that I think we need to do to be ready for what customers are telling us they need. And I'm not going to say that growth number you said is the right growth number. It's going to be a good year next year, but I'm not going to endorse that number necessarily.

Got it. China, should one just assume it kind of stays in this 25%, 30% exposure and that's just the easiest way to.

I think so right now. I mean the way we've described the wafer fab equipment spending in China is it's flattish to slightly up this year from last year. And as a result, as a percent of overall WFE and as a percent of Lam Research's revenue, it will decline because everything else outside is growing faster than that. So that's the way we think about China. It's not going away. It's just pretty steady.

Got it. On just kind of capital allocation. So I think the semi cap industry has done a remarkable job, although not always appreciated as much for kind of buybacks and returns, right, retiring -- actually retiring a big chunk, right, of outstanding shares.

How do you think about capital allocation? And is there a scope to actually target even higher dividend yields? Or you think buybacks are still a better way to use your cash?

Great question. Listen, our plans are to return 85% of free cash flow to shareholders. In the last several years, we've returned more than that. Underneath the covers of that, our intention is to grow the dividend on an annual basis. I think the last 3 years, we've grown it annually 15%. We'll grow the dividend again this year. I'm not going to apologize for the fact that the dividend yield has declined because the share price has gone up. That's a good problem for all of us.

I do look at that yield. I do benchmark it to everybody else in the industry. I want to make sure we're competitive with that. But then to get to the 85%, we supplement that annually growing dividend with share buyback, and that's still the plans of the company.

Got it. Any -- I know M&A is tough in the industry, but any places where you think there is a scope for kind of tuck-in acquisitions to...

I don't know. Over the years, we've done some small tuck-ins. And in fact, we did a panel packaging tuck-in that I'm super happy that we did a few years ago. But that's all that's left in the industry. The big stuff is in the rearview mirror. Large-scale M&A, I think, is in the past.

Terrific. Thank you so much, Doug.

Appreciate it.

Good morning. Thank you all for coming today. I'm Stacy Rasgon. I cover the U.S. semiconductor and semiconductor capital equipment sector, if you're at Bernstein. It's my great honor to introduce our guest, the President and CEO of Lam Research, Mr. Tim Archer.

Before I start, I want to mention if you have questions you'd like to ask during the presentation. You should have a link or QR code, I think, to the pigeonhole form where you can submit those. I will get them up here and we'll have time for Q&A at the end.

So semi cap. So after enjoying -- it's had a bit of a risk on already over the last several years, but the capital equipment industry has really shifted into overdrive recently as AI has gone mainstream. With the demand profiles that we're seeing, calling for at the end of the day, just simply more, more chips, more wafers, more tools. And in that world, the contributions from companies like Lam are becoming more important than ever. And to tell us all about it, it gives me great pleasure to welcome Tim to our session today. So thank you so much.

I have to say I've been super excited to sit down. This is actually my first session of the conference. And I'm glad it's starting with you guys.

Great. I mean, let's just jump to it. I mean let's talk about AI. I mean, clearly, I said it's created a renaissance in WFE. It wasn't that long ago that $100 billion in WFE was just sort of in this aspiration that was out there. And we've blown through that now, right? I mean we'll probably do -- I can't remember your numbers or something?

140 with the bia.

Yes. bias to the upside. And as strong as that is, I mean, look, it's a constrained number like we were short of clean room space. And -- just -- I mean maybe just at a high level to start off, maybe just talk about what AI has done for wafer and equipment demand. I mean, maybe by end markets like leading edge logic, DRAM, flash, packaging, even lagging edge. What has it done?

Yes. It's -- I mean, first of all, I agree with you on this point of this is a renaissance, and it's driven by AI demand that has really touched every segment of the equipment market, the devices and device markets.

I mean in semis, by the way, you could have owned anything. It's gotten so big, it's dragging everything along with it. It feels like.

I hope some are better than others, but I mean -- and I think that we'll talk a little bit more about the markets we're in. But as you said, AI, I think what's been most amazing about it is that it has driven performance across every device type. I mean, there used to be -- there would always be a discussion of what's good enough. But I mean in AI right now, more is more and so you want to have more leading-edge compute power at the foundry logic side. You need more storage. You need more memory, higher bandwidth, lower latency. And that's just created changes very rapidly to the architecture devices, how they're packaged, the materials that are used to manufacture the devices and so forth an etch and deposition focused equipment company. I mean it's a very exciting time.

And this time is different is always sort of a dangerous kind of statement. But I could make the argument maybe it could be. So I mean, like how would you respond to that? Is this just a function of just demand is overwhelming. Is that what's different? Is there something different about the types of things that, that demand is driving like as it relates to you guys, like, how would you respond to that?

Yes. I think as I was talking about I think what is different is this almost insatiable desire for and need for more performance.

I mean we've always wanted more performance in the space, haven't we?

Yes. But I think that in this case, it is really -- it makes the end product that much more capable in a way that I think is a little bit unique. It's always been there, but it is also quite unique that it's performance across all types of devices and including packaging. And I think that -- the other thing that's a little bit unique and maybe different is that we have visibility to these waves of demand. And so we've started in training and that drove certain performance requirements around certain types of devices and really accelerated this push towards more advanced foundry logic to get the compute and HBM to get that capability.

But now as we move into inference and then we move into agentic-AI and ultimately into physical AI, we see different parts of the market and different requirements. We clearly now see much stronger demand for NAND, for instance, than people had anticipated. Again, as you start to make this transition from training to inference into agentic. We've seen the same thing with CPUs and therefore, different parts of the market, different process requirements for some of those devices. And so I think that's perhaps what's different is the visibility into this road map in March of performance requirements that really allows us to marry up our road maps for new equipment, new materials and really engage customers to be ready as those waves come in.

How much visibility are you actually getting now? And like what does that look like versus what would have been typical a few years ago?

It's interesting. We we look at visibility in 2 different ways. I mean, what's most important for us is visibility of the technology road map because the reality is we are already engaged in qualifying for device architectures and materials that won't ramp into manufacturing until probably the early 2030s. And so having that visibility, that customer intimacy where you're really exchanging what's possible around architectures[indiscernible] that visibility has always been strong. And I would say today, in many ways, is even stronger because of the criticality of our tools to their ability to deliver products to their customers. Capacity, visibility and those needs. I think one, we could never ask for enough and we never get as much as we want. But I would say...

Do you mean your own capacity or...

No, Customer demand. I mean -- meaning that at this point, if you look at our WFE forecast, every call, it's sort of been -- we've used this term we're in an accelerating demand environment. What that fundamentally means is every time we come to that next checkpoint there's more than we thought there was. And so I would say that the visibility is not as good as we would desire, but it's much stronger. Therefore, it's exactly the good kind of lack of visibility. And it's quite far into the future at this point.

Got it. And maybe to go back to that point. I mean, clean rooms right now, what you see is that the primary constraint on things right now.

Yes. We've been clearly vocal about the fact that clean rooms are constraining the ability to ship more. Obviously, there's a lot of activity in that space to try to bring new clean rooms online. But frankly, it just takes time. It's a big process to build one of these very advanced semiconductor fabrication facilities. And so I think that we -- that's why I say I'd say the visibility at this point, once a fab starts construction, you kind of know where your demand is coming from maybe 2 years out, right? And so I'd say we have quite nice visibility from that.

How many fab projects are you guys tracking right now? I don't think you ever given that number.

I don't think we've given that number, but it's a lot. .

Hundreds.

I don't know if there would be -- in terms of new greenfields, I don't think it's quite that number, but clearly, every fab is also going through continual technology upgrades and refreshes to make sure that they have the capacity needed to meet the performance demands that really is where the market is today.

So let's maybe take a look at the different end markets. Let's start with NAND. I know you guys used to be thought of as the NAND player. And you really -- you still are, but not anymore, -- it's -- it used to be is fully dependent on it, and it's clearly not the case. And I still remember seems quite now, but it was a few -- a few years ago during the NAND trough and that was before the stock split, but you guided something like a $5 EPS for the following quarter for a nominally NAND focused semi-cap company with no NAND in the guide right? Because it was fine right? And so the diversification story has done really well. .

At the same time, though, we are -- I don't know that we've seen a ton, especially given all the demand that there clearly is for NAND and for storage. We haven't seen a ton of greenfield builds yet. It's been primarily upgrades. My view has been the NAND guys decided they'd like to earn money for a change, which is a little new. But I guess maybe talk a little bit about the differences between the NAND upgrades and expectations potentially for greenfield because I feel like they've got to start adding greenfield at some point. I don't know how far the upgrades can carry us.

Yes. Actually, I'd love to answer that question, and I will in just a minute. But first, I have to sort of at least clarify a little bit of this, Lam is the memory company versus what we've become.

Because you really I think that's an important, transformed, I think.

Because -- and we still wear that memory leadership like proudly, but the reality is we've come so much more. And the last -- if we went back 5 years ago, Lam, our business is about 60% in memory. Last year, it was 60% foundry logic. And that was a deliberate strategy of ours to not give up this tremendous position we built as the enabler of a lot of these memory road maps. But it was a strategy to diversify the company in a way that we could participate in a much bigger way in the device architecture inflections and the advanced packaging advances that were coming for foundry logic.

And I mentioned this, the visibility that's important to us is we see where these road maps are going 5, 6, 7, 8 years in advance. And so really about 7, 8 years ago, we said there's a huge wave coming for foundry logic. Advanced packaging is going to become a pretty big thing. And so we pivoted the company in terms of where we put a lot of our R&D spending, the new products we were developing and now it takes several years to get those products completed. It takes several years to get them qualified in customers. And now you really see that rolling through. And I think you've seen Lam gaining both expanding our SAM through this new portfolio, but also gaining share with those new products. And I think every earnings call we talked about low KLD. And we can get into all of this a little bit next .

Was have to -- but run forum because I can start to go down[indiscernible]

Exactly, we'll come back to your NAND question. But the company has reshaped, but we have not given up that NAND leadership. And I think that now you're starting to see that roll through, not through greenfield yet. But last year, at our Investor Day, February 2025, we had talked about this upgrade cycle. And in the NAND business for years, the upgrades and in sort of the natural way of making use of that installed base and just scaling the number of layers.

So this is simplistically using the installed base to put out wafers with more bits on.

With more bits on the Yes. And so what we had said last year was that it would take several years but the customers would upgrade the tools they had in their installed fleet from kind of the 100-plus layer counts to 200-plus layer count devices, and therefore, get more bits and also those bids might be higher performance, more capable bids. We've seen a dramatic pull-in in that upgrade cycle. We said several years and now we -- on our most recent call, said that entire $40 billion upgrade spending would likely be complete by the end of 2027. Now that's .

How far along we are on the $40 billion, by the way.

We haven't really, but we're, again, back to this accelerating demand environment. It means most likely it's about -- it's from this point forward more back end weighted. But it's an indication of 2 things. One, the role of NAND within the AI Herky is becoming more prominent. There's stronger demand, whether that's for enterprise SSDs or use of NAND and KV cash or any of these new data storage projects that you've seen from companies. But it also is the indication of your clean room shortage, which is there just weren't enough clean rooms available to satisfy all the demand of HBM and this rising demand of NAND.

And I think that NAND has found itself first going through an upgrade cycle, but then eventually, as you've seen as there's been shortages effectively needs to start building greenfield. And you've just started to see some of those announcements. But it takes a while to build those fabs. So it's still pretty far out there on the horizon. And I think that it's probably more of a '28 and beyond event, which I think from our perspective is fantastic because, again, we can focus right now on a lot of these upgrades, get the installed base up to that technology. And then as a next wave of growth for the company, really see these greenfields come in and the additional shipments that come from those that demand.

And then maybe 2 follow-ons to that. One is, do you care upgrades versus greenfield, like what does your exposure look like between the 2? Is one better than the other? And then number two, just to clarify, the upgrade is really an installed base kind of business. You guys control the vast majority of the installed base not there NAND, correct?.

Yes, we do. We are clearly the leader in NAND. And we're, more importantly, the clear leader in the critical technologies that are required to enable the upgrade, meaning the -- if you think about the way NAND flash is manufactured, with that big memory stack and then the etching and deposition done inside of that to create the devices, Lam has a significant -- significantly high market share of all of those steps. And so if the customer wants to build a taller device, typically, the majority of the spending is actually on Lam equipment to build taller stacks and create those devices. So upgrades are great for us. We have a very, very high percentage of the SAM of the WFE that's being spent on the upgrade. But actually greenfield is great, too, because it grows our installed base. and it makes that next upgrade cycle even that much bigger.

And so I think that what I also want people to understand is when we put out the number, they said $40 billion to upgrade from the 100x level to the 200x level, -- that's not a 1 and done because then a couple of years down the road, 200x needs to go to 300 or 400. And then that needs to go even bigger. And so you see our customers they've been stories out and talk out about building 600, 700, 800, 900 layer NAND devices just recently. And so that's a road map that fundamentally we look to help enable in the years to come. And -- so both are -- in the upgrade, we capture a higher percentage of the customer spend. But in the greenfield, we build an even bigger installed base for an even brighter future. And so both are good.

Got it. Let's talk about some of the other segments. And you mentioned advanced packaging that's clearly been on a lot of radar screens as [indiscernible] laws slowing or stopping innovation is not stopping. And what it means is we have to do other things and packaging is clearly one of those other things. So what does Lam actually do in advanced packaging. Where are you actually like where is your primary contribution? And how big is this business for you now?

Well, maybe I'll reach all the way back into, I think, the 1990s when the Novelis portion of our company was known as the King of Copper. Today, all these years later, we're still the King of copper. And so if you think about advanced packaging, a lot of the copper plating everything is done to create the metal interconnect is an area where we're incredibly strong, etching, of course, things -- whatever the device if it's HBM or it's advanced packaging, TSV etching, silicon etch is a...

Through silicon vias by the way through silicon, holes they go all the way through the wafer.

And so that etch but also advanced packaging has become quite a complicated architecture. And so there's a number of dielectric gapfill inter-dye gap fill, we call it as well to go in chips. -- just a number of steps. And so if you look at the advanced packaging and you think about where the money gets spent, A very large percentage of the dollars are directed towards etch and deposition applications. Essentially, it's a building and interconnect type of architecture. And so that's -- it's really great for our portfolio.

How big is that for you now? And how is it growing?

Yes, we said that it's -- this year would grow over 50% from our prior year.

Did you give a dollar number or...

We've sized it in the range of around $2 billion. I mean it's kind of like we -- maybe that's probably about as close as we're going to.

Clearly growing in. Certainly, I think, gaining in importance as the complexities of these chips continue to .

Yes. No, it is a fast-growing area. Again, it enables, again, as you said, for the end customer to create something that's very difficult to create on the chip itself. And so to your point of when shrinks aren't the best way to get to an answer, the industry is finding ways to create an alternative path to know, get out and do that.

Got it. Got it. And so you're talking about memory before, but you've -- you were known as the memory player, but it was still mostly NAND. Like what do you guys do in DRAM? Clearly, some of the packaging piece, I mean, for HBM, you're going to need TSVs and other things. If I'm looking at what the wafer volume like inside one of these big GPU racks, by the way, it seems to be dominated to be by HBM by DRAM. It's like where is Lam's exposure like in the DRAM space.

Yes. within DRAM, as DRAM dimensions continue to shrink, the criticality of our etch platforms has become even bigger. In recent earnings calls, last few quarters, we've talked about wins in conductor etch, things that are tied very closely to the formation of those very small features that are now on these DRAM devices. We also have had good success with our drivers this product. .

I want to talk about that a little later.

Yes, we can talk about that. But DRIVEREsISTis, again, DRAM is utilizing more layers of EUV. And so again, Lam's strengths around patterning and the feature formation. And so that's become a lot more critical as our customers continue to try to push DRAM to its performance limits. On the deposition side, again, you mentioned in HBM through silicon via, copper plating. Those are markets where we're in applications where we're incredibly strong. And so our share of DRAM has been growing as we've continued to broaden our portfolio.

Got it. And then, I guess, finally, I mean, to round it out to foundry logic, I guess, both leading edge as well as trailing node. What are you doing differently there now that maybe like if you look back 5 years or 10 years, these used to be relatively small parts of your business that are quite sizable now. There's been clear share gains, adding customers. It's like what have you been doing there? And like what are you seeing there?

Well, Stacy, maybe if I can add a little humor here. I mean the 3D NAND transition was huge for Lam. I wish they had called like gate all around 3D logic. And maybe Lam's participation would have been a little bit -- it's not quite the same, but at that transistor level, if you kind of think about what a gate all around looks like, it really is starting to get into that realm of 3D processing. You now have these nano sheets and you have to in these layers that you've got to like deposit and then fill and then selectively etch the material out. And so many of the things that you would do in a NAND device clearly, the processes are different, but the concept is the same. And so we've been.

You guys need better marketing.

We need better marketing. As we've gone into -- as foundry logic has transitioned into more 3-dimensional device architectures. The demand for Lam products like our selective etch have grown pretty dramatically. Atomic layer deposition has grown. Of course, you're also talking about the shrink to 2-nanometer and below, which means conductor etch and the ability to form these -- to etch the pattern that's been printed by this very precise EUV process. You've got to be able to translate that into the underlying device. So I would say that the demands of foundry logic today are much better suited to the portfolio of products that we've been working on.

And I said that was part of that shift. A lot of these products have been introduced just in the last several years. like low case spacers using ALD. These are products that we started to develop as we shifted from this, not just a memory focus, but really wanting to own the logic transitions as well. And I think we've done quite nicely there.

Can you give us any color on some of the things you're looking at now that would be more in that 20, 30 plus kind of time frame? Or is -- that's not something you can talk about .

Probably on a product perspective, I'd rather not do that.

But general concepts?

Well, I think general concepts, anywhere where you see a push for one, new performance-enhancing materials. Obviously, like if you think about what we have going on right now, we're leading the push towards molybdenum like within NAND and ultimately within foundry logic. And so when you kind of see that, I'll leave it at that. It's like we've built an incredible base of deposition and etch technologies. And I think that now it's about how to continue to expand the applications of those into forming these new devices.

But there's a lot of new architectures coming to out there in that 2030 road map.

Those are going to sheets and CF FETs

And then across every device, there's new things coming. And so what I'm happy about is we today, and we say this and it's -- you can kind of see it if you look at the full lineup of products. I mean we have the broadest, most competitive product portfolio in the company's history. And so we feel like we are well positioned to like address these new inflections that are coming.

Got it. Let's talk about some of the more like internal aspects of the company now and start with maybe margins. It's funny like in this session, I always ask you, why do your gross margins have to start with 4? And I don't have to ask it anymore now because they don't start with the 4 anyone, how they start with 5. Maybe talk a little bit about how -- like what that process looks like to get there. And some of it's going to be mix. I don't know how much of it is pricing. Some of it is new products and new value add. But how do we get there? And where can things go on? And I know you gave -- you had the Analyst Day a little over a year ago, and you gave margin targets. I think these were '28 that you've now hit I think you've talked about we may be getting new targets later on in the year. I don't know if you're going to have another Analyst Day you're just going to give them to us, but...

Probably not a new Analyst Day at this point.

I'm assuming you're not ready to give them to us today. I give them today. But I mean, in general, it's just what is the -- and there's been other things, right? I mean you've -- I think you guys have been out in front of adding supply in front you certainly -- you built up Malaysia. And I remember Malaysia was a margin headwind for years while that was happening, and now that's paying off benefits. And it looks like you've actually added to that now as well.

Maybe touch just a little bit about some of the internal things that the company has done around the execution, margin supply. Anything else that comes to mind because I think it's another reason beyond just like the market lifting all boats, Lam has clearly outperformed over the last year came on with the stock is up year-over-year, 200%, 250%, like whatever it is.

I really look at it Sure. No, it is Yes. No, a lot of it has been self-help. I mean we -- but it was with this eye that we were going to become a much bigger company. We've had that confidence. And so many of the items that you talked about First of all, I do like living in the 50s neighborhood better than 40s neighborhood. So that's good.

But some of it did come from our large manufacturing expansion. Obviously, as we went through COVID, we saw that and the big boom there and the difficulty to supply to the demand. I think we all sort of internalize, we don't want to let this happen again. And so we've made significant investments both in our manufacturing capabilities and our supply chain over the last several years. And I think that's starting to really pay off. As you said, for a few years, it was a bit of a headwind as we were filling that up. We've now had no problem filling it. And in fact, we -- later this year, we'll be opening our second facility in Malaysia that will be approximately equal size to the first one.

will it be equipped? Or is it just like floor space?

No, it will be in use in the second half of this year.

So the good news for us is it does not take quite as long to build a equipment manufacturing facility is to build a full-on clean room. And so we are able to respond more quickly.

Your CapEx is what.

Our CapEx runs 4% to 5% of revenue all in labs, manufacturing, everything, so we're pretty CapEx light from that perspective. But it -- so it's a combination of becoming significantly more efficient in our own operations plus A lot of the applications I just talked about where we've moved into these spaces where they're really in technology-enabling capabilities tied to sort of the customers' latest devices, gate all around or HBM, high layer count NAND. And we've built products where we've -- we're delivering significant value. And so I think that the combination of all those things has driven the margins up. I would also point out that from a mix perspective, in general, some of the -- that would have been known in the past is higher mix portions of -- higher margin portions of our business have become a little bit lower part of the mix. And we'll probably talk about China a little bit.

But so what it actually says is the core part of our business, non-China, -- you can imagine the margins from our own work have done even slightly better.

Got it. And I guess, are tariffs a thing now? If you had like cost increases or anything, I assume you're offsetting that, but [indiscernible] little trying to...

I'll contemplated in the numbers. We have reported and put out. And so I think you can see that even if there are, it's part of the margin improvement story.

Yes. So maybe, I mean, that is a good segue into China. And you're right. I know for a while, you were getting a boost when China was a bigger piece of the business, and China has fallen off a bit, which I don't think investors are terribly sad about, frankly, as long as the rest of it is growing and the margins still look really good. But what are you seeing in China? Like I mean, clearly, we've had general decline in like lagging edge logic, a lot of -- I don't think it's all China, by the way, but like a lot of it is China. I get a lot of questions clearly about Chinese competition and local players, which my general view, by the way, has been that they are real companies like they're not -- they're very capable what they can't do everything.

And they will probably take more share than they would ordinarily deserve to take because of some of the regulatory issues, they have no choice. But in general, what are you seeing there? It doesn't seem like it's been an investment controversy in a word, but it doesn't seem like it's really slowed anything down at all for you guys or frankly, for the industry as a whole.

Yes. I think that 2 things. One, maybe just to address the regulatory issue we comply, obviously, with all regulatory requirements. And so we don't do any business in places where we're not allowed to.

You're not shipping like YNTC here and..

So therefore, local equipment suppliers have filled in for the -- where we can't compete. But places where we can compete in China, which tends to be, as you say, the lagging edge nodes, there's still tremendous value that's delivered from Lam tools. Even though those tools were likely engineered and developed by land more than 10 years ago.

And so I think that, that speaks to, one, the quality and capability of Tools land builds plus the local support capabilities that our team provides. But the business itself, as you say, it's -- we see China in general is kind of flattish to to maybe roughly up a little bit this year. So compared to the last few years of growth, I mean, it's clearly moderated.

Yes I mean it was what, 40% of your revenue or something at the peak, I can't remember.

Yes, and now come down quite substantially. And so I think that that's, as you said, look, that's the kind of balance we want to see in the business. And so it's an important region for us, and we satisfy demand from the customers we can serve with tools that we can sell. And I think that, that's but it's no longer like quite the headline story. I think every earnings call, we used to get questions about China sustainability. And I think now it appears to be in this relatively sustainable run rate right now. our story now has transitioned much more towards our growing SAM, growing deposition etch intensity at leading edge, driven by AI. And I think I like telling that story a lot more at this point.

Yes. Certainly more fun to tell. Do you have any thoughts on some of the Huawei announcements that we've seen over the last couple of days, logic folding? And I don't know if you've been if you followed it.

I've seen it, but no. I haven't internalized a comment at this point.

Maybe just one more question just as long as we're in China in lagging edge. China is a big piece of your lagging-edge business, but it's not all in. I guess how much is in China? And maybe just a few comments on that business. This is the Reliant business, right. Most of the 200-millimeter business. Although I guess all of your lagging edge probably is -- it isn't all 200-millimeter, I'm assuming.

That's right. There's quite a lot of mature node technology that's at 300 quite a lot. And within our company, actually, some of it to a mature node, some of it will come out of Reliant, some of it will actually still come out of our primary business units. So it's therefore a little bit harder for you to track down. But we do see -- obviously -- the reality is complex electronic systems today, they require leading-edge chips and they require a whole lot of .

We're starting to see growth in the lagging edge now to .

We're in an industrial cyclical recovery. And clearly, the AI, like power semis have all been on a tear. I mean you're seeing -- we're not seeing any signs of real recovery in trailed yet. That's right. We are.

We're seeing some growth in that area. But I think more importantly, what we are also focused on is, again, this idea of engaging on where those markets are going. So it's a little bit less about -- we serve capacity that comes in demand that comes for the things we already have. But we see an emerging opportunity in what we considered to be the specialty technology space. Again, there's a lot of new applications where there are new materials require new deposition techniques. And while none of them are quite the market size that you see from AI, they're very good businesses for us to pursue, given that quite often, we either have the equipment available and it's really about application development or it's equipment that can easily be derived from the fundamental technologies that are within our company.

And so we have a group that focuses on those applications. These would be things like photonics, maybe some materials for RF applications, special materials for powered devices. And so those are all -- in many cases, they're materials, they're deposition or etching applications. And so very well suited to what Lam can do. And I would say that we intend to pursue those as well as we again look to broaden our portfolio across these markets.

Got it. Now those reliance tools are in the services business. This is a good segue of services. I still got to ask, any plans to move it out of there. I think AMAT move there at their 200-millimeter back into equipment. It seems like it makes more sense.

Yes, we haven't I would add -- we understand the comment and don't have any plans .

But let's talk about services. So again, this is an installed base business even in a down year for equipment, it tends to grow because the installed base grows even in a down year. I think your services revenue per tool has been going. I can't remember the CAGR, I have the numbers somewhere, but it's been growing at a pretty good clip. I think services, you've talked about is sort of like a sustained double digit. I think the one time it didn't happen is when you had some of the China issues do the sanctions a few years ago. But just talk in general about the services business, where is the value add there? What are the different pieces in there again, I went over a little bit growth but how do you see the growth structure going forward? And what does that add for you guys?

Sure. Well, it's a really important part of our business. In fact, the services or CSBG, as we refer to it, is about 1/3 of our business at this point which -- because a lot of that is based on the installed base and it's some of the larger components in there, things like spares and upgrades and really install.

So all that NAND upgrade revenue is actually in services. It's not an some of -- not all of it's in there Okay.

But it's very installed base focused. And so our installed base right now is about 100,000 chambers and growing. And again, in operation they're all running

Yes. what's the lifetime typically of these tools, by the way.

A couple of decades or more than a couple of decades. In fact, a few years ago, I had a had the team go look at -- to find -- my first job was actually installing tools at the company. It was like a process engineer inside the customer fabs. And I said, "Go find that very first tool I installed. And they actually track it down -- that was about 25 years after I've done that job, still running.

We had, by the way, my lab at MIT 20 years ago, we had an old Lam rainbow TCP.

Okay. I didn't install that one. But the reality is like the installed base, it's the gift that keeps on giving, right? So it has multiple revenue streams. Of course, we service them, maintain those tools in many cases, spare parts, a lot of proprietary parts on our tools.

So as the installed base gets bigger, especially when you're in these high WFE years like now, installed base is rapidly expanding. That's a future revenue stream for the company that continues to grow. But the more exciting thing about services is what's happening as a result of all -- of 2 things.

One, the rapid expansion of fabs everywhere in the world, often in places where resources, trained resources are not readily available. And you combine that with the fact that the AI is demanding the most -- the highest performance, most precise device manufacturing we've ever seen which means that the tools condition and the maintenance on those tools is kind of reaching the engineering or technician limit in terms of precision and repeatability. And so for several years now, Lam has been working on what we call -- we call Equipment Intelligence, but think about it as building AI models around the data that's coming off of your tools. And we've also been working on cobots.

Cobots.

And so we call it sort of a new product we have called Dextro.

Physically servicing the tool.

Physically servicing the tools. .

Taking off flanges or I don't know.

And reinstalling and cleaning the chambers and all the things that an engineer actually would hate to do anyway, the cobot can now do. And what we've seen, these are now running in production, maintaining tools in several of our customers' fabs. And what you see is you see a dramatic improvement in first-time right after mains. You see an improvement in maintenance sensitive measures like edge uniformity around the wafer in an etch tool, you install like a plasma tuning ring. And we asked the engineer -- the focus ring you asked the engineer to basically align that thing to like a 50-micron tolerance, right? It's just difficult. Cobot has no problem because the cobot will have kind of a vision system. It can basically take measurements, install.

Is the robot mobile? Or is it parked next to a single tool like.

Yes. From a cost perspective, remember, you don't need to do maintenance that often around. So it can one cobot can service depending on which type of tool, a large number of modules. And so that service opportunity for us -- it adds significant value. It eliminates this resource constraint that has become a challenge for ramping new fabs. And frankly, just from a technical perspective, the precision and repeatability of cobot driven maintenance is dramatically better and shows up in on-wafer performance.

So how does that work? Do you sell the robot? Or is it part of -- to subscriptions SP-9 Part of a service agreement subscription you often use that service agreement . Have you ever talked about how much of your like services revenue you're actually under like agreements versus one-offs?

We haven't really. I don't believe we've given that number. But it's growing. I mean this is these -- a cobalt becomes a very sticky type of service simply because now you're relying on that piece of equipment to effectively maintain your other equipment. We combine that then with what we call Equipment Intelligence. And this is another big focus of ours, which is we've always collected a lot of data from the tools. But now as these processes are becoming so much more complex, we're finding and also AI engines are becoming so much more capable of handling disparate types of data input that [Technical Difficulty] start to do things like video analysis -- you can -- and you start feeding those into the engine and effectively.

Look at the wafer will attach .

Yes, look at the wafer, look at the plasma condition, these sorts of types of data streams. And what it's really helping us do is start to really match tool performance across very large fleets of land equipment running in different fabs that might be located, one in Asia, one in the U.S. and you want to run the same process, the same customer. And our customer would want to do that. And the ability to match those fleets of tools really is becoming dependent on this equipment intelligence capability to do that. And it has a meaningful impact on tool-to-tool matching and performance. And so again, that is also a service that that we would provide to .

Presumably, you're able to charge for this

Yes, presumably Yes, we are.

I mentioned, I wanted to give you a chance to talk about dry resist.

Yes. .

What is dry resist, talk to us about .

Sure. So .

I just think it's phenomenal. .

Yes. No, dry resist is -- I mean it's the way Lam is disrupting some of these very -- these technologies that like didn't appear to be disruptible.

Yes. I mean, there's this big controversy back EUV was going to be bad for you. It doesn't seem to be the case. .

No, not for us.

Certainly push back on that?

Yes. Well, a little bit. I mean, one, it turned out that EUV wasn't bad for us because the smaller features you printed more critical or tools became. And so that argument of multiple patterning versus a single print just made our tools actually much more critical for the capability to etch those single print features. And and now you have multiple patterning anyway. So the -- in any case, that part of our business has been fine. But we looked at dry RECIST and this idea of like how do you continue to shrink and push kind of the limits of lithography and one of the limitations we saw was in the resist itself and not only in the material but really in the deposition technique of the resist.

And so for I don't know, 5 decades or more. I mean, basically, you've spun the resist on the wafer and the resist is delivered as a wet chemical. And in most cases, wet processes over the years have gone to drive for controllability and repeatability, defect control, all sorts of reasons. And so I guess, about 6, 7 years ago, Lam introduced dry resist, probably a little ahead of its time. But what drives this does is it is a material that replaces the wet resist for the most critical lithography applications on certain devices. And so it took a while for us to gain customer confidence to disrupt something that they were so comfortable using. But we introduced a suite of tools we call Ether. These ether solutions consist of an underlayer that helps with photoabsorption from EUV, that resist itself and then a dry develop process. So it's a suite of tools.

So it turns the developing all of to an etch process rather than like they currently use a liquid, it's almost like development of photograph.

Yes. Correct. It's like a deposition and etch type processing environments. And so therefore, much more controllable. And looks like many of your other processes. And so it is now in ramping in production in 2 memory makers. This process of record than at 2 memory makers. So memory these solutions. Interestingly, I think it's just the pace at which some of these -- you've got to be very, very far ahead in the foundry logic world to get that cut in. And so I think that as we continue to push forward to the below 2-nanometer regime. I mean, as etching -- as patterning continues to become more critical, we'll find the adoption there as well. But memory is one that moves a little bit -- can move a little bit faster and the volume of wafers is quite high and EUV adoption in memory is also accelerating. And so I think that it's it's on its way now.

You guys gave some revenue targets to walk back. I don't think it was upgraded .

Yes. We haven't really changed them at this point. We said over a 5-year period, about $1.5 billion of revenue back-end weighted. And so we're now into that into that 5-year period.

Got it. So we got about 5 minutes left. I should go to the lightning round. Let's see what we've we've got here. Okay. Where are you seeing -- or do you see the biggest bottlenecks within the AI value chain right now? I would to rephrase it, is semi-cap itself a bottle like a relic -- is it going to get worse?

We've worked really hard. We talked about our operational investments manufacturing supply chain to not become the constraint. So I think that we're not. But I think you see where the constraints are. As we said, clean rooms have been 1 we've talked about quite a lot. -- that problem can get resolved. -- constraint that we're addressing. We just talked about the intelligence and cobots is how long it takes to then ramp and start up and get to mature yield in those -- that will be a little bit of a time constraint. I mean it's solvable, but we're trying to address that as well. But I think it's -- I think right now, it feels like there's a little bit of shortages everywhere, but most of them are are being addressed.

Where do you think WFE growth will be next year of clean room availability was not an issue.

I'm not going to give you an unconstrained number. But we've said 2027, even with the constraints in place is going to be a year of compelling WFE growth.

It's safe to say that it would be more if there was no constraint.

I think it's safe to say there would be more if there were more clean rooms, but...

I won't hold you to a number, though. Let's see here. Okay. As packaging Koos, HBM stacking, et cetera, becomes a gating step for AI compute. wafer fab and packaging, the boundary between wafers and wafer fabs and packaging is blurring. Is Lam's road map converging with the packaging equipment players like Besi.

Well, what I would say is -- I mean, we have a very clear road map for advanced packaging. We play a critical role in that market. I would say that the the biggest investment we're making is we're believers in this transition to larger format advanced packaging. I mean, from an efficiencies perspective, from an enabling.

Say a larger format, do you mean like panel as channels.

Panels of various sizes at this point. There's not just one. And so as a critical supplier, one of the largest for wafer-based advanced packaging, it's a natural evolution for us. We acquired a company several years ago that has large panel packaging positions, and we've significantly invested in that company now based out of Austria. We just opened a couple of days ago, our center of excellence for advanced packaging for panel packaging in Austria. And effectively, we're wanting to lead through this transition. As AI devices themselves become larger and larger for the packages, that's a larger format is becoming almost a necessity and so...

Any thoughts on when that goes mainstream panel level?

We're making shipments now. I think it's within the the foreseeable future. It's coming.

Okay. Okay. We've got about 2 minutes left. I will ask you the same question I always ask you, and we've got a whole room full of investors here, some may be new to the story. You talked about it through the section, but I can sum up. Why should investors buy your stock?

Well, great. Normally, you give me like 30 seconds. I got 2 minutes, but which feels No, no, really, we've touched on a number of the key points. But if I were to sort of sum it up, it is we are, like the rest of the industry excited about these multiple waves of AI demand. And so from a demand perspective, the move from training to inference to genetic to physical fits extremely well with kind of Lam's breadth of position across advanced foundry logic and then into, of course, HBM, but then really the excitement that coming is kind of further use cases for NAND.

And so I think that sets us up for multiyear opportunities for growth in WFE and specifically growth within our segment. I think the Lam specific story then drills down to the increasing role that etch and deposition play in enabling the technology devices and new architectures that are coming. The world is going 3D. I joked about 3D logic. But I mean, the reality is, as you said, CFIT 4F Square, ultimately 3D DRAM. These are all 3D implementations, leveraging that vertical scaling dimension because 2-dimensional scaling, while still occurring is becoming so much more difficult. -- etch and deposition is synonymous with 3D. And so we see etch and deposition intensity as its share of total WFE spending continuing to rise from now as far as we can see these road maps. And so that's it says Lam is in exactly the right markets, and that's where we put all of our focus, etch and deposition leadership. And then finally, I think the reality is we're gaining share. We if you look at the last 2 years' performance, I mean, we've gained share of WFE. Partly, it's that our markets are expanding faster than WP, but partly, it's that we have, I think, at a faster pace than most refreshed our product lines. We just introduced a new Acara conductor etch tool with this direct drive RF capability. I mean, so we're sitting here with a great product portfolio in the right markets and really excited about the future growth opportunities.

Got it. Right place, right time, right stuff.

There you go. Perfect.

With that, I think we'll close it out. Thank you so much.

Thank you.

Good day, and welcome to the Lam Research Corporation's March 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to 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 will share our overview on the business environment, and we'll review our financial results for the March 2026 quarter and our outlook for the June 2026 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. The release and the accompanying presentation slides for today's call can also be found on the Investors section of the company's website.

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. Actual results could materially -- differ materially from those expressed in such forward-looking statements. Please see the accompanying presentation slides 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 presentation slides. This call is scheduled to last until 3:00 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website.

And with that, I'll hand the call over to Tim.

Thank you, Ram, and good afternoon, everyone. Lam is off to a solid start in calendar year 2026, with revenues and profitability in the March quarter at the upper end of our guidance ranges and earnings per share exceeding the top end of our guided range. Revenues were at record levels, highlighted by the first $2 billion quarter from our Customer Support Business Group. Our guidance for the June quarter points to Lam's strong momentum in an accelerating AI-driven semiconductor demand environment.

In January, we shared our outlook for 2026 WFE in the $135 billion range. Since then, spending projections from customers have moved higher across all device segments. We now expect WFE of $140 billion with a bias to the upside as the industry continues to work through various constraints. We believe this sets the stage for another year of compelling WFE growth in 2027.

For Lam, the AI-driven demand environment is creating an ideal setup for continued outperformance. Semiconductor technology inflections required to meet escalating AI compute needs are driving higher deposition and etch intensity. In 2026, we see Lam's served available market or SAM, percent of WFE, expanding to slightly more than the mid-30s percent level, well on track towards our stated goal of high 30s percent over the next few years. Lam is prepared for this moment by transforming how we innovate, build and support. The semiconductor manufacturing equipment needed to address the industry's most critical challenges. Our commitment to R&D and the velocity with which we have scaled our development capabilities have enabled us to create the broadest, most competitive product and services portfolio in the company's history. This is fueling our current outperformance and puts us in an excellent position to deliver on our future growth ambitions.

Across all device segments, we are seeing greater opportunity for Lam. In NAND, AI transformation is moving beyond compute and into the storage layer. [ Hoken ] economics are driving changes to the memory hierarchy used in AI data centers including rising adoption of higher layer count QLC-based NAND devices for SSDs. We expect total data center bits this year to be greater than both PC and mobile segments combined with growing -- continuing growth in data center mix into the future. The growing device performance requirements of AI data centers are driving an acceleration of NAND technology upgrades.

As you may recall, we said in early 2025 that roughly $40 billion in conversion spending would be required over several years to enable existing NAND installed wafer capacity to produce devices with more than 200 layers. We now anticipate that this conversion will be pulled forward with the majority of spending occurring before the end of calendar year 2027. In parallel, we expect growth in bit demand will drive greenfield capacity investment, especially considering that overall industry installed wafer capacity is expected to decline more than 20% from prior highs by the end of this year.

Looking further ahead, we see continued adoption of NAND in the AI memory stack, driving even higher layer count NAND devices. With the largest installed base of tools for 3D NAND, Lam is uniquely positioned to benefit from this trend. As manufacturing complexity scales with layer count, we see an expanding set of deposition and etch opportunities, all rooted in our established leadership in high aspect ratio cryo etch, dielectric stack deposition, [ Worldline ] metallization, backside stress management and gap fill technologies.

In dielectric etch, our Vantex and [ Flex ] tool sets delivered the industry's highest power density and productivity for dielectric channel hole edge applications, where we have a market-leading position. In conductor etch, we are also seeing momentum for our [ Kio ] systems as customers collaborate with us to maximize device yield in a constrained capacity environment. In a recent win, a customer switched to [ Kio ] in the middle of their production ramp due to superior defect performance and better yield. In deposition, we are seeing the transition to higher layer count NAND, also driving greater demand for our Strata, [ Altus Halo ALD ] and [ Vector DT ] products. Altogether, we believe the production proven strength of our portfolio puts Lam in a great position to outperform overall NAND WFE growth as AI demand accelerates over the next few years.

In DRAM, AI's power and efficiency requirements are driving an industry transition to 1C generation devices. As feature dimensions shrink, the industry is shifting from traditional silicon nitride base dielectric films deposited using furnace, the more advanced ALD silicon carbide [ loc ] layers to achieve bit line capacity in production. Studies have shown the re-architected device structures, combined with low [ KBitline ] spacers can reduce capacitance by over 60%. Lam's Stryker carbide solution with its unique plasma source enables capacitive scaling by depositing dense, conformal and tunable low dielectric films with high productivity. As a result, our Stryker based solutions are the tools of record at all leading memory makers for bitline spacer applications.

As the industry moves to 1C nodes, we see our total dielectric deposition SAM and DRAM growing more than 20%. With innovations like Stryker ALD, we believe Lam is well positioned to gain share within this expanding opportunity.

In foundry/logic, calendar 2025 was a record year for Lam. We are carrying that momentum into 2026 as we capture more opportunities from inflections at the leading edge. Most notably, this quarter, we achieved both dielectric etch wins at a key founder logic manufacturer. Our first dielectric edge wins at this customer. And finally, we see growing demand for our advanced packaging solutions where we bring unmatched experience in equipment design and process technology for copper plating and [ TSC Edge ]. Lam's advanced packaging revenue growth is expected to exceed 50% in calendar year 2026.

Turning to our Customer Support Business Group. We delivered our first $2 billion plus revenue quarter. Demand was strong across spares, upgrades and services. As customers look to improve fab output in a space-constrained environment, more opportunities are being created for CSBG to deliver innovations that increase productivity and enhance yield for our customers. Our services business posted mid-teens growth over the December quarter. Highlights included a new agreement with a leading foundry/logic customer to deploy our equipment intelligence services for critical deposition applications. The top memory customers also set to utilize our Equipment Intelligence capabilities in R&D to enable faster ramps of new nodes for NAND and DRAM production.

We are also gaining momentum with our Dextro cobots, which deliver an unprecedented level of automated tool maintenance precision and repeatability. Customers using Dextro and production are benefiting from higher output and in some cases, improved yield from existing capacity. In the March quarter, we expanded Dextro coverage to 8 Lam tool types up from 6 last quarter. We also introduced the next generation of Dextro, which packs 10x more compute power than the first generation into a smaller footprint. This quarter, we will ship our first Dextro cobot for a deposition product further increasing our ability to create value from our overall installed base more than 100,000 chambers.

It's an exciting time for the semiconductor industry and for Lam. In an accelerating demand environment, we see rising deposition and etch intensity creating a multiyear outperformance setup for Lam. We have made strategic investments across the company to capitalize on this opportunity. increasing the velocity of both our technology development and our operational execution. Our progress can be seen in our strong March quarter results, our higher June quarter outlook, and our expectation that second half calendar year revenues will exceed the first half. In short, we are delivering on the tremendous opportunity in front of us with more to come.

Thank you, and here's Doug.

Excellent. Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a very busy earnings season. Lam is off to a solid start in 2026, building on the momentum we delivered across 2025. In the March quarter, revenue gross margin and operating margin came in above the midpoint of our guidance ranges, while earnings per share actually exceeded the high end of the range. We also achieved our third consecutive record revenue quarter.

March quarter revenue came in at $5.84 billion, which was up 9% sequentially and up 24% from the same period in 2025. The deferred revenue balance at quarter end came in at $2.22 billion, which was flat sequentially. Within this balance, however, customer down payments came down by roughly [ $300 ] million, while the other line items increased with the growing business levels. I just mentioned that down payments are now at the lowest level we've seen in nearly 4 years.

From a market segment perspective, foundry accounted for 54% of our systems revenue in the March quarter, which was down from 59% in the December quarter. Revenue in dollar terms was approximately flat sequentially, and it was up 35% year-over-year. Foundry saw strength in investments at the leading edge, as well as ongoing mature node spending. Advanced packaging within foundry continues to be an area of solid growth for us.

Memory was 39% of systems revenue, up from 34% in the December quarter. Within memory, we delivered record DRAM revenue accounting for 27% of systems revenue which was up from 23% in the December quarter. High-bandwidth memory investments remained strong. The profile of spending is also gravitating towards the 1C node and beyond enabling the ramp of DDR5 and LPDDR5. Nonvolatile memory contributed 12% of our systems revenue, up slightly from 11% in the December quarter. As Tim outlined, AI workloads are accelerating demand for higher capacity NAND and Lam continues to benefit from strong leadership within this segment. We expect to see growth in NAND investments throughout the remainder of the year as the industry converts to 256 layer and above class devices. And finally, the Logic and Other segment came in at 7% of systems revenue in the March quarter, in line with the prior quarter.

Let's turn to the regional breakdown of our total revenue. China came in at 34%, which was a slight decrease from the prior quarter level of 35%. We expect that China revenue in the June quarter will decline from these levels. Korea and Taiwan each came in at 23%, which was both up from 20% in the prior quarter. Both the Korea and Taiwan regions represent record revenue level in dollar terms in March. And I just mentioned that this regional mix was generally in line with our expectations from the beginning of the quarter.

Customer Support Business Group generated a record $2.1 billion in revenue in the March quarter, which was up 6% sequentially and up 25% from the same period in 2025. Sequential growth was driven by a large and expanding installed base and the continued expansion across our spares, upgrades and services business, partly offset by Reliant. Growth in spares and service is benefiting from strong factory utilization across the industry.

Let's take a look at profitability. Gross margin in the March quarter was 49.9%, which was at the high end of the guidance range, driven by multiple factors, including favorable customer product mix as well as improved factory efficiencies. Operating expenses in the March quarter came in at $866 million, up from the prior quarter's level of $827 million. The increase was driven by seasonal employee-related costs as well as higher headcount to support our growth. R&D accounted for 68% of total operating expenses. We will be growing R&D investments throughout the remainder of the year.

March quarter operating margin was 35% at the high end of our guidance range due to the higher revenue and the improved gross margin. The non-GAAP tax rate for the quarter was 9.2%, which came in lower due to benefits from higher equity compensation vesting, which is deductible on the taxes during the quarter. We continue to see the tax rate below the mid-teens for calendar year 2026.

Other income expense in the March quarter was $8 million in expense compared with $10 million in income in the December quarter. The variance in OI&E was primarily the result of small losses in our venture portfolio as well as lower interest income. Interest income decreased due to the lower cash balance in the quarter. And as we've talked about in the past, you should expect to see variability in OI&E quarter-to-quarter.

For capital return in the March quarter, we allocated approximately $800 million to share buybacks through a combination of open share repurchases and a $200 million accelerated share repurchase transaction. Our average buyback price was approximately $211 per share. We also retired $750 million of unsecured notes that reach maturity using cash from the balance sheet. Additionally, we paid $326 million in dividends. In the March quarter, we returned 139% of our free cash flow. Our plans remain to return at least 85% of free cash flow to our shareholders over time. The March quarter diluted earnings per share came in at a record of $1.47 which was above the high end of our guidance range. The diluted share count was 1.26 billion shares, which was flattish with the December quarter and consistent with our guidance. And I just mentioned that we have $4.3 billion remaining on our board authorized share repurchase program.

Let me pivot to the balance sheet. Cash and cash equivalents totaled approximately $4.8 billion at the end of the March quarter, which was a decrease from $6.2 billion at the end of the December quarter. The decrease was primarily driven by capital return activities that debt paydown as well as capital spending. Days sales outstanding was 64 days in the March quarter, an increase from 59 days in the December quarter. Inventory turns improved to 2.9x from 2.7x in the prior quarter. These were our highest level of inventory turns in over 4 years. As a company, we remain focused on our strong asset utilization and return on invested capital. We're pleased with the sustained performance we continue to deliver here. We will be managing our inventory and supply chain to align with the growing demand that we see in front of us.

Noncash expenses in the March quarter included approximately $97 million in equity compensation, $103 million in depreciation and $13 million in amortization. Capital expenditures in the March quarter was $332 million, which was up $71 million from the December quarter. Spending was higher to support the strong demand environment that we're seeing. Investments are enabling a second manufacturing facility in Malaysia as well as lab-related investments in the United States and Taiwan.

Looking forward, we continue to expect capital expenditure to be in the 4% to 5% of revenue range. We ended the March quarter with approximately 20,600 regular full-time employees which was an increase of approximately 900 people from the prior quarter. Headcount increases were primarily within the manufacturing and field organizations to support volume growth. as well as in R&D to support our long-term product road map. As we scale the organization, we also undertook a small workforce optimization focused on efficiency. You'll see this in our non-GAAP reconciliation.

Let's turn to our non-GAAP guidance for the June 2026 quarter. We're expecting revenue of $6.6 billion, plus or minus $400 million. Gross margin of [ 50.5% ], plus or minus 1 percentage point. We're expecting this expanding gross margin despite slight headwinds that we're seeing from customer mix. Forecasting operating margins of 36.5% plus or minus 1 percentage point. And finally, we're forecasting record earnings per share of $1.65, plus or minus $0.15 based on a share count of approximately 1.255 billion shares.

So let me wrap up. We're executing well against our financial objectives and driving operational efficiency while increasing R&D investments to extend our technology leadership. With our expanding installed base, the strength of our product portfolio and our disciplined approach to capital allocation, we remain confident in Lam's setup for continued outperformance.

Operator, that concludes our prepared remarks. We would now like to open up the call for questions.

[Operator Instructions] Our first question comes from Timothy Arcuri with UBS.

Doug, I wanted to ask about gross margin. The guidance is great, it's [ 50.5% ]. It sounds like despite the mix being against you. So you're kind of already edge at your target model, right, because you were saying above 50. And I'm not asking you to update that model. But sort of can you like deconstruct how you got here so fast? And maybe also, I think people want to hear how much capacity you have? I know you mentioned that you're adding another site in Malaysia. So can you just speak about sort of what the puts and takes are going to be on margin going forward?

Yes. No, Tim, it's a great question. Yes, I think we're pretty pleased with where we're at from a gross margin standpoint. And it's been a lot of real hard work from the company, honestly. I think you'll remember, I don't know, 4, 5 years ago, we talked about expanding our factory footprint to be closer to where our customers were. And that has delivered efficiencies from just a proximity standpoint, from shorter frame logistic lanes. From slightly lower cost from a labor standpoint, a better supply chain set up all of those things. Those were self-help activities that we undertook and frankly, we've delivered on it.

So when I think about the global operations part of the company, they've really done a wonderful job. On top of that, we're working on everything we can do to get paid for the value we're delivering to customers. That's something we're always doing. And I think we're doing a reasonably good job with that, Tim. So anyway, when you put all of that together, I think we're pretty pleased with all of that, and I'll let Tim add a few things here.

Yes. No, I was just going to add one other part that's pretty important in showing up is very important in this constrained period, which is the performance of our tools. We embarked -- Doug talked about some of our higher R&D spending. A lot of that was to ensure that all of these new tools that we have hitting the field enter the level of maturity that's beyond what we had probably delivered in the past. And that's very important for our customers in a period of fast ramp. That also yields benefits for us in terms of installation and warranty spending, which flows through to gross margin. And so you're seeing some of that as well. So that's something that, again, we're focused on going forward is reliability of systems, maturity of tools as they hit the fence.

And let me just add one more thing. Yes, let me add one quick thing. I know there's going to be a question [indiscernible], how should our model gross margin for the rest of the year? I would encourage you to kind of keep it roughly in the levels that we just guided you to in June. This is going to kind of level out at where it's at, I think, for the rest of the year. So as you build your models, keep that in mind.

Awesome Doug. And then I guess just as a follow-up. So there's been a big like massive new fab project. I mean you guys have obviously seen this news bigger than anything we've ever seen before. I mean I think that this customer would have to get in the queue given how booked out things are. Are you seeing -- I mean, I don't want to ask just about that one customer. But like are you seeing these signs of these huge new fab projects, sort of the customer base expanding? And if you did want to comment on that particular fab project if they're sort of coming to you was like a new opportunity, that would be great.

Yes. Obviously, we can't comment on any specific customer, but clearly, the environment right now is such that there is -- there's just not enough to do. There's not enough memory in the world. And so -- and people are worried about supply. And so I don't think it's a surprise that more companies around the world will start to enter into the semiconductor space. And that's why when we talk about the longer-term outlook, it's a combination both of the increased demand, but really increased demand at some of the most compelling leading-edge opportunities that are presented to Lam.

And so I think this is -- when we talk about WFE, there's so much -- only so much that can be executed in this year. But again, you see a lot of these projects starting to line up that I think represents opportunity in the future.

Our next question comes from C.J. Muse with Cantor Fitzgerald.

I just wanted to touch on your commentary around '27 visibility. And can you kind of speak to your discussions, conversations exceeding 18, 24 months, whether you're starting to see real slotting and desire to lock in time frames for delivery? And I guess as part of that, how are you kind of working your supply chain for readiness for that ramp?

Yes. So clearly, we're about halfway through '26. And so given our lead times, of course, we're having conversations with customers about '27. And in some cases, for planning purposes, like getting resources ready engineers hired and trained in the right locations, those -- some of those conversations even extend beyond that. We have customers who clearly announced fabs with openings in 2028. There's no reason not to start having conversations with them about what the tooling is it's going to be required based on the node that we run, kind of the size, the resourcing requirements.

So I'd say we're in various stages of those conversations, but the more visibility we have, the better we can get our supply chain and our own capabilities ready. I think it is a case where today, our view on WFE, as I said, for 2026 really has a lot to do with what we believe can be executed. We talked about this upward bias. We're working a lot with customers on near-term constraints, things they can do within their existing fabs. But at the same time, preparing for those new fab openings and true kind of greenfield shipments as they roll out later this year and through next year.

Yes. [indiscernible], I'd just add, it feels like it's setting up to be a pretty good year in '27 right now based on what we can see.

Excellent. And then maybe a question on CSBG. Obviously, tremendous focus on trying to get every bit out the door in this very tight environment. Curious if kind of the upgrade business that you're seeing is sustainable? And is there kind of [indiscernible] we should be thinking about for full calendar year '26 revenue growth in that bucket?

Yes, [indiscernible] that's a great question. Look, I think we're feeling really good about CSBG, industry utilizations are high. So spares was quite strong in March. Service was quite strong in March. Tim talked about the new Equipment Intelligence and cobots that we're rolling out. We're excited about that. Our customers are excited about that.

So when you see how strong it was in March, I think it popped up, I think it's going to kind of sustain roughly at these levels as we go through the remaining quarters in the calendar year, maybe up a little bit. But I think we're feeling pretty good about the strength that we're seeing here. And frankly, we're innovating here, too. So I think we feel pretty good.

Our next question comes from Harlan Sur with JPMorgan.

When you -- when I speak with the process development and integration engineers, obviously, of your customers, they're very focused on next-generation technologies and architectures and that's what we hear on these calls, right? How Lam is enabling 3D device architecture, cell structures, driving high aspect ratios, new materials, et cetera. But then when we speak with the manufacturing and operations teams, it's a very different focus, right? And the vocabulary set is very different. It's all about throughput, uptime, defectivity, overall fab cycle time. And then especially with the tight supply situation and constrained premium space environment that we're in today, any incremental improvement in high-volume productivity could unlock like literally millions of dollars of incremental wafer output.

You've talked about things like the Dextro cobot, but any other enhancements that you're driving, Tim, to the installed base on productivity and manufacturability and more importantly, like, how are you guys monetizing this? I assume it's maybe primarily services and upgrades?

Yes, it is a too-focused world, as you talked about. And the good news is we've got the company organized in a way that we can focus on both with significant intensity. So clearly, leading edge being in front of those inflections, a number of years, we said sometimes 5, 6, 7 years, you're working with the customer in advance of that node ever reaching production. But at the same time, especially in the environment we're in right now, I mean, production output, uptime yield, those things are really what are most critical to customers in the immediate term.

Plus, I would say, really identifying the bottleneck tools within the customer that's limiting output and helping them with those workstations. Equipment Intelligence, if you think about what it does is it allows us to look at massive amounts of data coming from our tools on every single wafer, and that shortens troubleshooting time if there is a problem with the tool. It helps us with the time to ramp those tools either on new process or as they start up, helps us to match tools, better tool to tool chamber to chamber, all those things can yield -- lead to those tiny little improvements in yield that really do matter for the customer.

On the Dextro cobot, we've talked about the fact that at some customers, the precision and repeatability of the maintenance has actually yielded improvements in both output and yield and does through -- that through better first time right. You do the maintenance, it comes back up and is back into production more quickly. And also just the improved repeatability of, like, let's say, the new part placement inside the chamber, actually has had positive effect on the yield need. So that's something we're really focused on. How do we monetize it. Yes, it's through services and obviously, in some cases, new tools.

Yes. Okay. I appreciate that. And for Doug, your OpEx grew 5% sequentially in the March quarter, implied OpEx growth in June is 7% and given the leverage, it's allowing you to actually exceed your long-term operating margin target of 35%. So how should we think about the OpEx growth through the remainder of this year? And I guess when is the team going to update its long-term targets? Because as the year unfolds on more revenue growth, you're clearly going to drive margins above the 36.5% op margin range that you guided to for June, right? So when is the team contemplating like updating this long-term targets?

Yes. Harlan, it's a great question. First, let me talk about the spending trajectory for the year. Listen, I think at the end of the day, this management team likes to see the top line growing faster than spending so that we can deliver leverage and that's absolutely how we're thinking about things this year. Having said that, we're going to grow spending this year because, frankly, we can afford to do so, and we have some things that I think are quite innovative that we've been thinking about that we've wanted to put a little more money towards. So we're going to do that. We've decided we're going to do that this year.

And yes, we're talking internally about the fact that we're above the previous model that we gave. And yes, I know we need to give you an updated framework and we will do that later in the year. And we haven't bottomed out on exactly when or exactly how we're going to do it, but we know we need to and we will be doing that, Harlan.

Our next question comes from Atif Malik with Citi.

My question is on the NAND market. It seems like near-term NAND is still low, like 12% sales, but something has changed versus 90 days ago, you guys are talking about NAND growing through the year and the pull forward in that the $40 billion number. So can you [indiscernible] has changed in the NAND market? Are you seeing signs of capacity additions? Or what has changed maybe with [ KB Cash ]?

Yes, we didn't mention [ KB Cash], but I think it's a good example of exactly what I was referring to when I talked about it, it's increasingly important role in the AI memory hierarchy. And so clearly, there is increased demand for NAND coming from AI data centers, and that's helpful. But also, if you think of the -- on a relative basis, what under investment in that area, partly as customers make choices about clean room allocation and obviously some other devices like HBM were so hot during that period.

Also, going back to what we said early last year, the installed base had gotten a little bit behind in terms of the state-of-the-art technology. And so most of the installed base at that time, early 2025, about 2/3 of it was still running in the [ 1xx ] 100-plus layer technologies really when you need to get those incremental bits out now, you need to be 200-layer plus. And so that's what's caused this acceleration is you need more bits. You need those bits to be more capable, you need QLC to meet AI data center demands and so you've started to see the push for accelerated conversions in the technology. And that is -- that's what caused a lot more activity in the NAND space.

As people push forward, we didn't also said, look, the conversions are going to happen because that's very -- the quickest way to get to the high capability, but you'll also need greenfield because those technology improvements like in Lam's case, to go above 200-layer, we talked about the number of new tools you need to add to manage the complexity of higher layer count stacks that in itself reduces total wafer output capacity of the industry. And so eventually, you need to add greenfield back to continue to get the big growth we need. So that's the reason we started talking about it is it's materializing as a significant opportunity now on the revenue side for Lam and looks to be so for quite some time.

Doug, you talked about customer down payments at [indiscernible] level in 4 years. And you're also talking about WFE growing in next year. Can you reconcile those 2 comments?

I guess what I would tell you, Atif, is the group of customers that generally provided on payments aren't the ones that are growing the quickest, and that's absolutely what we're seeing going on right now.

The next question comes from Melissa Weathers with Deutsche Bank.

I had a more thematic question maybe for Tim or Doug, if you want to take a stab you can do. We've heard a lot of about reasons why this memory cycle is different with HBM and trade ratios and new applications like [ SOC ] and it does seem like AI is driving memory demand growth a lot faster than what we've seen historically. So I guess, do you ascribe to the view that this memory cycle is -- I won't say the D-word, but there's a change this time around? And then what kind of actions are you taking to derisk the cyclical side of things while still being able to capture the upside?

Okay. Well, it's a great question. And maybe I won't use the D-word either, but I think it's -- or maybe I will. I think it's different for Lam in that -- and there was an earlier question that talked about how so many of these new devices have different architectures, 3D scaling. And so I think the most important thing about this memory cycle is it is a cycle in which you're seeing dramatic improvement and change in the etch and dep intensity. And so the complexity of 3D scaling has created a lot of new opportunities for Lam. And so that is driving both SAM expansion plus share gain for us through those new applications.

So I feel like compared to prior upturns in memory, we are and we're doing even better just because of that extra layer of etch and dep intensity scaling. How do we prepare if there is ultimately that peak, which we're not -- we're certainly not calling right now given the tremendous demand that's out there. But it is we operate very flexibly. I mean, Doug talked about a lot of our operational investments we've made. And in many cases, some of the things we talked about, Dextro cobots, Equipment Intelligence. These are all kinds of capabilities that in many ways, allow us to support our customers without so much of the fixed cost scaling that we had to make in the past. And so we always have an eye on what's it going to look like if the business were to slow down. And I think if you look at our track record, in those periods, we've also outperformed.

And Melissa, maybe I'd just add. I mean, the way I'm looking at this right now is memory is just so critical in all of these accelerated compute architectures to feed the parallel compute, you need just data coming in to keep the machine going. And so the criticality of it maybe is more than it's ever been from my point of view. And I observe -- maybe I'll use a different D-word disciplined investment, right? I mean, everybody likes profitability that they're generating right now. Everybody is just kind of lugging into where demand is. And I think that's a good thing for all of us in the industry.

Our next question comes from Srini Pajjuri with RBC Capital Markets.

My question is on China. Doug, I think your comment about prepayments being down. I'm guessing that's related to China. Can you talk about what you're seeing in terms of the demand environment in China? And as you go through the next few quarters, what are your expectations?

Yes. I think, Srini, what we described a quarter ago is still the way I would describe it this year. I think WFE in China is flattish year-over-year from '25 to '26, maybe it's up a little bit. But you're just seeing so significant growth from the global multinational set of customers that China as a percent of the overall revenue is coming down.

The other dynamic in China is you're starting to see some of the global multinationals in China spending a little bit more, too. So when you look at that overall geographic distribution in China, it's also broadening out in that regard. And yes, you're right about the fact that down payments are down -- down payments tend to come from smaller customers, and a lot of them are in the China region, and so those 2 things are correlated together.

Okay. Great. And then my next question is on the CSBG. So obviously, I think it grew at a double-digit pace for the last several years. And I think last quarter, if I recall correctly, I think you were expecting high single digits because of the reliant slowdown here. But it does seem like the clean room issue is not going to get resolved. Demand is very strong.

So my question is, should we -- I mean, are you seeing any acceleration in terms of your services and spares business? Is this something structural in your view going forward?

Listen, Srini I'll let Tim comment after I give you a little bit of data. What drives a lot of spares and service, frankly, is utilization in the overall industry. Utilization right now and in the March quarter, is very, very high. And so a lot of the growth at least contributing to some of the sequential growth in CSBG was the uptick in spares and service from that utilization. I don't know that utilization can get any higher than it is. Frankly, it's pretty full out right now. And so when you think about growth sequentially over the next couple of quarters, those components of CSBG are probably kind of plus or minus where they are.

Now Tim talked about advanced service and cobots and [ EI ], that layers on top of that to a certain extent. And then also, if you think about what's going on in mature node spending, a lot of that is what drives Reliant and that's flattish this year. The real growth is coming from stuff at the leading edge, which we're really benefiting from move to etch and dep intensity. So Anyway, that's just a few things to think about relative to CSBG. Anything you'd add, Tim?

No, not really. I'd just point out that you're trying to work on constrained workstations within a fab. Again, this is where things like the Equipment Intelligence, how to get those tools up faster for production. There's a lot of focus on that. That's the short-term prove out. And I think that long term, that then has a real benefit because once the value has been seen in this kind of constrained environment, I think that it will be more likely that new fabs get built with all of those intelligent services and automated maintenance capabilities built in right from the start.

Next question comes from Vivek Arya from Bank of America.

To many of your memory customers are talking about long-term contracts, LTAs, pricing arrangements and whatnot. How is that translating into your visibility and pricing power? Should we expect customers to start putting down payments to secure your capacity also? And if not, why not?

Well, it's a good question. I would say that it's translated into a longer visibility for us. As I mentioned in an answer earlier, clearly, we're having conversations with customers now at around the time that they're starting to construct these fabs, it means we have much longer visibility. And I think the most important thing there is to be ready with the resources that are needed and our own capacity to be needed to support those shipments. And so I would say, we're working with customers today short term in their existing fabs. We're working with them with these long-term fab plans and being ready. And in many ways, that's allowing us to be more efficient.

As Doug talked about disciplined build out in our operational capabilities, our manufacturing, our supply chain. I would say that it is translating into financial benefit for Lam as well by having those longer visibility conversations.

And Vivek, I mean, listen, we're having very long-term conversation with customers, but we don't need down payments. We generate ample free cash flow from the business we run the commitments we're going to get from customers are important and significant and they're happening, certainly, but it doesn't require down payments for us.

Got it. I guess maybe the subtext of my question is the gross margins that you're seeing, right, the 50.5%, how durable are there? So let's say if memory pricing goes down next year for whatever reason, do you still think these gross margins are sustainable? And maybe you can even expand from these? Or do you think these gross margins are because the industry is so tight today. So I'm not asking for a gross margin forecast per se. I'm just trying to understand that if you're customers are getting assurance of their pricing? Is there anything Lam can do to help get assurance around your pricing and your -- the sustainability of your margins over the next 1, 2 years?

You know what -- actually, we're not going to give you a gross margin forecast longer term. But I think that what you can see and what we've said is we have been building the gross margin improvement in our company around fundamental capabilities, either our own through our own operational efficiency or through the value that our equipment delivers. And that can be technically as the manufacturing becomes more complex, it can be the unique capabilities our tools provide from a technical or a productivity perspective. And so we have moved at a pace where we feel like the improvements we're making are sustainable because they're rooted in real value or real efficiency. And they're not a -- they're not leveraging sort of the opportunity, and they're not transactional in nature. They're really founded in fundamental value delivered to the customer.

And when I talk about things like cobot, for instance, the value of a cobot is rooted directly in the value being delivered to the customer through better uptime, better yield, and we get paid for that. And I think those types of things are sustainable. When we deliver technology that enables the move to the next technology node. We think those are sustainable regardless of the cycle because it is delivering value to the customer. And that's -- we're in this for the long term with our customers, and that's why we look at, at all of this.

Our next question comes from Jim Schneider with Goldman Sachs.

I was wondering if you could maybe comment on in terms of the WFE uptick you expect which of the product areas do you expect the most kind of incremental leverage? Is it kind of split across all of them? You talked about advanced packaging, but which was driving the most upside to the overall spending envelope this year do you believe? And is that being driven mostly by early fab clean room pull-ins or something else?

Yes, Jim, I'll comment and then if Tim wants to add I'll let him do that. I think the reality of it is everything is a little bit stronger. I think everybody in the industry is working on finding a little bit of clean room that they've been able to just accelerate to a certain extent. Demand has always been there. Demand is as strong as I can remember it. Frankly, it was strong 90 days ago. It continues to be maybe even a little bit stronger right now, and everybody found a little bit more clean room and so they were able to take a little bit more equipment.

Our next question comes from Stacy Rasgon.

For the first one, I wanted to push a little bit more on the services growth. So I understand the drivers around utilization topping and the Reliant weakness. But I mean, you also talked about the $40 billion in upgrade spending pretty much all happening by the end of '27. I don't get the feeling that we've had like tens of billions of that upgrade spending happening already. So it almost feels like we should have tens of billions of upgrade spending happening between now and the end of next year. And from what I understand, I thought that all goes into your services business. So why shouldn't that be a pretty big driver of services growth, I guess, between now and the [indiscernible].

Yes. Stacy, I would point out a couple of things to you. In that $40 billion number. Yes, there's upgrades for sure, but there's also new equipment purchases, right? There's some new things, right? When you upgrade the installed base, you need to buy new equipment to break bottlenecks and constraints. There's also some new equipment as the industry moves to moly. So it's not all just upgrades.

And the other thing I would say relative to upgrades is upgrades were actually quite strong last year in '25 and are going to continue to be for the next year or 2. So that's part of the upgrade story. And then the other components, like I said, spares and service. It's already pretty darn strong in March and, frankly, Reliant with the mature node spending being a little bit softer than everything else, that's the puts and takes to get you to kind of quarter-by-quarter plus or minus flattish as you go through the rest of the year.

Okay. That makes sense. If I could ask a follow-up. So you guys are seeing WFE growing this year on the order of, what, $30 billion, like you said, 110 last year to now 140 plus this year. And that's very strong, but it strong that it is, as you know, it is a constrained growth because of clean rooms. And those clean rooms start to come online into next year. Does that suggest to me that the sequential growth of WFE next year ought to be even stronger on a dollar basis than it is in '26 because you'll have some were to actually put the tools, whereas you don't really have that this year. Like what's wrong with that logic? How would you push back on that?

[indiscernible] to decline to comment on the exact magnitude of WFE next year, but we do firmly as we sit here today, look at clean rooms are going to be more available next year and where we believe demand to be WFE is going to be nicely growing next year. And it's too soon for us to give you a number, but we feel pretty good about the growth trajectory into next year.

Yes, I'd also point out that every year that goes by, as technology advances, etch and deposition intensity rises. And so as those new clean rooms come on and they're targeting more advanced technology nodes, that's better for -- certainly better for Lam's position within whatever the term I used compelling WFE growth is.

Our next question comes from Krish Sankar with TD Cowen.

I just want to follow up on an earlier question on the upgrade to the WFE numbers, the $135 billion going to $140 billion plus. Is there a way to segment was the bigger driver NAND? Was it CPU tightness? Or was it just AI strength?

Krish, what I said is everything got a little bit stronger because everybody got the little bit of [indiscernible] clean room. So it's not any one component of the customer base. Everything is just a little bit better.

Got it. Got it. And then as a quick follow-up. It looks like the third-party market share data came out and you folks gained share in PECVD quite a bit last year. I'm curious which vertical drove that PECVD share gain? Was it DRAM or foundry/logic or something else?

Do you want to take that Tim? You want to [indiscernible]?

Sure, go ahead, Doug.

Listen, I think PECVD is such a broad pervasive tool. It shows up in every component of the customer base. One area I think that sometimes is underappreciated is the use of PECVD and underfill in advanced packaging, honestly. And that was a key contributor. Tim talked about we see packaging this year growing 50%. We talked about real strong growth last year. PECVD benefited from that, obviously.

Yes. I think PECVD also shows up. It's challenging because you think about the old traditional PECVD applications. But even as I mentioned, as we move forward in NAND, for instance, even like our Vector [ DT ] backside stress management actually is a PECVD application. So in many ways, it's such a pervasive technology, and so we see that improvement in PECVD.

Our next question comes from Joe Quatrochi with Wells Fargo.

I was wondering if you could talk a little bit just about where your lead times sit today? And then also, I think you talked about the second Malaysia factory opening. When is that ramp? And can you remind us like what is the size of that relative to, I think it was a pretty large first facility that you have like 700,000 square feet.

Joe, first saying, we don't specifically put numbers around our lead times, but they are stretching out a little bit as demand is obviously quite strong. So [indiscernible] I'm going to give you a number though. Second, the second [indiscernible] facility, we'll come on the second half of the year. And yes, you're right. The first one was our largest factory in the network. This will be nearly the same size or maybe approximately the same size as the first one. So it will give us the opportunity to scale into the next year's demand, I think.

That's helpful. And then I was just curious, I was wondering if you could talk a little bit about just your position for high band with flash. And just any thoughts around that? What does the SAM potentially look like for you guys there?

I'll let Tim should take that one.

Well, I think in any of these cases where you are talking about device architectures that require 3D scaling. I mean, obviously, our SAM opportunity just grows. I think these devices in the exact process flows and [indiscernible] still being worked through. But the types of systems we have, whether it's high aspect ratio conductor etches, higher-spec dialectric etches, the depositions ALD, it will be a great opportunity for us if it -- when it comes to fruition.

Operator, I think we have time for one more question.

Our next question comes from Vijay Rakesh with Mizuho.

Just a quick question on the DRAM side. It looks like it grew very nicely, up 45% year-on-year. On the -- when you look at HBM3E going to HBM4, with the higher layer count, I think, 50% higher. Is there a way to look at what your content uplift is per 100,000 wafers or something HBM3E goes to HBM4or 4E? And I have a quick follow-up.

Vijay, maybe I'll comment and then maybe let Tim talk about the technology. Yes, clearly, it goes up. We haven't given specific numbers around it. But obviously, the higher stack required. I'm getting a little feed back. The higher stack requires more equipment, a little more challenging for the industry. So you clearly need more equipment. We haven't given a specific number on it in terms of dollar per 10-K.

All right. And just on the follow-up on HBF. I mean are you seeing book SanDisk and Hynix talking about it, I guess, but outside of that, when you look at high bandwidth flash, are you seeing investments or CapEx picking up there? Is that something you're seeing into '27? How would you look at that ramp?

Yes, I'd probably leave it to our customers to talk about their timing on these kinds of new technologies. But as I mentioned earlier, on any new technology, we're engaged with customers quite well ahead from a technology perspective of any production ramp. And then it's very much up to them ind.

The one thing that's true, and we talked about it is that these are being driven by the growing importance of NAND as we see it within the AI memory hierarchy. And so again, we think it's something that in a matter of time, this kind of capability is likely needed and [indiscernible] technologies that will support it very well.

This concludes our question-and-answer session. I would like to turn the conference back over to Doug Bettinger for any closing remarks.

Listen, I think Tim and I, and Ram would just like to thank everybody for your time and attention during what I know it's a super busy earnings season. I know we're going to see lots of you as the quarter unfolds at different conferences and road shows. So we're looking forward to that. And again, thank you for your interest in the company. We appreciate it.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, everyone. My name is C.J. Muse, semiconductor equipment analyst here with Cantor Fitzgerald. Welcome to Cantor Global Technology and Industrial Growth Conference. Very pleased to have Lam Research and Doug Bettinger, CFO. Welcome.

Thanks for having me, C.J. It's good to be here.

Always great to have you. Yes. I know you have something to read, so I'll turn it over to you.

Yes. Let me start. I need to do a quick safe harbor. Have a look at this robust slide. I'll read a little bit, and then we can get started. Today's discussion may include forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements can be found on the risk factors disclosed in our public filings with the SEC, including our 10-K and 10-Q. So my lawyers are now happy, and now we can talk about what's going on with the company and the business, C.J.

Wonderful. So given we're in a significant upturn, and now this is the second time we're together, and I think the 3 weeks. I want to keep you happy.

Nothing's changed in the last 3 weeks. C.J.

To keep you in that good mood, I want to start with your favorite business that you've highlighted many times, CSBG. So currently...

Thank you for starting with CSBG.

1/3 of your total revenues and buttressed by an installed base of over 100,000 units. Why is this such an important business for Lam, particularly as you think about offering critical support and driving your relationships with customers as well as supporting your capital return plans?

Yes. So let's -- and by the way, thank you again for starting here. I've had 3 meetings this morning. No one's asked about CSBG in any of the meetings. So it's important. It's 1/3 of the business, as you point out, roughly speaking. The way to think about it is there's 4 components and CSBG is the customer support business group. It's spare parts, it's service, it's upgrading the installed base, and then it's the older products that we call the Reliant product line. So an important component of what we have going on. The important thing, and we give a number at the end of every calendar year, is the number of chambers in the installed base. It was 102,000 at the end of last year. The previous year was 96,000. Our installed base grows every single year. Why this is important is our equipment honestly runs for decades. It almost never goes away. And so over that time period, on average, we generate more revenue after we sell the tool than when we sell the tool itself.

So as much as we're all super excited about WFE, and I am super excited about WFE. It's very strong, and I know we'll get into that, C.J. I often will describe CSBG as my favorite part of the company's business model because it just -- it goes for a very long time. It's nicely profitable and it's nicely profitable because it doesn't require a ton of investment, not anywhere near the level of R&D investment that designing a new etch tool, as an example, requires. It does require investment, but it's not a huge amount.

And so that's important because it is nicely profitable, more profitable at an operating margin level than selling the new equipment, again, because of the more modest R&D investment.

And it is also, to your point, about capital return, it is very cash generative for the same reasons. So it comfortably supports our annually growing dividend and contributes nicely to the capital return and share buybacks.

We're also very excited about what we're doing in the advanced service area using equipment intelligence, and we've got all these cool videos using cobots to provide service that as we think through how we're trying to innovate here, we're beginning to deliver service in different ways.

Service in this industry historically has been show up and do a task. We are innovating here by -- I almost -- I do call it results-based contracts, where we know we can do certain things using more predictive type AI algorithms and the cobots to be consistent in delivering the service where we know we can guarantee certain outcomes. And so that is a really exciting part of CSBG in the advanced service area because it's able to deliver something for the customers that oftentimes they can't get on their own.

So you've grown the business at a 13% CAGR over the last 5 years. You just talked about Dextro and cobots, bringing in artificial intelligence, trying to be predictive. Should we be thinking about a higher content kind of driver there and that over time, we could see potentially even faster growth.

I don't want to get out over my SKUs too much in terms of the faster growth, but yes, what we try to do in the areas like I described, Advanced Services is deliver dollar growth beyond just the growth rate of the chamber count. And we've been quite successful at doing that, and we'll continue to drive the innovation there to try to continue to do exactly that.

And just to kind of level set where we are this year, you've guided high single digits, low double digits for calendar '26. Are there still kind of headwinds within Reliant or is that kind of done?

Yes. If you think about the 4 components I described, spare service generally, when utilization in the industry is high consumption of spares and services is higher. Obviously, utilization is very high in the industry right now, given the strength of everybody's business. So that will benefit. The fact that chamber count grew last year will enable that to continue to do well, spares and service. Upgrades because of what is happening in the NAND set of customers is quite strong this year. It was quite strong last year. And then as I think through what Reliant may or may not do, you have to think about what is happening in the mature node investments globally. Flattish is probably the right way to be thinking about that, maybe up a little bit, but the fact that everything else is growing so strongly, that component probably is a little bit of a headwind, meaning Reliant.

Makes sense. So maybe moving to the current industry outlook. A lot has changed in the last 3 months. And U.K. started semi cap earnings with the first kind of WFE official outlook, up 22%, most aggressive of your peers. So what has changed? And what is driving this robust outlook?

AI -- the demand for AI compute is what's driving it. And obviously, I think everybody in the room and everybody listening to the webcast knows they're just real strength in hyperscale CapEx. That's what's driving it C.J. Yes. We described a view that WFE this year, $135 billion, up from $110 billion last year. The incremental growth vector largely all about AI compute. It's accelerators, it's high-bandwidth memory. It's KV cache driving the need for DRAM. And so when we look at all of that, that's kind of the incremental uptick. Now also what we've been describing, and I think pretty much everybody in the industry has been describing it this way is WFE is going to be constrained by the amount of clean room that's available in the industry. And so end demand right now is stronger than that $135 billion. But there's only so much clean room out there. And it takes time to expand that. So that, I think, is what's going to modulate the amount of investment this year.

So I think you've talked about already '27 being a pretty good year.

Well just because of what I described.

Exactly. So curious, as you think about kind of this pent-up demand, how are you kind of working your supply chain to be ready for this? And I wouldn't -- our house view is that lead times are likely going to be worse this cycle than COVID cycle. Curious how you're thinking about that.

Yes, listen, there's a large part of the organization at Lam whose job is to manage the supply chain, to manage our own internal manufacturing capability. And those guys and gals are very busy right now. We are communicating with all of our supply chain partners about our expectations for volume based on what we're hearing from our customers and the timing of that and what upside might be to make sure everybody is going to be prepared and ready for it.

Our objective at the end of the day is not to be the constraining item in the industry, and I think we will succeed at that. It doesn't mean that it's easy. It doesn't mean that it just happens automatically, it doesn't, but we know how to do this. and I've got really capable supply chain organization that is working on this right now as we speak, and we'll manage it reasonably well, C.J.

Sounds good. So let's focus in on Lam and 2025 was a great outperformance year for you. I think you grew revenues 40%. The market was up 10%. And I go back to your intense focus on R&D during the COVID period that I think has really set yourself up for market share gains. And so you've already talked about being the best kind of house in the neighborhood for 2022.

I'd like to use that analogy.

So what are the key drivers of our performance in '26? And maybe compare and contrast versus what drove the outperformance in '25.

I think -- listen, I'll just make one observation relative to our performance in '25, which is almost 60% of our systems business was foundry and logic. People often think of Lam as the memory company, and we love our memory customers. We do very, very well there. It's not that we're not extremely focused on them. We absolutely are. But we made conscious efforts to expand the footprint of the company quite successfully, as you point out, during COVID. We grew R&D in a meaningful way because we saw some of the changes in the industry was going to experience in gate-all-around and backside power in advanced packaging that do have footprints in memory, but have very strong footprint growth in foundry and logic, right? 3D structure's evolving, which are etch and deposition intensive. So we were quite successful, I think, relative to the investments we made, the strength of the product portfolio.

You saw it from us last year, and our expectation is you're going to continue to see it. And my comment on we live in a good neighborhood and maybe have one of the nicest houses in a good neighborhood is because architectures are inflecting in the third dimension, which grows our SAM, which grows our footprint, which grows our opportunity. And we're very excited about that. I think Tim and I were quite happy with how the company performed last year, and we believe we're going to continue to outperform this year.

So sticking with the foundry logic side of your business, we're now seeing signs of a second and maybe even a third kind of player emerge outside of the lead player. How is that kind of impacting your view of the world and WFE in '26 and '27?

Yes, it's absolutely -- when we communicate a view of $135 billion, it's all in for every -- all of our customers. There's not any exclusion anywhere for sure. And yes, it's good to have things broadening out. But what is most important, though, is just the end demand, right? End demand is very strong. And yes, it's good to have multiple customers supplying that demand and that certainly is what we see.

And I guess maybe sticking with gate-all-around, I think you talked about well over $3 billion in revenues there in calendar '25. Where are we in that?

For gate-all-around and advanced packaging put together was the disclosure.

So where are we in that kind of adoption curve? And then maybe to add to that story line, it certainly sounds like backside power will be adopted by high-performance compute potentially first for products in '28, I would think investments, at least by '27. How does that kind of inform your vision for growth and relative growth.

Yes, both are important. Both are 3D structures. And just to give you a rough order of magnitude on it. We have said as gate-all-around ramps because of the 3D architectures, our SAM expands by $1 billion for every 100,000 wafer starts of capacity that the industry puts in place for the gate-all-around sheets themselves. So obviously, we're excited about that. We've invested to do well there. We are doing well there. And so you're seeing that show up. by the way, curiously, we've said for backside power, it's also an incremental $1 billion SAM opportunity for us for every 100,000 wafer starts.

And your observation on timing is correct. C.J., that's still kind of in the future on the come line, so to speak, but we're very excited about both and both played to the strength of what we're good at doing. Depositing material and removing material -- etching material.

And so final question on the foundry logic side, but really focusing on advanced packaging. I think you've got that business up 40% this year. Curious, how do you partition kind of your participation across foundry versus HBM?

Both are very important in -- obviously, and you know this, but I'll remind the audience. If you think about HBM growth and you think about advanced compute growing and AI, they all need to go together at a system level, system architecture level, right? You can't do the compute without feeding the compute engine with data. That drives the need for HBM capacity, it drives the need for advanced packaging and foundry and logic. We do the TSV extremely well, extremely strong in the through silicon via process. I call it the drill and fill, right? We etch the interconnect space, and then we deposit the copper conductor material using an electroplating process. That's a tool we call Syndion on the etch side and SABRE 3D on the electroplating side. And as capacity needs grow, we do well because we pretty much own those applications.

So maybe moving to DRAM. How are you thinking about contributions there, both from new capacity greenfield, 1C and beyond kind of transitions as well as the transition to HBM-4.

Yes. All of that is happening. And our position there is doing really well. And again, I think of the need for high bandwidth memory and DRAM specifically as being driven at least incrementally right now by AI compute. And our share there is strong. Our footprint there is strong. The fact that HBM is growing. There's a trade ratio that requires incremental capacity. Yes, it's meaningfully showing up. When I think about the growth drivers of WFE this year, DRAM is probably top of the list.

So when I think about kind of the tremendous demand for DRAM bits and really the lack of available clean room space and the undersupply, I'm hearing new tools being installed, ripping out rec rooms to bring in more clean room space within a facility, upgrading tools because they have better kind of throughput and can deliver incrementally more output. Are you seeing benefits from that? And is there a way to quantify that?

Only that it's the biggest contributor to WFE growth this year, C.J. I don't know we've given specific magnitude relative to anything beyond that. But yes, it's about investment in capacity in HBM. It's about yes, the move to more advanced nodes that enable bit growth with the installed base. It's about upgrading the installed base, which we do quite well when that happens, and it is happening in DRAM. So all of that together is driving the growth in WFE and the growth in our business.

Maybe last question on advanced packaging. How are you competitively positioned with the eventual adoption of hybrid bonding?

Hybrid bonding is enabling of all of the advanced packaging stuff. We don't have a specific hybrid bonding play per se, but we do things around it. And as that grows, obviously, the through silicon via stuff that we do extraordinarily well grows quite nicely.

So would there be anything disruptive by that or no?

Nothing that I would point to, no.

Got you. I skipped one. I want to go back to DRAM. You secured your first win for dry resist, that's low NA EUV with the DRAM player.

Ramping in production right now as we speak, generating real revenue this year.

So how is the customer reaction? And what more importantly is the reaction perhaps of the other 2 multinational DRAM players?

Listen, when everybody knows you're ramping something in production, if they're not the customer ramping it, they're looking at it and trying to understand, okay, am I missing something? Do I need to move more quickly. Listen, I still stand by the numbers that we've described for dry resist, which is as we look at this in total, we see an incremental opportunity cumulatively of $1.5 billion over a 5-year time frame.

The fact that it is ramping in production as we speak is a clear demonstration on the value it delivers, a clear demonstration on the fact that actually there's real value here and it's going to get pulled through from everybody else.

And what does it say that it's 1 layer. Does that mean it's really comfortable with the technology, and we're going to bring it into HVM or is it where they found dry resist, particularly great for 1 area.

I think the fact that you're seeing it ramp in the production 1 layer. That was the highest value application, obviously. Everybody that uses EUV has our hardware in the lab and is evaluating the capability here. That doesn't happen if there's not value here. So again, when we look at it, this is going to broaden itself out. We've announced another tool of record decision from a second customer as well. So the future is good for this, C.J. and this is all incremental business for us. This is business we've never done before. And it's hard to find new addressable market in this industry. It's rare that you find like a brand-new thing outside of your existing SAM, and this is an example where we did.

So I know you're working very closely with ASML on this front. And they've kind of talked about 5 to 6 layers of EUV today in Korea, going to 10 by 2030. I'm not asking you to corroborate those numbers, but more -- do you think that this is a tool where you could secure all layers or would there be...

Probably not on all layers, but if those numbers are even directionally correct, the incremental opportunity grows.

And then maybe to go back to your prior comment, what are you seeing from a dry resist perspective on the foundry logic side?

Yes. Like I said, everybody that uses EUV's got our hardware in their lab and they're looking at the capability.

Got you. Okay. Well, maybe moving to NAND. We're 20 minutes in. First question on NAND, Doug.

Thanks, CJ for like getting to it, but also waiting.

You call for continued strength here. And I think the lion's share of spending is much more layer count increases. So where are we kind of in the upgrade cycle? And are you getting sort of any inkling of more meaningful greenfield investments?

Yes. So the way I've described it, I'll take you back, I don't know, roughly a year ago. Then we were describing a point of view that the industry would, over the next several years, invest $40 billion largely focused on upgrades to get the bit growth that was required.

And I'll also remind you a year ago, I think the industry generally was coalescing around a view that bit demand was in the mid-high teens. And so the world is different now. I think everybody believes bit demand is higher than that. And so when we look at -- well, what happened last year, a lot of upgrades happened last year, C.J., right? Our upgrade business last year grew 90%. A lot of that focused on the NAND set of customers. I think fast forward to where we sit today, that $40 billion likely happens sooner than we previously expected because bit demand is stronger and at some juncture, what we've said is, yes, you're going to need some wafer capacity put in place. When we look at the industry this year, a lot of upgrades happening. When upgrades occur, actually, wafer capacity goes down, you lose wafer capacity because throughput extends.

So that is what we see happening this year that you likely have a reduction in wafer capacity, but at some point, the industry is going to get around to adding capacity, C.J. is our point of view based on the strength of demand and especially related to KV cache driving the need for storage here.

That was the next question. KV cache, Jensen announced GTC Washington. What are your thoughts here? And any work in terms of the incremental bit growth for the industry?

Yes. We've looked at it. I haven't like articulated a bit demand is now this much higher, but it's clearly going to be that much higher. We've done some analytics around for every 2 million accelerators, a percentage of incremental demand for NAND based on this. And again, it's an estimate. Everybody's got slightly different numbers. I think you've got numbers that are also out there, but it's incremental, and we're excited about it. And I'll let my customers describe to what magnitude it ends up showing up.

Wow, so 5-plus points to industry growth potentially.

I guess we'll see. You'll do your own math, everybody would do their own math, but it's clearly incremental.

Maybe moving to margins. You've had multiple quarters now above your calendar '28 target model of 50%. I guess within that, can you discuss a pricing environment? B, what inning are we in, in terms of the benefit from Malaysia facility? And C, are there other tailwinds that we should be thinking about?

I guess the way you wouldn't want people to like jump too far ahead of the model. Yes, we've delivered on it. There's some puts and takes relative to gross margin. But I think we are quite pleased with -- yes, last year, we printed 2 quarters with gross margin above 50%. We just guided to 49%. So we're in that range of the financial model a couple of years ahead of time. And your observations on the contributors to it are exactly right.

We developed a couple of years ago a strategy from a manufacturing supply chain standpoint that we wanted to be close to where the customers were. That's enabled a more efficient cost structure for us that is showing up in the P&L. It's pretty much in the P&L as we speak, C.J. There's not much left there because we've executed on this already. It's starting to asymptote in terms of that. But there's still incremental opportunity. Customer mix is probably a little bit of a headwind this year. If you think about the growth this year, it's the biggest customers, which tend to get the best pricing. And so that's a little bit of a headwind, but we're managing it pretty well right now, I think.

The other thing with the close to customer strategy, the dollars we need to spend on freight logistics, inbound, outbound benefit from being closer. So that shows up as well. But we should still be thinking about 50% is the objective of the company.

And if you look at kind of your downstream customers, their margins are now extraordinary, particularly for the memory players. In this kind of environment and given the value that you add, is there potential willingness to deliver better margins on new products? Or is that challenging?

Listen, you're always working best you can to get paid for the value we're delivering. This year is no exception. Yes, that's part of the calculus certainly. And yes, we're in a good spot.

And we started off the conversation talking about CSBG. And so clearly, there's a bit of a razor, razor blade model for Lam. And so how does that kind of play a role in maybe putting a cap on where gross margins can go on the tool side?

Well, it's certainly part of the thought process, which is when you're winning a position, it's not just, okay, we're selling the tool, there's the spares and the service and the upgrade opportunity that's going to continue into the future. That's certainly part of how we think through, how to put a package for the customer together and make sure they're getting the value, that we're getting the value and it all generally work shot in the portfolio at the end of the day.

Makes sense. You talked earlier about putting development closer to customers. Curious how that might translate into actually knowing your customers' challenges and problems better and feeding back to kind of corporate Lam and being able to bring to market maybe higher productive, more valuable and therefore, higher margin kind of tool set.

Yes. Listen, I think we have for several years, had a lab strategy to also not just have the factory close to the customer but to have our lab footprint close to the customer. What that has meant is we've expanded. Certainly, we've expanded labs in the United States. It's still the focal point of what we do in both California and Oregon. But we've also expanded our lab presence in Korea. We're working in Taiwan. We've got lab footprint in India. The benefit of being closer to where the customers are, is the customer can show up in the lab every single day. You can move wafers between their facility and your facility very quickly as opposed to needing to fly it across the Pacific Ocean and back, you can drive it back and forth. And that has been very beneficial for the customer. The time to solution is much quicker. We've suggested that we can actually deliver time to the customer at twice the rate by being in closer proximity to where they are. So I think it is a very differentiated strategy that we've adopted versus some of our peers in the industry.

Maybe a very high-level question, looking out maybe kind of 3-plus years. If we continue on this kind of sustainable path for WFE and semiconductor revenues, I think McKinsey talked about $1 trillion by 2030. They've now raised it, I think at $1.6 trillion, $1.7 trillion.

And I think everybody generally thinks $1 trillion is going to show up this year.

Exactly. So if we are on that $1.6 trillion, $1.7 trillion, maybe even $2 trillion. And if you account for kind of lower WFE intensity given the higher margin stack in high-performance compute, you're still talking a $200 billion plus kind of number. What do you worry about either for Lam specific or for the industry to support that kind of growth?

It's execution, right? You have to deliver. You got to be ready for growth. And I don't know if those numbers are precisely right, but like I described, we live in a good neighborhood. You got to make sure your house looks good and the customers are coming to visit you and that you're delivering for what they need. It's all right now about head down execution, make sure you're taking care of the customer, managing your lead time, managing your supply chain, managing your quality, hiring people to install the incremental volume, getting them trained, getting them ramped up and being ready. And that's absolutely what we are laser focused on right now and what historically at Lam, we've been very, very good at doing.

So we've got 30 seconds left, low capital-intensive industry, low capital intensity from Lam, delivering great free cash flow, how should we think about kind of ongoing capital returns.

Really no difference. We've described a capital allocation strategy of returning 85% of free cash flow to shareholders. It's still what we intend to do, growing the dividend on an annual basis. That's still what we will continue to do. We've done it every year, I think, since 2014 when we first put the dividend in place. Should be a good free cash flow year this year, C.J., and we'll continue executing on what we've told everybody we're going to do.

Perfect. Well, thank you for the time.

Of course. Thank you, C.J.

I guess we'll get started. Hi, I'm Shane Brett, U.S. semiconductor equipment analyst. I'm honored to host Doug Bettinger, CFO of Lam Research. Before we kick it off with questions, I'd like to pass it to Doug for a safe harbor.

Yes, I need to keep my attorneys happy. So let me read the safe harbor real quick and then we can get into the meat and potatoes here. Today's discussion may include forward-looking statements subject to risks and uncertainties, and actual results may differ materially. That's all I'm going to read. Please have a look at the website for the complete safe harbor, and it's up there on the screen.

So with that, we can jump into the Q&A.

Great. Let's get started then. I actually want to start with some longer-term questions about strategy. Just going back to your 2018 Analyst Day, it's -- it's a while back, but that was when you first laid out the sort of etch and deposition intensity thesis. Fast forward 8 years and 2 Analyst Days, it really seems like that thesis has came into fruition now. Just can you walk us through the journey that Lam has taken over the last 8 years and where we are today in that etch and deposition story?

Yes. I mean, I'll take you back to the messaging that we reinforced about a year ago at the most recent Investor Day, but it's the same thing we've been saying since 2018. And in fact, even if you go all the way back to the first one I did, I think, in 2014, the messaging was consistent. Architectures are evolving in the third dimension, right? If you look at it, it's pervasive everywhere in the industry. And I think the first one that happened was 3D NAND. I think that story is well understood, and I'm looking around the room, everybody knows what happened there.

When that transition happened, our addressable market per wafer doubled. Our SAM per wafer doubled. That was the first example of an evolution that we see happening everywhere. So the messaging we brought out about a year ago, numerically, it was -- in foundry and logic, our addressable market per wafer is doubling between 5-nanometer and CFET. And the journey along the way has incremental steps. Gate-all-around is showing up right now in the industry. When we see gate-all-around happening, our SAM grows by $1 billion for every 100,000 wafer starts of capacity the industry puts in place from gate-all-around because of etch and deposition intensity. It's a 3D structure, the sheets. If you look at the representation of it, and it's all over the place, you can see it on our website. It grows in a meaningful fashion. What's coming in after that is backside power. You have a similar step up. In fact, the numbers are exactly the same. For backside power for every 100,000 wafer starts capacity the industry puts in place. Again, it's an incremental $1 billion of SAM and so forth. These are steps along the journey to get to the CFET.

In both NAND and DRAM, you have a similar story, where our addressable market per wafer grows by 1.7x or 1.8x in this similar journey because of the evolution in DRAM is another example, right? 6F squared steps to 4F squared, it eventually goes to 3D DRAM. The industry is working on this all. Everybody is working on it. These opportunities are showing up. And when you look at the outperformance of Lam Research over the last several years, it is because of this. Advanced packaging is another example. And I know you're going to ask me about that later, so I'll save that. But all of these things play to the strength of what we do. We deposit films on the wafer, and we remove them, etch and deposition, the intensity is growing. So we're in a great spot.

I'd like to tell people we live in a good neighborhood, and we're building the best house in a really good neighborhood because in this case of the strength of our product portfolio. We have the strongest portfolio right now of products, I think, that we've ever had because we've meaningfully increased the spending in R&D and brought some great new products to market. And so how that then shows up is last year, our addressable -- our SAM as a percent of overall WFE investment was in the low 30s. Actually, in '24, it was in the low 30s. In '25, it approached the mid-30s. When we look over the next several years, that moves to the high 30s as a percent of overall spending. So that's the -- we live in a good neighborhood. When we look at that growing SAM, we believe we win half of it because of the product portfolio. So when you put it all together, that's the story of Lam Research. It has been over the last several years, and it will be into the future. So thanks for starting there.

Yes, of course. I guess another kind of -- I mean, you sort of alluded to it, but when I think of Lam, people tend to associate it with NAND, but something that you've kind of laid out since, I guess, 2018 was this beyond NAND strategy where you're sort of aiming to better balance the company across all 3 device segments. Can your end -- today, your end market exposure is as close to WFE as probably it's ever been.

I think that's true. Yes. I think that's right, Shane.

What's gone right beyond just these architecture transitions? Like is the R&D put in the right place? What went right for Lam?

Yes. No, thanks for asking that question. I think that's important to understand it. Everybody historically has thought of us as the memory equipment company. So if you go back 4 years ago, when you look at our equipment -- just the equipment portion of the business, 60% of our sales went into memory. Fast forward to 2025, that flipped. 59% was in foundry and logic last year. So what's happened? We put investments in place to grow the footprint in foundry and logic to broaden things out.

Now listen, I still love our memory exposure. NAND is still our strongest end market. But the reason in the last several years, we've outperformed was because of how we deployed those R&D dollars. Super excited about that, right? Gate-all-around, we're doing extraordinarily well. Backside power, we're going to do extraordinarily well. Advanced packaging, we're doing extraordinarily well. And so when you look at that, it was a conscious focus on where we put the R&D to take advantage of the growth that we saw, and we delivered on this. So we feel great about kind of what we've done, how we've succeeded and it's because of how we've invested.

I guess let's start on the foundry/logic portion is -- I feel like the results are self-explanatory. You guys -- the foundry/logic revenue is up 49% in 2025. As you sort of talk about your SAM going from -- SAM increasing 2x from 5-nanometer to CFET. Where are we in that journey? And...

Early.

Early, okay.

That was only a year ago, right? CFET is still late decade kind of profile, right? People are moving it around. But the evolution, like I described, it steps with gate-all-around, and then backside power helps advanced packaging also contributes to this, and that's growing in a meaningful way. And then CFET shows up later in the decade.

And I guess to put it in a different question, your outperformance in 2025, I think we have you guys increasing share by about 250 basis points. How much of that was expected? How much of that was sort of Lam's internal developments kind of falling into the right place? Or how much of that was kind of the external environment leading you to that outperformance?

So a little bit of both. But important was, like I said, when we're coming through COVID, we doubled down on R&D investment because we saw these things. That's what's contributed more than anything to it, right? The products that we have in the markets that are growing.

Got it. Got it. Then as I think about foundry/logic this year, how should we think about your foundry/logic growth this year? I know you're very excited about leading edge logic growth this year, but can you level set us on what you expect for foundry/logic in 2026?

Yes, it's going to be strong. It's going to be very strong. I mean I think everybody understands it's going to be strong, driven by these big compute die in AI. Equally important, though, is the investment in DRAM, right? These 2 things kind of have to go together if you look at system architectures and they are, right? When you look at the growth in WFE this year, those are the 2 biggest contributors to it, followed by NAND, right? Also storage is being invested in. But I think everybody in the room kind of understands what's going on. I mean, that's what's driving the growth this year. We think WFE goes -- last year, it was $110 billion. This year, we think it's $135 billion. The biggest contributors are leading-edge foundry and DRAM.

I guess then let's talk about 2026. You've spoken about 23% industry growth. It's somewhat higher than peers. But how would you sort of characterize the risks to the upside and the downside relative to that 23%?

Yes. No, that's a great question. Right now, our assessment, I think you're hearing everybody in the industry describe it this way, the industry is cleanroom constrained, right? There's just not enough cleanroom to supply the growth in demand that's out there. And so when we look at $135 billion, our assessment is -- it's constrained by cleanroom. Demand is stronger than that. And so when you think about what that might mean going into '27, it probably means '27 is going to be a pretty darn strong year also. In fact, I know it's going to be because the industry is undersupplying demand this year.

I guess is that sort of confidence towards 2027 sort of your customers giving you that visibility? And how has that visibility that your customers have given you extended relative to where we're at, let's say, this time last year?

Probably as good as it's ever been. I mean, here's the nature of the conversations that's going on between us and our customers, which is, we don't want to be what constrains their ability to output. And so the conversation we have with everybody is, tell us what you need. What's the plus and minus, right? Where is this going this year as well as, okay, you're building all of these new facilities or expanding or what have you? Tell us what that looks like from a timing standpoint because we don't want to be the constraining item. We don't want to not be able to supply the customer base what they need. And so the nature of the conversation is pretty robust because everybody is trying to figure out how to supply the demand that looks very strong.

I guess as we think about kind of your initiatives to not be the bottleneck in this industry, but your revenues essentially doubled from 2024 from -- I mean, I guess, your revenue could double from '24 to '27. That probably takes a lot of building up supply to do, like you're probably kind of running around the entire world, probably trying to bring up supply. How much effort has gone in to sort of make sure that you guys are ready to sort of meet this demand?

Yes. I mean, that is a huge effort at the company right now, right? And the people that manage our supply chain, obviously, are talking to all of our suppliers to make sure they understand what does the road map look like? What could it look like? They all need to be ready and prepared. And we're making sure that they understand where we're going, like we're doing with our own customers, right? All this has to be consistent. Also in our own internal manufacturing capability, we're expanding, we're expanding everywhere. The good thing about us expanding is the lead time for us to expand our footprint isn't as long as our customers is to expand theirs. So like I said, our goal, and I think we will succeed in this is not to be the constraining item for where our customers are trying to go.

Got it. So thousands of suppliers are made ready for this title we have there.

Everybody gets a demand signal from us like we get from our customers, and then you try to make sure you know kind of min-max, right, where it might go. And then you have to understand your own lead time to make decisions to be prepared as well as where are your suppliers so that we're all ready.

Got it. Got it. Before I kind of touch on sort of your end market-specific initiatives, I want to just go into gross margin because I think it's really interesting how from my perspective, it almost feels like a once-in-a-generation opportunity to maybe be a bit more aggressive in pricing given everyone wants your tools. How should we think about your gross margin, especially in the context of you're spending $2.5 billion of R&D per year. That's a lot. And I really hope you guys get paid for it a lot more than we should. But -- yes, just how should we think about your current gross margin of 49%, the 50% you laid out in 2028 for this opportunity as well?

Yes. Listen, at the end of the day, you're always trying to get paid fairly for the value that you're delivering. We're doing that this year. We did it last year. We do it every year, right? I mean it's just running the business. There's some pluses and minuses in gross margin for us this year. There's a little bit of a headwind from customer mix, meaning smaller customers are becoming a smaller percentage of the overall revenue profile, right? The big guys are growing, and they tend to get the most favorable pricing. So we're managing through that. Obviously, pricing is always a conversation. You're managing your cost structure all the time to optimize that. And obviously, we're expanding there everywhere. So all of this kind of goes together to get us to that financial model of roughly 50% gross margin. I feel pretty comfortable with where that is right now.

Right. But I think it's going back to where we -- last February, some of that 50% did include some sort of internal efficiencies. How is that progressing relative to kind of the road map that you laid out?

Spot on, extraordinarily well. Yes. And what Shane is asking about is we've developed this close to customer manufacturing strategy to try to be as close to where the customers' fabs are building tools as we possibly can be, right? So your lead time then shortens a little bit. And what that's meant for us is we've grown our footprint in the Asia region, which is where all the fabs in the world are. We've always had U.S. capability. We still do in California, in Oregon, in Ohio, and that stuff is comfortable right now. But the growth right now we're seeing is globally, and we're trying to expand globally to support it. It's just -- it's better for the customer interaction. It's also better from a cost standpoint.

And you're sort of front and center of this evolving manufacturing cluster in Malaysia now.

We are. Our biggest factory in the network is in Malaysia.

Got it. I guess when you spoke about 2026, the kind of growth drivers you've laid out were leading-edge logic, DRAM and advanced packaging. I want to talk about DRAM as one of the kind of areas that I feel is underappreciated about Lam is your position in the back end, particularly the HBM specific steps -- specific steps with Syndion and SABRE. You've kind of guided for 40% growth in advanced packaging. .

We did.

How should I think about your kind of position around HBM? Can you talk a little bit about Syndion and SABRE's role there?

Yes. We have a very strong footprint in the through silicon via process steps. I call it the drill and fill, and it's what you just mentioned. It's the silicon etching, which is the tool we call Syndion. And then it's an electroplating process that puts down the conductive material. That's our SABRE 3D tool. We have very strong market share in these steps. We own nearly the entirety of the market in the TSP. And we do other things in advanced packaging as well. But when you look at where that is growing, it's in high-bandwidth memory, right? You've got HBM3E going to 4, going to 4E, the stack gets bigger, the etching gets more technically demanding. That plays to what we're really good at doing. By the way, it also shows up in advanced packaging in foundry and logic as well. It's not just HBM. And those 2 things kind of go together from a what's driving demand standpoint. It's all the AI compute requirements. And so both of those are growing in a pretty significant way this year for us such that we describe it as 40% growth this year. So advanced packaging is doing really well. It is very etch and deposition intensive.

And I guess, I mean, it's not a small portion of your business anymore as well because back in 2024, it was $1 billion.

That was $1 billion. You've done your homework.

I've done my homework, yes. And I guess we're guided for 40%-plus growth. But like how good can this advanced packaging portion of your business be as we sort of look out to '27 and '28?

I think this is a secular grower in the foreseeable future, right? Those large compute die are pretty much as big as they can get. They're at the reticle limit. They can't get any larger. And so to drive performance then, you need to put all of these die as close together as possible on a packaging structure, right? The electron path is shorter. That's what's happening. Advanced packaging is enabling this, and our TSV is, like I said, extremely strong across the totality of the industry.

Got it. And then I guess moving on to the front end for DRAM. Just -- you've highlighted 4F squared and vertical scaling as a significant opportunity. And I think your SAM -- you've laid out a 1.7x increase for DRAM. Just where are we in that journey? How are you positioned to kind of win these 2 tool of records for 4F squared and future DRAM nodes?

Yes, we feel really good about it. The strength of our product portfolio is extremely well positioned. The tool that we call Akara, which is our new conductor etch platform, we believe, is going to be very strong -- in these very challenging high-aspect ratio etching around the cell. Yes, I feel good about how we're set up. 4F squared is still a node or 2 away for the industry, but decisions have already been made, and we've talked about some of these.

I guess, you mentioned Akara there. So conductor etch, I think you have a bit more than 50% market share there. Just -- how are you thinking about kind of your market share gains with Akara? I know you called out some leading-edge logic and DRAM share kind of wins at your earnings call, but how good can this kind of tool in this segment be for you guys?

Yes, it's a key contributor to when we look at that growing SAM, our ability, we think, to win half of that growing SAM, Akara is a strong contributor to it.

Got it. And I guess I think about the other areas of your DRAM share gains, you've also called out dry resist. Can you sort of talk about how that kind of plays into that 1.7x SAM increase in your market share gains within that?

Yes. It's a part. Yes, thanks for asking about dry resist. Listen, this is ramping into production this year with one of our largest DRAM customers. So it's something we've been talking about for years. We've been investing in for years. This is an expansion of our market. It's hard in this business to find market expansion opportunities, meaning to get into a new segment of the business. We've never put -- we've never been in the photoresist, the track equipment business until now. And what we identified, and I give 2 CTOs ago the credit for seeing this, it was a unique idea where we said, hey, if we put the photoresist down using a deposition type process, we can do it more efficiently.

We can figure out how to help ASML be more productive with their EUV tool by more efficiently absorbing the photon energy. That's essentially the simple way that I think about it. It's much more economically or ecologically friendly as well. It's -- you're not spinning wet chemistry off the wafer. And so when we look at it, it's an opportunity from technical differentiation. That's what's driven the decision, right, from one of our largest DRAM customers. We've talked about another tool of record decision with another one. So the fact that this is ramping into production basically tells you there's real value here, right? And we're extremely optimistic about the opportunity for this to continue to grow over time.

Got it. I want to move over to NAND. At your 2025 Analyst Day, you outlined the $40 billion upgrade TAM opportunity, but that was based on a...

For NAND, for NAND, yes.

That was based on 20% industry bit growth. And I feel every person in this room probably has had an opinion around that 20% industry bit growth after...

That's probably higher. By the way, if you think back a year ago, it wasn't quite 20%. It was mid-high teens.

Really, okay.

Yes. Yes. And so I think I'm not going to give you a number. You can ask my NAND customers what they think it is. But I think everybody believes it's decently stronger. So yes. So what we described a year ago was a view that in NAND over the next several years is what we said, that investment would largely be characterized by upgrading the installed base, and we thought over the next several years, it would be $40 billion. That's still what's happening, but that $40 billion is going to get spent sooner and will eventually get supplemented by wafer capacity.

From your perspective, so you kind of called out the high-teens bit growth that you outlined that $40 billion TAM, but clearly, the NAND market has seen kind of a pretty big inflection over the last few months. How has that inflection sort of changed your view about this NAND market?

Well, I think everybody -- and I'm not going to give you a number, but I think everybody believes bit demand is stronger than high teens, certainly.

Stronger than 12 months ago.

Yes, stronger than 12 months ago, driven by the need for storage. KV cache is driving this. If you haven't seen Jensen's CES speech, you should go look at it because he laid this out, and it's very much what is going to drive the incremental demand, certainly, that's where it's showing up. Now when we look at the industry in '26 this year, NAND investment is going to grow unquestionably. But a lot of our customers have the opportunity to either invest their constrained cleanroom in DRAM or NAND. And when we look at it this year, more of it is going to go to DRAM because there's more profitability there right now. So NAND is still undersupplied. And it's still very much -- it's going to grow this year for sure, but it's still very much on the come line relative to the investments that likely occur into next year.

Got it.

And so here's one thing I think I'm really proud of Lam Research about, which is we're outperforming the industry. And our strongest end market is probably growing the slowest, NAND. And what does that tell you? You've already asked about it. We are meaningfully gaining footprint in foundry and logic. We're doing extremely well in DRAM. But our strength, if you look at all 3 of the segments of the business, is very much -- we're very strong in NAND. And the growth there is still into the future. So our ability to continue outperforming, I feel really good about.

I want to just ask one more question about NAND, but you kind of share specifically is a number that sort of stayed with me for 6 years was -- for your 2020 Analyst Day, you commented that you had cumulatively processed 26 million more wafers than your competition across the 3 most critical applications. Just how do the learnings from your installed base translate into wins at future node and just make Lam's market share within NAND just creep up generation by generation?

Yes. Just maintaining the positions we have and the stack grows, our business grows. And because we are in the 3 -- I described 3 critical applications, we put that stack down. We pretty much own that. We own the most critical etches down through the stack, the channel whole etch, everybody kind of talks about that a lot. And we own all of the metallization, which today is tungsten, but it's moving to molybdenum, just say moly, it's hard to say molybdenum, moly.

We're in a very strong position to do extraordinarily well with the transition to moly. Those are the 3 critical steps in NAND. And so just the fact that those are your positions, you see everything going on in the structure. And so there's incremental stuff that's showing up all the time because we are the ones that see the challenges our customers have, and they come to us and talk with us about it, right, some of the stresses in the stack, right? We brought a tool out called Vector DT that does back of wafer stress management because we saw that, and we knew we could actually help our customers with that challenge. So that's an example. There's lots of other things like that as well.

So I guess from 3x, you have moly, 4x, you have merged steps, those 2 -- like with the kind of increase in layer count, your SAM only gets bigger, and you're very well positioned to continue gaining share there.

You've got it exactly right.

And it's just a matter of time for when your customers, I guess, pull the trigger on spending.

They will. There's business there.

Okay. Great. Great. Great. Before I kind of pass it over to questions, I want to go back to logic actually because you kind of talked about how your foundry/logic SAM per wafer increases 2x, which is -- it's higher than the 1.8x for NAND that you put out and the 1.7x for DRAM.

Yes.

Like what's going on there that's kind of expanding your SAM so much? How are you kind of positioned to sort of gain that sort of incremental steps or the share gains -- incremental SAM that's emerging?

Yes. Again, it's an architectural innovation going in the third dimension. And we've already talked about all the steps along the way with gate-all-around and backside power and advanced packaging and then the CFET. If you haven't seen what these structures look like, go to the Investors section of our website. We've got some pretty cool slides out there, I think, that lay it out. You can just see it graphically. That's what's happening. To do this, you need to deposit different kinds of material down on the wafer. That's just -- that's our deposition business and then you need to shape it or remove it. That's our etch business. It's just -- this is the evolution of how things are changing.

Yes. With that, I would like to open it up for questions, if anyone has any. Charlie?

I see your hand right here. Can we get a mic up here? Thank you.

I'm Shane's colleague. I cover Asia SMEs. So my first question is about your China business. For example, first of all, can you talk about the competition from NAURA and AMEC?

Sure.

I know for some accounts like [indiscernible], probably you cannot supply. But outside of those restricted accounts, how do you comment about the competition and also your business growth in China in the coming 2 years?

Yes. No, that's a great question. Let me step back a little bit. When we look at China WFE this year, we think it's flattish, maybe a little bit of growth. So the growth in the industry is with the global multinationals, largely outside of China, maybe a little bit in China. Relative to the Chinese equipment companies, they are growing quite a bit. They have over the last several years. I would tell you, there's a whole bunch of customers that used to be very big important customers for us that we are prohibited from selling to today, right? There's end use -- end user restrictions that the U.S. government has put in place that we can't sell to any longer. That's where the Chinese guys are doing really well. It's a captive set of customers for them, largely because we can't sell to them any longer.

Outside of those restriction, I mean, just purely based on the technology performance, where you can still sell your equipment to, how do you see those China's competitors' capability whatsoever or progression?

Yes. Our share where we can still compete in China is very strong, right? And we're winning with old equipment, older equipment, right? The Reliant product line is very strong in China. Last quarter, our China business was 35% of revenue. So you can see how well we're doing there. It's just there's a whole bunch of customers we used to have that we no longer have.

Yes. So very quick, another question. You mentioned about some potential constraint, right? So for example, if TSMC this year, they're going to do [ USD 34 billion ] CapEx.

At the midpoint, yes.

Yes. Next year, probably consensus is like USD 60 billion to USD 75 billion. But if TSMC want to do like a full speed expansion, let's say, next year, you want to spend USD 70 billion CapEx. Can Lam or your industry peers can really supply to that CapEx?

Yes. No, that's a good question, and it's kind of come up already in the Q&A Shane and I have been having, right? Right now, the conversations with every one of our large customers is, tell us where you're going, tell us what your road map looks like. Tell us what you think you're going to need next year so that we can be ready to supply to them. So if they're going to spend whatever they're going to spend, they're going to -- we know or we know what they're planning to do because absolutely, at the end of the day, they don't want us to be a constraining item for them. And so those conversations are pretty robust. You've got pretty good visibility into where everybody's cleanroom footprint is going to be next year. And we're doing everything we need to do to be prepared to supply to them whatever they need next year. So that's the nature of the conversations that's happening. Good question. Thank you for that.

Gustavo here. Just about this demand visibility stuff. How far how far out can you see this going on, the demand?

Like I said, it's into next year right now. It's into next year.

I guess before we pass it back to the audience, I want to ask one question because you mentioned Reliant, but just the CSBG business. And the reason why I'm asking this is in your last earnings presentation, you kind of released the installed base numbers again and...

Yes, went to 102,000 chambers in the installed base, up from 96,000 last year.

And 75,000 in 2021, which is -- it's a big number. Just how does that kind of increased installed base kind of almost accelerate the CSBG growth?

Thank you for asking about CSBG, right? We've been up here talking for a half hour, and it's the first time it's come up.

I'm sorry.

That's okay. 1/3 of the business is what we call the customer support business group. What is it? Four things: spare parts, service, equipment upgrades and then the mature product line that we call Reliant. If you roll all of that together, the R&D intensity of that business is pretty modest. You don't need to invest a ton because the R&D has already been invested in when the equipment was first designed, including all the spare parts specification, everything needed. This is a great part of the business model. When I talk about our business, I often will describe this as my favorite part of the business model.

Now listen, I love everything. The etch general manager is going to come yell at me because I'm not loving on his business. I love his business, too. But this is a great part of the business model. If you look at the longevity of our equipment, it runs for decades. Actually, it really never goes away. That's why we report that chamber count at the end of every year. It grows every year. And so the opportunity to sell more spares to upgrade what's there to sell the older equipment, all of this grows quite nicely. And again, if you go back to the collateral from the Investor Day next year, we told you by '28, it was going to grow by 1.5x. And in this mythical, we described the future where it was going to double. It's because the equipment grows every year. Spare parts intensity is growing.

Advanced Services, listen, we're really excited about our advanced service portfolio using equipment intelligence, AI algorithms, cobots to deliver service in a more predictable, sustainable way. We are beginning to deliver service in a results-based kind of structure. Service historically has been show up and do a task. You need to do some maintenance. So call Lam, we'll send engineers out and we'll do the task, clean the chamber, open it, put the gel back down, close the chamber, give it -- turn it back over to manufacturing. We're modifying how we do a lot of this to, okay, we know more about the capability of our equipment than anybody in the world. Using the data and the telemetry on the tool as well as cobots to deliver service, we're able to predictably deliver improved performance. And so we're beginning to kind of modify a little bit about how we deliver service to be results based, will be -- is nicely profitable. So that's part of the story in CSBG. It is wonderfully cash generative as well in terms of like the contribution of where profits and cash come from at the company.

I don't want to put you on the spot, but as -- when we kind of think about kind of the services revenue per one tool, would you say that kind of number is kind of steadily increasing given your customers don't want any downtime, you're kind of improving yields for them? There's a lot going on in services.

Yes, our goal with some of this more results-based contract is to grow dollars faster than just that chamber count number. And we've been pretty successful over the years of doing that, and we intend to continue to do that again with some of these results-based contracts.

Got it. We have a minute left. Doug, is there anything that you kind of think that's underappreciated by the investment community about Lam or anything you want to kind of end on?

Listen, I think we've had a pretty comprehensive set of questions, Shane. Thanks for doing your homework. This last point, I think, is important to understand. Everybody thinks of WFE, and I do too. I love the fact that WFE is growing so much, $110 billion to $135 billion. But I think the underappreciated part of the business is this more annuity-type stream in the customer support business group, CSBG. Don't forget about that. It's an important part about how we deliver profitability, about how we deliver growth, about how we deliver free cash flow. So just don't lose sight of it. And thanks for asking about it at the very end, but people often forget about that. It's a great part of how we do what we do.

Awesome. So increasing SAM, increasing share and you have a nice annuity of business, things are looking great for Lam.

And we live in a good neighborhood, and we're building a wonderful house on the top of the hill. So maybe that's the way I like to think about it.

All right. Great. That brings us to time. Thanks very much.

Awesome. Thanks for coming.

Good day, and welcome to the Lam Research Corporation December 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Ram Ganesh, Vice President of Investor Relations. Please go ahead.

Thank you, and 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 will share our overview on the business environment, and we'll review our financial results for the December 2025 quarter and our outlook for the March 2026 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific time. 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 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website.

And with that, I'll hand the call over to Tim.

Thank you, Ram, and good afternoon, everyone. We ended calendar year 2025 on a strong note, delivering December quarter revenues ahead of the midpoint of our guidance. Gross margins, operating margins and EPS all exceeded the high end of the range. Our performance demonstrates continued strong execution in an accelerating semiconductor demand environment. At our Investor Day event last year, we outlined our tremendous opportunity to expand our market and gain share at every successive technology node vertical scaling of device and packaging architectures is driving higher deposition and etch intensity and moving the market to our strengths.

The vision we shared was to more than double Lam's revenue and profit over the next 5 years. Today, we are well on our way. With the industry ramping capacity and adopting new technologies to meet the demands of the AI transformation, Lam's deposition and etch capabilities are proving to be key enablers in the transition to gate all around transistors, backside power deposition, high-performance materials and 3D advanced packaging. We prepared for this moment. launching an array of new products and advanced services targeted at broadening our exposure across DRAM, leading-edge foundry logic and NAND.

We have also invested in expanding our manufacturing and R&D footprint to increase operational velocity in response to strong customer demand. In 2025, we achieved record revenues of more than $20 billion and expanded our served available market, or SAM share of WFE into the mid-30s percent range. This marks solid progress for our multiyear goal of being in the high 30s. Our ship share of WFE grew by well over 1 percentage point year-on-year and our CSBG business hit key milestones with the size of our installed base topping 100,000 chambers and revenue growing faster than the increase in installed base units.

We are proud of these accomplishments, but there's even more to come. The AI transformation is driving industry spending higher. In 2025, WFE came in close to $110 billion. Our initial 2026 view is for WFE to be in the $135 billion range with the growth in spending remaining constrained by a shortage of available clean room space. chipmakers have been public about their efforts to alleviate constraints, but they have also commented on sold-out conditions persisting indicating the magnitude of the challenge. We expect WFE this year to be weighted to the second half with robust growth in investments across all 3 device segments, led by DRAM and leading-edge foundry logic.

All indications are that we are still in the early stages of the AI build-out. End markets are signaling a strong appetite for greater compute and storage capability at both the device and package level. In foundry/logic, customers are accelerating migration to nodes employing gate-all-around transistors. If you recall, we previously said that the transition to gate all around equates to roughly $1 billion in incremental Lam SAM for every 100,000 wafer starts per month of capacity. Given the 3D nature of gate all around structures, we are well positioned with our deposition and etch portfolio to gain share within this segment.

In addition, customers are integrating more functionality with advanced packaging. We previously estimated advanced packaging would make up a mid-single-digit percentage of overall foundry logic equipment spend. As additional devices, including those for mobile applications, adopt more complex packaging schemes, we see this number moving higher. In high-bandwidth memory, or HBM, advanced packaging is critical for the transition to HBM4 and 4E and stacking of up to 16 layers. Lam is in an excellent position given our market leadership in electroplating and TSV Edge. We expect our overall advanced packaging business to grow more than 40% in 2026. We outperforming our view of WFE growth in this space.

Finally, in NAND, demand is growing faster than previously expected as new use spaces for high-capacity SSDs emerge. Non-volatile context memory layers to enable large-scale AI inference have the potential to add incremental growth in NAND bit demand. For every $2 million to $3 million accelerators sold, we estimate an incremental 1 point increase in overall NAND bit demand growth. Lam has the industry's largest installed base of NAND systems and is well positioned to outperform as the NAND market inflects higher. Against this backdrop of strong semiconductor demand and accelerated technology transitions we are seeing increased momentum for our newly launched products.

Akara, our latest generation conductor edge system has doubled its installed base over the past year. with production tool of record wins for EUV and high aspect ratio etch applications in advanced DRAM and foundry logic. Critical dimensions in foundry logic are shrinking by roughly 10% to 20% node to node. Similarly, in DRAM, aspect ratios are increasing with each node and process complexity is set to grow even more with future moves to and 3D DRAM. Consequently, multiple customers have chosen Akara for its unmatched ability to etch the smallest dimensions at very high aspect ratios while maintaining profile control and reducing variability across the wafer. This is achieved through new innovations, including our direct drive solid-state power delivery hardware and tempo plasma pulsing. In next-generation gate-all-around devices, we expect the number of applications using Akara to grow by roughly 2x, including wins for critical front-end silicon etch applications.

In DRAM, we already have wins with a car for the 1C node that are set to ramp this year and expect growing momentum as the applications using a car expand nearly 3x in a subsequent 1D node. As we look out over a multiyear period, the unprecedented AI ramp demands greater speed and agility across the ecosystem. Our customers are moving faster at every stage of process development and manufacturing, so we have increased the velocity of our execution across the board. We are strengthening our supply base, automating logistics and ramping high-volume manufacturing.

Over the last 4 years, we have nearly doubled our overall manufacturing capacity. And in 2025, we launched state-of-the-art automated warehouses that enable greater production efficiency. These investments have proved critical in a fast-ramping market environment, and we're set to expand our footprint further to meet the demand we see over the next several years. Our product sales and support teams are also executing to the accelerated pace of customer demand.

Over the course of 2025, Lam was recognized with nearly 40 supplier awards, highlighting in many cases, our fast tool installations and outstanding production ramp support. Looking forward, we see Lam's Equipment Intelligence solutions and Dextro cobots, leading the way to the autonomous fab with predictive and automated maintenance and precise global fleet matching. Dextro continued to gain momentum in 2025, expanding to cover 6 different Lam tool types.

And finally, in an environment where inflections are more complex and innovation time lines are compressing, we have transformed our R&D capabilities to help us stay ahead. We are utilizing velocity labs located close to our customers to screen new materials, new hardware and new process regime at a rate not previously possible. We are also leveraging Lam's digital cleaning capabilities to shorten product development cycles and converge on next-generation tool and process solutions with greater efficiency.

Wrapping up, the growth we envisioned for Lam at our investor event 1 year ago is materializing faster than we anticipated. We are making progress against our SAM expansion, share gains and profitability objectives. And with the demand environment continuing to accelerate, we are elevating our focus on scaling the company, delivering for customers and outperforming in the AI era.

Thank you, and here's Doug.

Great. Thank you, Tim. Good afternoon, everyone. Thank you for joining our call today during what I know is a super busy earnings season. Before I get into the details, I'd like to say that we were quite pleased with the strong execution across the company in calendar year 2025, which translated into record top and bottom line financial performance.

In calendar year 2025, revenue was a record coming in at $20.6 billion, which was up 27% year-over-year. CSBG revenue also reached a record of $7.2 billion. Gross margin was 49.9% and the highest result as a combined company for the full year since the Novellus merger back in 2012. Gross profit increased 31% year-over-year to $10.3 billion. We also had record operating margin of 34.1% and operating profit dollars of $7 billion, which was up 41% year-over-year.

Diluted earnings per share were $4.89, which was up 49% year-over-year. Looking at it, we delivered leverage from the top to the bottom of the P&L in 2025. Let me turn to the December quarter results. Our revenue was above the midpoint of guidance, while gross margin, operating margin and earnings per share all exceeded the high end of our guided range. Revenue for the December quarter was a record coming in at $5.34 billion. This marked our tenth consecutive quarter of revenue growth.

The deferred revenue balance at quarter end came in at $2.25 billion, down sequentially due to an approximately $500 million reduction in those customer advanced down payments. From a market segment perspective, foundry accounted for 59% of our systems revenue in the December quarter, slightly down sequentially, but up from 35% in the December 2024 period. This underscores the success of our strategic focus and execution in Foundry. Foundry strength came from investments at the leading edge in addition to mature not spending that we saw in China.

Memory was 34% of systems revenue, in line with the prior quarter. Within memory, we generated record DRAM revenue accounting for 23% of systems revenue, which was up from 16% in the September quarter. Investments in high-bandwidth memory continue to remain strong, driven by movement to HBM 3 and 4. We also saw traditional node migrations to the 1B and 1C nodes, enabling the transition to DDR5. Nonvolatile net rate contributed 11% of our systems revenue, down from 18% in September quarter. This trajectory was in line with our expectations for customer plans coming into the year.

Despite the quarterly decline, NAND revenues grew strongly for Lam in what was the first half weighted calendar year 2025. As we enter 2026, we see solid end market demand as customers prepare for their next stage of AI-driven growth in NAND. And finally, the Logic and Other segment came in at 7% of systems revenue in the December quarter, slightly up sequentially. Let's turn to the regional breakdown of our total revenue. China came in at 35% and which was a decrease from the prior quarter level of 43%, but slightly higher than our original expectations. This was due to updates in the affiliate rule and the resulting timing of shipments from that.

The next largest geographic concentrations were Taiwan coming in at 20%, up sequentially from 19% and Korea had 20%, up sequentially from 15%. We Customer Support Business Group generated approximately $2 billion in revenue for the December quarter, up 12% sequentially on an increase in Reliant systems. We were 14% higher than the same period in 2024, primarily on growth in spares. CSBG obviously remains a key part of our growth strategy with our expanding installed base and innovation and advanced services. NAND spending enabled record upgrade revenue in 2025, up more than 90% year-over-year. In the 13 years since we brought Lam Novellus together, I'd like to remind everybody that CSPG has grown every year except for 1.

Let's look to profitability. Gross margin in the December quarter was 49.7% and which exceeded the high end of our guided range on better-than-expected customer mix. Sequentially, gross margin was about 1 percentage point lower reflecting a customer mix that was less favorable than what we saw in September. Operating expenses for December came in at $827 million, which is roughly flat sequentially. We R&D accounted for 68% of the total operating expenses. We continue investing to maintain our leadership with a differentiated product portfolio for our customers with innovations like Vantex, Akara Halo and Dextro, the December quarter operating margin was 34.3%, exceeding the high end of our guidance. The non-GAAP tax rate for the quarter came in at 13.2%, generally in line with our expectations.

We continue to see the tax rate in the low to mid-teens for calendar 2026. Other income and expense for the December quarter was approximately $10 million in income compared with $8 million in income in the September quarter. Slight fluctuation in OI&E was primarily the result of gains in our venture portfolio, partly offset by lower interest income. As we've talked about in the past, you should expect to see variability in OI&E quarter-to-quarter. Capital return in the December quarter, we allocated approximately $1.4 billion towards share buybacks through open market share repurchases. Our average buyback price in the quarter was approximately $154 per share.

In calendar year 2025, we repurchased approximately 39 million shares at an average price of $104 per share. We also paid $328 million in dividends in the quarter. In calendar year 2025, we returned 85% of our free cash flow. Our plans remain to return at least 85% of free cash flow to our shareholders over time. The December quarter diluted earnings per share were $1.27, which came in above the guidance range. The diluted share count was 1.26 billion shares, which was a reduction from the September quarter and consistent with our guidance. We have $5.1 billion remaining on our board authorized share repurchase plan. Let me tie into the balance sheet.

Cash and cash equivalents totaled $6.2 million at the end of the December quarter, a decrease from $6.7 billion at the end of the September quarter. The reduction in cash is attributed to capital return as well as CapEx spending. As we look ahead, our strong cash position and continued free cash flow enable us flexibility to potentially simply repay the $750 million March 2026 notes when they mature. Days sales outstanding was 59 days in the December quarter, a decrease from 62 days in the September quarter. Inventory turns improved to 2.7x from 2.6x in the prior quarter and up from 1.5x a little over 2 years ago.

As a company, we remain focused on asset utilization, and we were pleased by the sustained progress we continue to make. Our noncash expenses in the December quarter included approximately $89 million for equity compensation, $91 million for depreciation and $13 million in amortization. Capital expenditures for the December quarter was $261 million, which was up $76 million from the September quarter. Spending was driven by investments in manufacturing capacity R&D and lab infrastructure that supports our technology road map and customer needs. We also purchased a new building in Arizona to support the growing industry footprint there. This capital spending remains consistent with our global strategy of expanding capabilities close to where our customers are.

Looking forward, we continue to expect capital expenditure to be in the 4% to 5% of revenue range. We ended the December quarter with approximately 19,700 regular full-time employees, which was an increase of approximately 300 people from the prior quarter. Headcount increases were primarily within the field organization to support customer growth as well as in R&D to support our long-term product road map.

Let's turn to our non-GAAP guidance for the March 2026 quarter. We're expecting revenue of $5.7 billion, plus or minus $300 million. We're expecting gross margin of 49%, plus or minus 1 percentage point. We're expecting to see slight headwinds from customer mix. We're forecasting operating margins of 34%, plus or minus 1 percentage point. You'll see the normal seasonal uptick in operating expenses in the March quarter.

And finally, we're forecasting earnings per share of $1.35, plus or minus $0.10, based on a share count of approximately 1.26 billion shares. So let me wrap up. We delivered a record year in 2025, reflecting strong execution and broad-based strength across our product portfolio. As we look into 2026, we expect meaningful year-over-year growth supported by sustained demand in AI-driven markets and continued investment in capacity. We agree with the prevailing view that much of the market will be undersupplied in 2026 and due to clean room space constraints.

In line with that, we see 2026 as a second half weighted year. With our strong balance sheet, an expanding installed base and the strength of our product portfolio, we remain confident in Lam's ability to continue to outperform and deliver long-term value for our customers and shareholders. Operator, that concludes our prepared remarks. Tim and I would now like to open up the call for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Tim Arcuri with UBS.

Doug, I had a question about WFE this year. So you said we're going to be constrained because of this fab readiness. Is it possible to say how much? I know you're guiding WFE to 135 this year. I mean if we use semiconductor revenue and you assume sort of a normal number, it seems like you can get to like $150 million. So maybe the constraints are costing the industry like $15 billion. Is it possible to give a number in terms of how much the constraints are kind of costing in terms of WFE this year so we can kind of pro forma that out. .

Yes, Tim, I knew somebody was going to ask that question. I should have anticipated it was going to be you. Listen, it's hard for us to put a number on it, and I'm going to decline to do that as we sit here right now. And the reason Times plans are somewhat fluid if we're honest, meaning people are trying to figure out how to get a little more premium space, so to bring facilities online and bump things up a little bit. So I'm not -- we're not going to put a number on it. But I think it's safe to say, and Tim can comment on this as well. I think it sets up for 27 to also be a pretty good year as we think through this. I mean the industry seems to be sold out for most of what it is supplying, everybody is talking about these multiyear agreements that they're working on. And I think that's largely a reflection of the fact that demand is very strong, and there's just not enough cleaner out there.

Yes, I don't have much to add, Tim, other than to say that clearly, you've seen a large number of fab announcements. I mean those fab announcements are capacity in '27 and beyond. And so I think there's a view that the constraints this year are going to continue even out until many of those new fabs open up. And so I think we've given you a view of what we think WFE is, as Doug said, we're working on productivity improvements to get a little extra output for customers. That's how we support them. But fundamentally, it's a pretty big challenge. .

Doug, and then you're guiding gross margin down a bit on revenue. It sounds like it's predominantly related to China. So China was 35% in December. Is it going to come down? Like is that the reason why the gross margin is coming down? And if so, like what mixes in China will be for March. .

Yes. I'm not going to give you a hard number, Tim. But yes, it's customer mix. It's going to be less rich in the March quarter. And I'll also remind everybody that this isn't a fixed cost business for us. So as volume goes up and down, the component that just benefits from revenue growing isn't that big. The mix component of both products as well as customer is an important item. So you're last on do the right thing, Tim. .

The next question comes from C.J. Muse with Cantor Fitzgerald.

I guess to follow up on that last question, Doug, could you speak a bit about the work you're doing with the supply chain, bringing on manufacturing, ramping Malaysia and how we should think about that in the context of gross margins as revenues ramp in the second half of calendar '26 and beyond?

Yes, C.J. I mean, we've been talking for a while, I think, about CapEx growing as a result of expanding manufacturing capability. Tim specifically talked about a doubling over the last for 5 years. So it's been an item that we've been clearly very focused on. We're ramping globally -- and you're right, that Malaysia location is our biggest location as we sit here today, and we're trying to get more out of that in addition to everywhere that we are. But the mix component, C.J. is going to be more important than anything, at least in the near term, less than just volume ramping. .

And then maybe a follow-up question on CSBG, I would think your customers are trying to get every bit that they can out. And so the uplift that you saw in the December quarter, and I assume continued strength into March. Is that something that will sustain throughout the whole calendar year and should drive better than kind of that 12% growth CAGR? Or does that take a pause at some point as the transition focuses on greenfield investments? .

Yes. C.J., I'll let Doug speak to the specific numbers. But I think that what you should keep in mind is the CSPG, a lot of our growth, of course, is driven by customers' near-term actions and what we need to do to help them get maximum amount of output from the tools they have. But a lot of the growth really is we're transforming our service business to be much more oriented towards the use of equipment intelligence for predictive maintenance as a way of getting more output from tools and also the implementation of Dexter cobots for our automated maintenance. And both of those things not only will drive top line growth but also margin profitability improvement just given the efficiency with which we deliver those services. And so I think there's a number of moving pieces that are all positive for CSBG.

Yes. I would just add, C.J. We were pleased to see the chamber count number up. Obviously, we knew that was coming, and we're happy to share it with you. So that's 1 aspect of what we're continue to take advantage of going forward is very consistent, though, with what we articulated at that Investor Day back, I guess, almost a year ago. And so I would still want you thinking about CSBG growing the same way we described it back then, which is a high single digit, maybe low double digit. We had a very strong December quarter. It was primarily a result of Reliant systems. That piece might be a little bit lumpy, it always is. But again, CSBG is just going to keep tagging along. .

The next question comes from Atif Malik with Citi.

The first 1 for Tim. Tim, on the DRAM market, when do you see the volume adoption of 4x Square from 6 Square and can you talk about your SAM market share when you move to 4 Square? I know you called out Akara in your prepared remarks. .

Yes. So I think 4 Square, I mean, obviously, there's still some question as to exact timing and customers have talked about it being something towards the end of the decade, probably full volume production -- but clearly, we're engaged today with customers looking at the technical needs. And we called out Akara. Akara is very well suited to the types of high aspect ratio, very small features that exist in 4 square as well as other devices we've talked about, whether it's future at all around or even a foundry logic moves to CFAT. And so Akara is -- it's sort of a foundational tool for us in terms of capabilities that are going to be important for all of these transitions.

But you really should think about those kinds of technology transitions occurring after -- probably after this next big wave of fab openings -- but again, back to the constraint question, in some ways, if this turns out to be as we believe a multiyear build-out of fabs, the fabs that come towards the end of that will be the fabs to benefit from the SAM expansion and share gain that we're going to see coming from these new products that we've talked about. So Anyway, I think 4 Square is probably on the back end of that, but there's a lot in between that will also drive our business.

Great. And then does on the NAND market, I know the memory dynamics were in line with your expectations in the December quarter, but NAND was down sequentially in DRAM up. Do you see the NAND makers slowing down technology migrations as they focus more on in terms of like minting money given how the supply shortages are materializing. And when do you see NAND new capacity additions coming on? .

Yes. No, listen, NAND played out exactly as we saw it as the year began in 2025. And as we sit here looking at 2026, it will be a growth year for NIM. There's no question about that in our minds. I think what I observed the memory customers doing at least to the extent that they have both man and DRAM right now anyway, is prioritizing DRAM over NAND a little bit because profitability there is somewhat better. I think you all understand that and know that. But that doesn't mean that people aren't focused on NAND.

In fact, 1 of our largest customers announced a new fab that's going to be dedicated pretty well, not dedicated but heavily emphasizing NAND capacity. And so that's on the comp line, we see that happening as we get into '26 growth that is happening. We're still sticking by, we think upgrades happen before real capacity additions, but you're going to see a combination of both and that $40 billion that we've been talking about, likely happens quicker than what we originally expected a year ago. So anyway, we feel quite good about where is trending. Thanks, Atif.

Next question comes from Vivek Ira with Bank of America Securities.

So you're guiding WFE up 23%. I think last year, you said you gained a point of share. Do you expect to maintain or gain share this year, Tim? What are kind of the puts and takes around the different markets? And then specifically, what are you assuming for China contribution overall for WFE and what that means for Lam in calendar '26?

Yes. Let me take the first part of it. I mean I think what's important to remember from the longer-term plan we laid out at last year's Investor Day and things I said on the call today, we expect to gain share and expand our SAM with every successive technology node. And so to your point, do we plan to sustain or increase share. The answer is we plan to increase our share of WFE again this year. And what needs to take place is technology transitions need to keep occurring. And what we're seeing in the environment today is those are accelerating. That's a way for customers to get more output and more output of the types of devices that are strongly demanded by the AI environment.

At the same time, those technology transitions are driving higher deposition and etch intensity which is pretty much our entire business. And so from that perspective, that's a real positive for us. And then we've talked about the success of our new products. I mean we've refreshed our conductor etch product line. We previously refreshed our dielectric etch line. We've launched moly. Dry resistance is gaining traction. We're strong in advanced packaging backside power is still to come, and it's going to be a driver for us. And so I think we have confidence that whatever the WFE is, if it's technology-driven, as it looks like it will be, we will continue to expand SEM share of the WFE.

Now as far as China goes, I think that we are looking at China being more kind of flattish year-on-year. And therefore, as the rest of the technology-driven part of the business grows, becoming a smaller percentage of our overall revenue.

Got it. And for my follow-up, I think in the past, you have given this $40 billion or so addressable opportunity to upgrade the installed base to higher layer accounts. I'm curious where are we now at -- versus that $40 billion number? How much more to go. And given this emerging role of NAND or this enhanced role of man, I should say, in AI inference, is there a new number versus that $40 billion number that you had before? .

I think we might wait until a little later in the year to refresh that number. But we've said a few times now, the specific wording we used at Investor Day was $40 billion over several years. We've now, I think, on almost every earnings call said that seems to be happening faster than expected. And today, I reiterated that, which was NAND is moving faster than we expected on the upgrade path. And I think we'll come out and look. And as Doug just mentioned, we're starting to see more interest in investing in NAND capacity, but it trades off. I mean when you have clean room space, everybody has to make a decision as to where to use that today.

But I think that as we move forward and we see the growth from AI inference and other use cases NAND is going to take its place in the AI data infrastructure and memory infrastructure, and I think you'll see growth there. And so we're just executing to the customer demand today faster than we had previously expected, and anticipate more to come.

The next question comes from Srinivas Pajjuri with RBC Capital. .

Tim, I want to go back to the previous question. The 1 point of WFE share that you gained -- maybe if you could help us understand if it is coming primarily in foundry and logic or if you're seeing that across the board because foundry and logic is where you, I think, you made the most progress in the last couple of years. And then Doug said, you expect year-on-year growth to be meaningful this year. just given your WFE expectation for 22% growth, should -- I guess, should we model 22% plus growth on the top line for the year?

Yes. So let me take the first one. The share gains came from a combination of both NAND and foundry logic. And again, it's you might think already we have very high share in NAND, but as technology transition occurs and layer count increases, we have an opportunity still to gain share of some of the new applications required to enable those higher layer counts. And so we gained share in NAND. But a lot of our focus, we talked about over the last number of years has been to launch products that allow us to gain share at the gate all-around nodes, more advanced omni logic and the transitions that are coming there. and also in advanced DRAM, we saw this year some of those Somlylogic share gains coming through in the numbers that you can see. And so I'd say those primarily NAND and foundry limit this year. .

And then -- sorry, the second question, can you just repeat the second question? What was the second question.

Yes. So I guess my second question was about your expectation for the current year. I know you said. It's going to be second half weighted. -- yes. .

Yes. No, no. We -- your comment was basically will we outperform the WFE that we just talked about. I guess that's the message to try and deliver is. We're going to expand SAM gaining share, and we're going to outperform WFE this year as our current view. .

Okay. Got it. And then 1 quickly on the op margin, Doug, I think at the Analyst Day, you gave us the guidance for $34 million to $35 million at roughly $25 billion to $27 billion. And you're already there. I think you're around $23 billion run rate if I look at your March guidance. So I guess my question is, as we go through the next few quarters, how should we think about the op margin fall through? I know you're guiding OpEx a little bit -- a little bit of growth here, but I just want to understand how you should model OpEx going forward. .

Thanks for the question. Yes. No, we're pretty pleased with how we've performed. Clearly, we're ahead of the model, right? I mean that model had kind of model. And we're run rating at least on a percentage basis, what the model suggests that we're going to be able to do. Ram and I and Tim were debating a little bit. We probably later in the year, need to come out and give you an update on that model. And I think we'll do that. Lots have changed in the last year or so. So stay tuned for that. I think as we think about this year, frankly, this is a management team that prides itself on being able to deliver leverage through to the bottom line.

We really did a great job with it last year, which is why I went through all the kind of demonstration of what we did last year. We will be focused on delivering leverage as we go through this year as well. And like I said, we'll give you an update to that longer-term model probably later in the year.

The next question comes from Jim Schneider with Goldman Sachs.

Relative to your prior comments on NAND, I understand there's a little bit more prioritization toward DRAM right now. But when do you expect that your customers are going to sort of pivot from NAND upgrades to more greenfield NAND capacity additions. We saw some announcements from at least 1 of your customers recently on that. So I'm curious about when you expect to sort of see that upgrade business turn into greenfield business, could that be by -- before the end of 2026? Or is it more of a 2027 event or maybe even later? .

Yes, it's a great question. I think that what we're -- the way we view it right now is that because of the clean room space constraints, it's probably again, part of that multiyear build-out 2728. When cleanroom space is sufficiently available such that they can invest additional NAND capacity in a big way. So that's probably our view right now. In the meantime, we talked about the acceleration of the technology transitions. You do get a bit growth, you get more capacity of the higher-performing bits that are in strong demand at AI. And so I think that those are the decisions that people are making today is move ahead as quickly as possible with many of the key technology transitions -- and so we're busy doing upgrades, and that's where our focus is right now. But greenfield will come eventually, and you've seen some of those initial announcements, I think that's encouraging for all of us. .

That's very clear. And then maybe just as a follow-on, I think we all can see the trends by foundry, DRAM and NAND, they're in play right now in terms of level of growth rate. But as we head into 2027 or the end of 2026, do you see the potential rank order of those growth rates sort of changing amongst those categories? .

Man, Jim, that's a great question going in 2007. We just, for the first time, give you a 26 you're asking 2 Listen, in 2016, we're very confident everything is growing. It's unequivocal. And we're also very clear when we look, everything is constrained, frankly, right? You're hearing it from every 1 of our customers when we talk about things, and they're talking about these multiyear agreements to kind of deliver the visibility into next year. Foundry/logic has grown a lot this year. DRAM has grown a lot this year.

NAND has grown a little bit less, but still growing pretty well this year. At the end of the day, though, when you look at the system architectures, all this stuff needs to fit together, and you saw 1 of the big accelerator guys talking about this at CES, like, hey, we need this NAND stuff showing up. That's happening -- so into 2017, I think we're going to see another year where everything has grown. I'm not ready to rank order quite yet, Jim, no.

I think as we move through this year, though, we already -- I would say, have better visibility into the following year than I think I can ever remember. And that's simply because customers know that they're building these fabs. They're announcing them. They're signaling to their customers, they're going to have that capacity available -- and so clearly, we're having discussions at this point on what tools are going to be needed, what technology nodes they're going to be running in those fabs. -- and they want to make sure that they can secure the capacity such that, that fab can be started up and producing as quickly as possible. And so those discussions on those fabs are clearly out into 2027. And -- but I think in terms of exactly how those decisions get made through this year. And once you have premium space, in some cases, Ken, as we just talked about, they can trade off sometimes a little bit of a cleaner space to be used for DRAM or for NAND or for what we're seeing in a few cases is for advanced packaging.

I talked about the tremendous growth in advanced packaging and the importance that it's the role that is playing. And so we've been seeing that. So I guess we'd have to see the year continuing to evolve and kind of where the demand is the shortest, but we would anticipate, as we said, robust investment across all device segments, and I think that continues on into 2027 across all 3 segments.

The next question comes from Krish Sankar with TD Cowen and Company.

Congrats on the good results and guide. Doug, my first question is, I understand that you spoke about the global manufacturing footprint. It's doubled over the last 4 years. Just wondering, as your customers ramp up more onshore manufacturing, would it lead to you increasing shipments from your U.S. specialities in California and Oregon rather than Malaysia for some of your products? If so, what would be the margin implications?

Yes, Chris. Listen, we have a global manufacturing footprint, right? We've got factories in Oregon, California, Ohio, Malaysia, Taiwan, Korea, Austria, I think I didn't miss anything there. We have some level of flexibility given enough time to move things around if we really need to do that. And as customers tell us what they need and where they need it, we may adjust things. Right now, I think we feel pretty good about how we've got things set up though. .

Got it. Got it. And then Tim, I just had a follow-up for you, like a technical question. Last year, you had really good traction in ALD moly. Are customers moving away from single wafer ALD to batch for moly. And if so, how would that impact Lam?

No. I mean, well, at this point, if we look -- we had said previously that in kind of the order of adoption, NAND would be first to adopt moly, and we're seeing that followed by foundry logic and then ultimately by DRAM. What we can say right now is that the customers that have committed to production of using moly in NAND have gone with lens tools. We have a very strong position there. And I think the value of that, as we talked in the past, is it means that throughout these first production ramps with ALD moly, we are building an installed base. We're maturing the tool. We're getting process learning competitors aren't going to give up.

This is an incredibly important market and a big inflection that we've talked about. But we feel really good about our single. We call it single wafer moly, but if you look at the tool itself, it has multiple stations inside of 1 chamber in order to give ourselves high productivity. So that's a production tool or close today for the industry, and we intend to continue to keep it that way. Thanks, Krish.

The next question comes from Harlan Sur with JPMorgan.

Great job on the quarterly execution. Just as many of your customers have been surprised by the sudden rise in compute and storage demand. And therefore, requirements for more GPUs, XPUs, CPUs and the located memory and storage they obviously got caught somewhat flat footed in terms of sort of near to midterm capacity to support that demand curve, right, as you guys outlined. Is the stronger velocity of demand having a similar impact to your manufacturing capability and ability to procure the necessary components and subsystems and any bottlenecks that you have in your supply chain?

Well, it isn't without a lot of hard work. But 1 good news is we did a lot of fact finding post the covid pandemic and the supply shortages that occurred in our own systems at that time. And we made a lot of improvements. And Doug just talked about the global nature of our manufacturing facilities, standing from the U.S., in Europe and Asia. And we looked at the same thing with respect to our supply chain. And I would say today compared to when we had those shortages, we have built a much stronger, broader, deeper supply chain. And so I don't want to sell short the hard work of our selecting guys today to meet all these expedited pull-in requests from customers. It's very hard work.

But today, I would say we're not the big constraint for any of the devices compared to clean space being a constraint to the industry. And so as the industry continues to go, we need to keep working to again expand our capacity, as I said, make our own operations faster. That's why we've done things like automating our warehouses to make the the rate at which we can feed those parts from the time they received from the supplier into the manufacturing that much quicker and more efficient. And so we're just continually working on what I would do is our operational velocity. And so that we're not the constraint.

I appreciate that. And then for my second question, 1 of the significant, obviously, in the incremental drivers of your business among many has been advanced packaging you guys did about $1 billion plus in advanced packaging revenues. I think it was in calendar '24, you're anticipating strong 40%-plus growth this year -- but can you guys quantify how much advanced packaging grew for the team in calendar '25. And then of that 40% growth this year, is that being more driven by 2.5 3.5 advanced packaging or .

Yes, Harlan, we didn't quantify 2025 in packaging, except to tell you it grew nicely, and I think we're going to kind of leave it at that. Tim gave you the 40% this year. So we're super excited about what's going on there. And I'll let Tim talk about the technologies. .

Yes. It's -- we've lumped it together. I mean, it is strength in HBM. Clearly, there's strong demand there. but also I talked about more complex packaging schemes across advanced foundry logic, and that's an important driver for us as well. The great thing about our advanced packaging capabilities is they are they're used in the advanced packaging of all device types. And so it's things like copper plating. It's things like etch, dielectric gap fills. And so they're really fundamental technologies to the success. So we see that as a really important business, and we've talked about the fact that we continue to invest in new technologies in that space. .

The next question comes from Stacy Rasgon with Bernstein Research.

For my first one, Doug, you've clearly said it's a second half loaded year, which is fine. What does that imply for the first half of the calendar year? Like is March quarter the trough -- do you think things are kind of flattish at the March level until we get that second half inflection -- just how are you thinking about the shape of the year? .

Yes. it,it's a great question. Frankly, as I sit here right now, I think we're going to see growth every quarter. the previous quarter. I'm not going to give you a precise number. We feel good about that March quarter. I think June probably grows from that September from that, and it ends up being a second half weighted year both from a WFE standpoint and from our revenue. .

I guess to get there, would you need an inflection in that growth rate in the second half? I guess some of it compares, which makes it easier. But just are you thinking there's an inflection? Do you think the growth is steady or .

I think it's reasonably steady. I mean part of this is going to be modulated by, okay, how much free base is all at each customer. And I think that they're trying to figure out still and so are we which is why I'm not giving you more specificity. It will be second half weighted. But like I said, I think you'll see growth quarter-by-quarter as we go through '26.

Stacy, I guess the only thing I would add is I was just going to add that my comment about basically every customer is asking for pull-ins. And so there is some element of whether or not we can accelerate some small portion into the first half of the year. we would still see growth in the second because obviously, that probably been things start pulling in from the first half of next year as well. But we're in an accelerating environment of both demand and also timing requests. And so I think that back to the question was asked about constraints, I think we need to see through the year how those play out as to kind of how we -- how much we can do. .

Got it. That's helpful. And for my second question, I just wanted to ask about China. So Doug, I think you said you expected China to be flattish year-over-year. Was that a market statement? Or was that a Lam revenue statement and the percentage should go down, I guess, it was it was 36% or something in calendar '25. You had talked previously about like a 30% threshold. Do you think it gets to that 30%? Or do you think it's just down, but doesn't quite get there. .

Yes, Stacy, the comment, in fact, we think WFE in China is flat-ish, 25% to 26%, and everything else is going to grow. So as a percent of the total, it's going to be down. We didn't give a precise number, whether it's in the low 30s or high 20s, that's plus or minus probably where it is. And part of it will be modulated by how much growth comes from outside of China. So numerator denominator thing as well, obviously. .

The next question comes from Blayne Curtis with Jefferies. .

A couple of questions. Maybe just -- I wanted to just understand the strength in Reliant with China down, is that multinational. I just was curious where you're seeing that demand. I know you said it was lumpy. I just was curious why it was up so much. .

It was multinational and it was China. It was a little bit of both of them, Blayne.

Got you. And then just on the NAND front, obviously, the demand is very strong. You talked about the upgrades happening earlier. Does that in the camp of also second half weighted? I mean it's not waiting on clean room space? I'm just kind of curious the shape of NAND for the year. .

Yes, it probably is a little bit second half weighted, Blayne. .

The next question comes from Melissa Weathers with Deutsche Bank.

I wanted to go back to the NAND side and touch on something that Tim mentioned in his prepared remarks on the expanding applications for NAND in the data center. And Doug, you kind of alluded to some of the CES announcements as well. So is the right interpretation that those applications in the data center have expanded versus what you guys had been thinking? Because you guys have been talking about NAND in the data center for several quarters now. So is that the right way to think about it? And then what could this mean for like your moly ALD, your 300 layer type devices and expanding share you could get there?

Yes, sure. I think we characterize it as a new use case. So I don't think we saw this particular use case coming, which is related to the AI inference and kind of the expansion of TV cash and such. I think our previous estimates have been more kind of on more traditional storage for using enterprise SSDs. And so yes, this is an expansion and kind of presents a bit longer-term growth opportunity for NAND. And so therefore, it would be beyond the kind of projections that we would have given back at Investor Day a year ago for the outlook for and long term. .

Okay. And then a quick question on the inventory side of things. Doug, I just wanted to check in and see how you're thinking about parts availability and your ability to scale production in line with demand. Can you help us with a framework to think about how you're thinking about inventories on a days or dollars basis?

Yes, Melissa. No, it's a great question. Listen, if we're right about how things play out here, it's very likely that we're going to need to build some inventory in total dollar terms as we go through the year, right? When business grows, you got to have stuff ready for that growing business. that's clearly going to happen. We will remain focused on asset utilization and efficiencies and hopefully be able to drive turns up a little bit from here. But we definitely are going to need to build some inventory in advance of a growing top line. So we'll be working on all of that and listen. .

The next question comes from Joe Quatrochi with Wells Fargo.

Maybe just a follow-up on that. Is there any area of your supply chain where you're pushing suppliers, maybe that could be a potential area of shortage? Or do you feel like there's available capacity to continue to kind of support the growth you're talking about? .

Well, I think that we don't have any line of sight to significant problems at this point. I made the comment a couple of times. It's really a lot of work given the accelerated nature of the demand and the the high levels of demand and customer requests for pollings well within our normal lead times. But at this point, we're working across our global supply chain to ensure that we can meet the demand. And maybe as a follow-up, China now expected to be flattish. Is that -- is that a reflection of just the affiliate rule impacts reentering kind of WFE across the company based in terms of just your peers? Or is there a change in the underlying demand that you're seeing as well in China? .

I think -- Joe, it's probably a little bit of affiliate rule, but frankly, it's there's a broad-based set of customer spending in China that have nothing to do with the affiliate rules. So it's the mosaic of everything that's going on there. It's very broad. .

Our next question comes from Vijay Rakesh with Mizuho. .

Doug, just a quick question on the foundry side. I think China was down, I guess, you mentioned affiliate rule, but your foundry is growing almost 100% plus year-on-year. Just wondering as you look at '26, '27 with some of the leading edge foundries accelerating how you see that road map?

Yes. Well, I guess speaking to whatever it looks like from a road map perspective is each technology node, we said the opportunity for Lam from an action depth intensity perspective and how our tools like Vicar and others fit into that, the opportunities get bigger. As you move forward, you start seeing things that, again, we would anticipate future nodes talk '27, '28 introduction of things like backside power again, more use of advanced packaging across more of the leading-edge foundry space. All of those things are good for us from both the SAM and a share perspective. So that's -- it's -- from a product perspective, it's a very good picture for us. .

Got it. And then on the DRAM side, I know you mentioned briefly HBM 4 with 16 layers. Obviously, that's a nice step-up from where HBM is now. Can you talk to what that does for your -- the content and the growth there on the DRAM HBM side? .

Yes. I mean, just in general terms, I mean, what happens is you end up going to next-generation HBM, dies become bigger, and that's generally what is creating the majority of the problem relative to when we talk about clean room space constraints, you get -- you need more clean room space and more tooling per fit that comes out of the fab. So therefore, that was what we're trying to communicate is. Obviously, the performance improves, but the space required and the equipment required increases. .

Yes. I appreciate everybody's questions today. That concludes our call for today. We look forward to seeing everybody as we do the conference circuit and get out on the road. So thank you for your time today.

Thank you, everyone. The conference has now concluded. You may now disconnect.

We're going to start. Good morning, good afternoon. I'm Tim Arcuri. I'm the semi and semi equipment analyst here at UBS. Very pleased to have Lam Research. We have both Tim Archer, who is the CEO of Lam Research; and we have Doug Bettinger, who is the CFO of Lam Research. So thank you to you both.

Yes. Great to be here.

Let me kick us off with the safe harbor, just to keep our attorneys happy, and you can see it on the screen. But for those of you on the webcast, today's discussion may include forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially and so forth and so on. So please have a look at the safe harbor. I don't think Tim or I will say anything new today, but just in case we do, this is the guidance for you.

Okay, Tim.

Perfect. Well, Lam has been my favorite equipment stock for a long time. And the wafer fab equipment market looks like it's going to grow quite a bit in the next few years. I think you're kind of pointing to a first half of next year that's going to be flat to modestly up with growth being better in the back half of next year. Can you just talk about some of the drivers of that acceleration into the back half? Is it mostly due to DRAM and fab readiness issues, advanced logic timing? Maybe you can talk about that.

Sure, Tim. It's -- well, first, thanks for having us. It's great to be here. And it is a very exciting time right now in semiconductors and semiconductor capital equipment. It's -- when we look forward to 2026, we talked about the first half being kind of flattish to a little bit up. I mean that's obviously coming off of what has been strong -- looking to be a strong second half of 2025 for us as well.

And really, we just -- I think even since our last earnings call, we've continued to see increasing strength in terms of optimism about semiconductors and also the role that technology that Lam provides plays in a lot of these inflections that are coming and how they're enabling this whole AI environment right now. And so I think we come into 2026 feeling very positive about Lam's opportunity.

Yes, Tim, it's just timing. You know how this business works. It's the totality of everybody's spending plan. It's flat to a little bit up, and then it's just second half weighted is what we see.

I mean you pointed out clean room. We mentioned that on our last earnings call. We said the reality is you need time to get infrastructure in place. And I think that this demand has been building across the ecosystem, and I think it's going to take some time for some of these elements to come into play. And so I think that bodes well. We've often said we don't really want demand to far exceed the ability to supply for too long. We'd like it to be stretched out, manageable and executable by the entire industry.

And when you look out over the next few years, which do you think, from a relative perspective, if you took NAND and DRAM and foundry, I know if you drive out, we were talking about this yesterday, drive out to see TSMC's campus, you can get pretty optimistic about advanced foundry over the next few years. But like what are the relative puts and takes in each of those 3 markets over the next few years?

I think that -- and then I'll let Doug make a comment. But I would say what's exciting about semiconductors right now is that all 3 device segments have a tremendous growth opportunity ahead. They all play together. I mean you're seeing that come together right now. You've got advanced foundry/logic and the role that it plays, obviously, well-known role it plays in AI. You've got DRAM being driven by HBM. You've got enterprise SSD driving a lot of the upside we're seeing in NAND right now.

And so I think we're at a moment where there is end demand at the leading edge, especially for all 3 device segments. And if you go back to what we presented at our Investor Day last February, Lam's growth story, our SAM expansion is really coming from this change in device architectures, integration approaches that is driving a material upside in etch and depth intensity across every device type, across every technology node. And so etch and depth intensity, Lam's opportunity just keeps getting bigger. And as people try to innovate and drive higher performance across the AI ecosystem, that bodes well for us from a technology inflection technology evolution perspective.

Let's talk about NAND upgrades. I'm sure you've gotten this question [ all morning times ] today. So you gave this number of $40 billion to upgrade the existing installed base to get it 2xx. I had $45 billion, but they're very close. And we're probably, I'm guessing, about 1/3 of the way through that, maybe a little bit less. But that's not a static number either, right? Because that just gets you to 2xx. And then, of course, now we're seeing a push to go even higher than 2xx.

Can you talk about just the dynamics of what's going on in NAND? Obviously, I think most of the wafer capacity is going to go toward HBM. So it's hard to see a lot of wafer capacity added. So there is pressure. The only way that you're going to be able to add bits is to increase layer count. So can you just talk about that?

Sure. Yes, back at our Investor Day in February, we talked about this $40 billion upgrade number. We said at that time, likely it would play out over several years, and that was to upgrade the installed base. Lam has the largest installed base of any supplier within in NAND. And so to play out over several years because our estimate at that time was that the demand was likely growing in the mid-teens. Well, obviously, we've seen, especially with drivers like enterprise SSD, that bit demand is somewhat higher than that now, and that's I think going to encourage people to upgrade a little bit faster than we might have seen at that Investor Day, and that's partly because upgrades themselves.

They are the fastest and most economical way for a customer to get to those higher layer counts, higher performance devices that are needed for those enterprise SSD applications. And so when we look at it that -- there's a conundrum that some of our customers, I believe, have and they've talked about, which is, again, clean room space. You've got to make a decision. What at that moment in time is most important. You're adding HBM, you're adding NAND. The NAND upgrades provide a really nice opportunity to upgrade in place and get to those higher performance bids.

And so I think that we'll continue to see that happen as sort of first priority. But eventually, you have to start to add capacity. And as we said on our last call, there's some clean room space that's going to need to be brought online to be able to accommodate that. But I think the most important comment you made was this isn't static. We said $40 billion in February. But once you get to 200, you got to get to 300, and then you've got to get to 400. And that's simply because these leading-edge applications require higher bandwidth, faster read/write speeds. They require higher densities to create the enterprise solutions that are needed today. And so this doesn't end with one upgrade cycle. It will immediately morph into the next upgrade cycle into the next upgrade cycle. And in each of those, Lam is the winner.

Yes. And I think maybe you can also double-click on just it quite literally is the most fertile ground of any pool of money being spent in the industry. It is the most fertile ground for any single supplier is your capture rate of those of those NAND upgrade dollars. I think it's about $0.40 on the dollar. You've not given a number. I don't know that.

All we've said, Tim, is when upgrades happen, 2/3 of our SAM is what's exposed to that, and we have very high share. So yes, we love the upgrade process. And by the way, you also get some new equipment that shows up in there, right? You got to upgrade the moly for the QLC stuff initially. And then you always get a few constrained tools that need to get purchased. So it's not just upgrading. There's also some new equipment that goes into that number.

Yes. We -- I think it's available on our website, but we published about a year ago this article on the path to 1,000 layers. Now obviously, that's still a bit a ways out there, but it talks about all of these different applications that ultimately come in. Doug just mentioned molly for higher performance, lower resistance within the -- within the structure itself that's necessary for the read/write speeds.

But from a density perspective, we end up -- once you end up in the 200, 300, 400 layer devices, you're starting to stack tiers on top of tiers. And what we've said is that device manufacturing is becoming increasingly complex, especially in this vertical scaling. And vertical scaling -- the verticalization of everything in semiconductors today, whether it's more layers in NAND or it's advanced packaging across foundry/logic or DRAM, even in NAND, the cell bonded to array, all of these things increase etch and deposition intensity. And that's why we think the Lam has a very unique secular growth story within our SAM, which is sort of unmatched amongst equipment suppliers today.

Yes. I mean if I so -- much of your overall WFE share depends on NAND because that's your highest share market. But if I just take the different pools, I take the foundry/logic pool and I take DRAM, you're gaining share in both of those pools too. So that -- a lot of people think of you as like the NAND guy, but you're not just a NAND guy. And so can you actually talk about that because some of the other companies in this space haven't been able to gain share in those pools the way that you have? How have you been able to do that when you sort of think back when you target these applications, how did you do it?

Well, I would say it's the culmination of the strategy that we embarked on probably 6 years ago to somewhat better balance the company across all 3 device segments. We saw the inflections that were coming. 3D NAND was a huge watershed moment for the company because 3D NAND is so etch and depth intensive. But when we looked 6 or 7 years ago at the inflections that would be coming and the verticalization of foundry/logic, verticalization of DRAM, we saw the same opportunities.

And so we've spent the last 5 or 6 years developing products specifically to target smaller, taller features within foundry/logic and DRAM as well as newer materials that address challenges like RC, basically the speed and power aspect of devices. And I would just say it's a fantastic execution by the company on those new products. And we've talked about a lot of those wins this year, but it's things that you might not have thought about for Lam in the past, our low-K ALD within foundry/logic. Our dry photoresist process within both DRAM and foundry/logic. These are -- these are like new areas for us.

We said that Lam has the opportunity through these inflections across all 3 device segments to expand our SAM from the low 30s to the high 30s by the end of this decade. And that's a material jump in terms of the opportunity for us. And because of the progress we've already made on those products, we said we would win more than 50% share of that newly created SAM for Lam.

And so -- and you ask why simply because almost all of the new technology inflections are either 3D transitions. So the verticalization or the material changes, and those are both very, very good for an etch and deposition focused company.

Yes. I mean if you think about your overall WFE shares 13 -- 12, 13, 14, depending on the year, I mean that's a significantly higher number than that if you think of your incremental share of this new SAM, way, way higher than what your total share is of the WFP market.

Can we talk about China for a few minutes. Just like everybody else, I know all your peers, you're guiding China down next year. Of course, that's what all the companies thought of a year ago, too, which is not an indictment against you.

And the year before that, like you were pointing out to me yesterday.

It just as the way that it's turned out. But China always seems to surprise to the upside. We've had this -- there was the BIS Affiliate Rule that is costing you $600 million roughly next year. And...

But, Tim, that was a revenue statement, not a WFE statement, right. Because WFE is still the [ year ]. When we talk about it trending down, we're talking about WFE.

Yes, correct. Correct. But I guess part of that is as those companies are allowed to take tools, that is something that you'd think that, that much, if not more, gets added back because they only have a year's reprieve. So they're going to try to get as much from you as they can in a year. So it seems to me like there's a lot more upside drivers for China WFE next year than not. So can you talk about why you see it down?

Maybe I'll start and then Tim, you can add on. It's a numerator-denominator impact as well, right? We're talking about a percentage. You know how strong everything else is. We've been talking about it strength of AI, the investments leading edge foundry and logic, leading DRAM, NAND. That's a global statement, right? So understand we believe that grows. And I know you do, too. And just when we look at the totality of the spending in China, it looks like it's going to soften a little bit. The last couple of years, you're right, we've gotten it wrong. I think everybody has.

You're hearing all of us describe a view that it's going to trend down. So that's what we all see. What's happened in the last couple of years is one of the customers in China or maybe a couple ended up spending more than they suggested at the beginning of the year. We just don't see that happening in '26. We could be wrong. But that's just -- we're describing what we're hearing from our customers, Tim, and that's all.

And can you talk about this -- so this is more of a revenue question. You took $100 million out of December for the BIS Affiliate Rule and $600 million out of next year. And we were talking about this yesterday. But now that this rule is reversed, you probably gave away those slots for December, maybe even for March. But that $600 million at least comes back and it probably comes back more towards the back half of next year, I would think.

And so that's the first question is sort of how -- like what's the timing of that to come back? And then two, why would it not come back at a number that could be significantly higher than that $600 million because they only have a year's reprieve? So they're going to rush to get as many tools as they can as fast as they can.

Might it be more than $600 million? Maybe. It's spread through the year, Tim. I mean it's not simply back half-weighted. It's going to be all the way through the year. I think best we can tell. And might they try to spend more because they're worried about the rule going away? Maybe. It's too soon for us to give you color on that right now.

Yes, I guess I would just say, the only thing I could add, is that when we look at China, we have a great team there -- supports the customers that we can sell to very, very, very well. We have great products that are targeted towards those trailing edge applications. And when you have great people and great products, I mean you win. And so some of our performance in China is also just share gains as well. And it's something that, again, we're applying just, like I say, great people, great products and doing well.

But overall, I mean, we spend a lot of time talking about China and I understand it's important in the short term. But I'll bring you back to the fact that like Lam's real growth story is all about leading edge. And it's about the progress we've made in foundry/logic, DRAM, the enabling role we play in higher layer NAND.

And I think the one thing that -- I don't know if it gets enough attention, but I mean the fantastic job we've done in advanced packaging. I mean the -- we've flipped the script on leadership in advanced packaging as a result of our etch tools, our copper plating tools, the role we play in things like wafer shaping or stress management, the dielectric deposition applications that help enable -- we announced one earlier this year, late last year, [indiscernible].

These kinds of applications and the role that Lam plays, I mean it's become a game changer for us from a revenue perspective. We haven't quite updated the numbers by themselves at this point. I mean there's some competitive aspect to that. But we had already said, I believe, last year, over $1 billion...

Over $1 billion.

Over $1 billion, we gave an update that gate-all-around plus advanced packaging will be well over $3 billion this year. And I think just from what you see going on in foundry/logic and in DRAM, advanced packaging is just a growth driver for Lam going forward. And it didn't really exist if you just went back 5, 6 years ago when we sort of embarked on this strategy of doing well in foundry/logic and DRAM. Advanced packaging, it's a foundry/logic and DRAM primarily focused area, and that's why we've really bumped our performance in those 2 segments and much better balance the company today than we were when we started.

Great. I wanted to ask about 3 things that are pretty unique to Lam. One is the move to 4F2 in DRAM. The gates get a lot more vertical. Anytime anything that gets more vertical that's good...

Good for us.

For the company, that's one; transition to moly ,#2; and dry resist, #3. So I could spend -- I mean, we can spend the rest of the time on those, but maybe you could touch on each of those, and you could just talk about like why those are so important and weather it's unique to Lam?

Yes, sure. So I mean, as we said, anything that is getting smaller, taller, it's great for us because what we specialize in, in the etch space is basically etching very small, very deep features and 4F2, is basically a new device architecture in DRAM that creates very vertical, very small features that require precision etch. And it's both precision from the size of the pattern, but also the selectivity and control you have for the depth of that etch.

We introduced a new tool recently called Akara with Direct Drive and again, forever, Lam has been pretty much the world leader in conductor etch. But even for us, this is a pretty big breakthrough, which was the first time we've been able to now control without -- what's considered to be a mechanical match. We use solid-state drivers to match the plasma to the chamber. And this allows us to control the plasma conditions 500x faster than they'd been previously possible.

And why this is so important is that the features become smaller, you can sort of imagine if you're pulsing this plasma and you're trying to change the chemistry and the species inside that plasma the faster you can get control of the plasma and the power, the better you can control that etch. And so it's become very, very important in gate all around as well. I mean in -- basically in logic where you're trying to create very small pattern features and then it will become very important for 4F2.

4F2, it's still a couple of years out, but it's one in which already DTR decisions being made today, we feel really good about our position.

Very similarly, molly, on the NAND side today and eventually will be on foundry/logic and maybe eventually on DRAM as well. But moly is a tool where it's a metallization change. Lam has been the leader in tungsten metallization up to this point. We're very strong in ALD metals. And so as this inflection comes to reduce the line resistance, help you stack taller features. Lam has taken a leadership position there. We've basically been the company that has been winning the initial positions within the moly transition.

And then dry resist, kind of brand-new innovation. It's not often that Lam has come up with something completely new to the industry. When you introduce something brand new, it takes a while to get people sort of on board with that. And so we are a few years late to our original projection of revenue, but we did recently announced this year that we're in high-volume production now at a major DRAM maker, and that's a really important step because DRAM runs a lot of wafers, and that basically will prove out the dry resist application.

We announced a very important partnership with JSR, which is -- they are a leading provider of photoresists and we're going to work with them on not only precursors for the dry resist, but also precursors for ALD and atomic layer etching. And I think that, again, bringing together equipment suppliers like Lam with these unique capabilities and then material suppliers, this is kind of -- these are very important partnerships for us going forward, and we look to do that across the ecosystem.

I mean if I think about some of the numbers that you've given for dry resist, they seem a bit -- I mean, it's great, but those numbers seem a bit low to me. If I look at how big the track market is, I mean, it's huge. And you're basically replacing what photoresist application. So why can't we look at the size of the track market as a guide for how big that could be for your business. I mean, it's -- the market is significantly higher than the $1.5 billion number you've given over the next 5 years.

Yes. Maybe just a matter of time, Tim. Let us hit the $1.5 billion first. And then I mean, it is kind of one of those cases where -- look, change comes hard in this industry, too. I mean some of these tools have been in place, and that's been the technique for decades and decades and decades. And so that's why I say sometimes that switchover takes time. But what's nice is when it switches over, you don't go back. I mean you've made that choice to go to dry resist for the improved pattern fidelity, the improved productivity you get from EUV.

And I'm satisfied if customers just layer by layer generation by generation keep adopting. Becomes faster, I will be even happier. But what I'm really encouraged by is the fact that you're starting to see that switch over. You're starting to see the commitment in high-volume production. And the way things work in this industry is once a few start it and you're seeing success, it sort of starts to snowball. So let's see where it plays out, but we feel really good right now about the momentum in that space. And we'll update you next year and the following years about how big that market is getting.

Doug, I want to ask you about one of your favorite topics, which is CSBG, which is your service business.

My favorite part of the company from a business standpoint. I always say that.

So before I ask about the overall business, one more innovation you've driven is this use of cobots in your service business.

Cobots are part of what we characterize as advanced service. There's a bunch of equipment intelligence-enabled service offerings that we bring. But cobots are a key part of it for sure, Tim.

So can we just talk about how; a, how that's helping CSBG? And really, the bigger picture question is, just break down the parts of CSBG and talk about what you think the long-term growth rate is for that business?

Yes. Let me unpack CSBG in total, and then I'll come to the advanced service and I'll let Tim maybe [indiscernible].

It's my job.

Four things in CSBG: spares, service, equipment upgrades, which is doing really, really well this year, and then the reliant product line, which is our older equipment that we sell.

When you look at the profile of this, the great thing about this is our equipment almost never goes away. So the opportunity to do more of this because chamber comp grows every year. That's part of what drives CSBG. Spare parts intensity goes up as more advanced tools come out as well. But what we're really excited about is what you initially asked about, cobots and some of the advanced service offering.

What we're able to do for customers here is predictable, repeatable, consistent service to the tools. We can match chambers better. We can enable yield enhancement, utilization improvement. This is a unique thing that we've brought to the customers that they were actually really excited about. And I'll let Tim talk about how he hears customers pulling on this.

But this is part, Tim, of how we grow this business, and we give you the 2028 model, we said CSPG will be 1.5x as big as it was last year. And then by that $1 trillion model, it will be double. Part of how we drive dollars beyond just the growth in chambers is with advanced services.

I don't know if you want to talk about that [ndiscernible]

That's great. Thanks. I think that if you go back, we talked about this point of key strategic shifts we made. Also in 2019, we launched our new [ Sense.i ] platform. And part of the whole idea was [ Sense.i ] when we launched it, we hadn't changed our platform for etch for 20 years. It's kind of like if it's not broken, why change it? And -- but what we recognized was that the trend was going to be for a platform that could collect tremendously more data for every way for run, collect tremendously more data off of all of the components that are running in the tool.

And in 2019, while we put all those sensors in place, I mean, we're still in the nascent stage of payable to actually utilize all that data. And what we're excited about now is -- I mean, look, that's the AI whole revolution is fundamentally how do you use data to come up with new insights. And so our equipment intelligence, our tools are getting ready. And so I think that's going to be a big driver for, like Doug said, really shortening the time to troubleshoot tools to install them and match them in these big fabs. In fact, to match them across fabs that happen to be on different continents, which is we're seeing increasingly happen, including right here in Arizona.

And so the EI piece, we're feeling really good about, but we're super excited about the innovation in cobots. And initially, we introduced cobots with this idea that if you could do robotic maintenance on the tools, it would be great for people -- like right now, there's a workforce shortage. We talk about the fact that there's just aren't enough engineers if all of these fabs are going to be built in all these different places around the world. So we've kind of initially thought about it from that perspective. It can replace some of the labor that our engineers don't really like doing and our customers' engineers don't like doing.

But what we've actually now found is probably the even greater value proposition is the precision with which the maintenance gets done. And you kind of think about if you're going to try to build something at the 2-nanometer or 1-nanometer level where every angstrom matters, well, having the maintenance be done exactly the same every single time and not relying on every single engineer being trained to do it exactly the same. That cobot does it every time exactly the same.

And so we've seen the first time right after maintenance be dramatically better. Some customers have reported some yield improvement because they don't get wafer-to-wafer for variability like they used to between different chambers, different machines. And so we just see it as something that almost now goes hand-in-hand with this desire to accelerate node changes and technology evolution.

And so you might think about it as CSBG, but I think that having cobots is actually going to make our systems also that much more attractive for a customer who's thinking about building these mega fabs and thinking if I buy tools that have cobots, how much easier is that going to make my mass production ramp and that's time to ramp, time to mature yield. Those are things that make money for our customers, and it's a real priority for them. So cobots, I think, is going to be a big thing for Lam and for the industry in general.

And maybe just last question, Doug. Can you talk about gross margin? I know gross margin depends a lot on mix really, and you're fabulous really, so you don't have a lot of fixed costs.

Very small fixed cross here, yes.

But can you talk about where you think margins can go? I know one of your peers talked about raising prices. You haven't really talked about that, whether you've done that or not, I don't know. But you're pricing to value, I think, pretty consistently. So can you talk about that just gross margin, how much upside is there?

Yes. I mean the way I want people to think about the financial performance of the company is the model we put out in February is still the right way to think about it, which suggests 50%, gross margin in the '28 time frame and greater than 50% by the time we hit this magical $1 trillion industry. We just put the plus next to the $50 million.

Some of the things that drive improvement in gross margin are some of the new tools that Tim has talked about, right? They're better technical performance. So we're going to get better gross margin, we believe. The close to customer strategy of ramping the Asia factory network, while that has -- a lot of it is already in the P&L, and there's still a little bit left to go. So that will also lead to some level of improvement.

Yes, pricing is always something we're doing our best to get fairly paid for the value we're delivering to the customer. That's always in the mix, and you're always negotiating that. And so that's all part of how we are going to deliver that financial model.

Great. Well, we've run out of time. So thank you to you both.

Thanks for having us.

Thank you, Tim.

Thanks.

Good day, and welcome to the Lam Research Corporation September Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ram Ganesh of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Archer, President and CEO; and Doug Bettinger, Executive Vice President and Chief Financial Officer.

During today's call, we will share our overview on the business environment, and we'll review our financial results for the September 2025 quarter and our outlook for the December 2025 quarter. The press release detailing our financial results was distributed a little after 1:00 p.m. Pacific Time. 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 p.m. Pacific Time. A replay of this call will be made available later this afternoon on our website.

And with that, I'll hand the call over to Tim.

Thanks, Ram, and good afternoon to everyone on the call.

Lam delivered a solid September quarter, highlighted by record revenues of $5.3 billion, gross margin of 50.6% and record operating margin of 35%. We also achieved record combined spares and services revenue, and growth in total CSBG revenue outpaced the increase in installed base units.

Inclusive of our guidance for the December quarter, we expect to close calendar 2025 with 3 consecutive quarters of greater than $5 billion in revenue. Our performance reflects strong company-wide execution and the critical role that our products and services portfolio plays in enabling the industry's technology road map and in addressing the rapid increase in semiconductor manufacturing complexity.

Our December quarter guidance does contemplate roughly a $200 million revenue impact from the recently announced 50% affiliate rule restricting shipments to certain domestic China customers. Currently, we expect this rule to impact our calendar year 2026 revenues by approximately $600 million. This impact, together with the strong growth anticipated in worldwide fabrication equipment, or WFE spending, leads us to expect the China region to represent less than 30% of our overall revenues in calendar year 2026.

Turning to WFE. Spending in calendar year 2025 is shaping up to be slightly better than our prior view of $105 billion, predominantly due to better-than-expected high-bandwidth memory, or HBM, related investments. As we look ahead, we see a robust setup for equipment spending in calendar year 2026.

AI-related demand should support sustained strength in leading-edge foundry logic and DRAM as well as continued NAND upgrade spending. The strong leading-edge growth we see across all 3 device segments is forecasted to be partially offset by a decline in domestic China related investments.

We plan to provide our detailed 2026 WFE spending outlook and subsegment color on our January call for our usual practice. AI and its impact on the semiconductor industry continues to be a major topic of interest. And the data center CapEx investments already announced are expected to drive significant expansion of manufacturing capacity over a multiyear period.

In recent months, we have seen an acceleration of activity. AI data centers require the most advanced CPU and accelerator capabilities; low latency, high-bandwidth memory and high-speed eSSD storage, all integrated through 2.5D and 3D advanced packaging. We estimate these needs translate to roughly $8 billion of WFE spending for every $100 billion in incremental data center investment.

Most importantly, deposition and etch, the area of Lam's core product differentiation, play an increasingly critical role enabling the higher performance, more scalable semiconductor devices required for AI. We see the surge in AI data center demand creating billions of dollars of served available market expansion and share gain opportunity for Lam in the coming years.

I will share a few areas of strength we are seeing. In NAND, customers are continuing to upgrade existing fabs to meet the need for higher layer count, higher performance devices. We have estimated that these conversions will require $40 billion of WFE spending over the next several years. And as we have previously said, Lam should capture a high percentage of this conversion spend due to our large installed base position.

Our upgrades business is projected to remain strong into 2026, as NAND bit demand looks to be trending higher than prior expectations. Device makers have already announced enterprise-grade SSDs with 256 terabytes of storage capacity to satisfy growing data center demand for high-capacity storage.

Availability of clean room space will likely act as a limiter to the pace of NAND supply growth, but we believe the capacity additions to meet rising bit demand may be needed sooner than previously thought. Lam is in a great position for both upgrade activity in the near term and new capacity builds in the future.

We have the industry's largest installed base of NAND systems and our comprehensive NAND product portfolio features several industry-first advances. Notably, Lam recently earned the 2025 semi award for our pioneering Lam Cryo 3.0 dielectric etch technology, a process that has quickly become the industry standard for advanced NAND devices.

We are also seeing solid demand for our atomic layer deposition, or ALD, products, including a recent key win at a major NAND manufacturer for a critical high aspect ratio dielectric deposition application. Lam's differentiated conformal fill capability using a higher temperature process was fundamental in securing this win.

On the metal side, Lam's Halo Moly ALD tool has been selected as the tool of record for 3 consecutive nodes at a leading customer, including for devices with more than 500 layers. This further reinforces our leadership in the 3D NAND word line application, a step that is fundamental to building the higher performance devices required for eSSDs.

The performance demands of AI devices are also spurring investment in foundry logic and DRAM manufacturing inflections. Over the last several years, we have focused our -- on expanding our product portfolio to target these opportunities and believe we will benefit as the technology transitions unfold. For example, Lam's ether Driesist EUV patterning solution has demonstrated the ability to resolve features of less than 15 nanometers at the highest density and pattern fidelity.

Ether also enables a more than 10% reduction in EUV exposure dose boosting scanner productivity and reducing the cost of patterning per wafer. Lam's Ether technology is already ramping in the HBM high-volume production line of a major memory manufacturer, and we see more opportunities ahead as we look further out on the road map.

For instance, we believe high NA EUV in combination with Ether for single patterning of sub-10-nanometer features will be critical to addressing the complexity and cost challenges associated with the transition from gate-all-around transistors to CFET in foundry/logic, as well as the anticipated migration from 6F squared to 4F squared in DRAM.

In September, we announced a key partnership with JSR Corporation, an innovative semiconductor materials company to collaborate on the integration of our Ether technology with novel EUV patterning materials and metal oxide resists. In addition, Lam and JSR are partnering to explore new precursor materials for advanced ALD applications, which we believe can further enhance our capabilities and differentiation for future technology inflections.

In the case of low K ALD films, Lam's high-productivity single-wafer solutions are enabling our customers to move past traditional furnace-based approaches. As logic transistor sizes scale down to achieve greater compute power, higher capacitive coupling in the gate module to grades overall performance.

Similarly, as DRAM devices shrink, there is a detrimental increase in capacitance between the bitline and capacitor contact. To resolve these issues, deposited low-k films must be very thin, 5 nanometers or less, and conformal in high aspect ratio structures. Furnace-based films at these thicknesses are often fragile and unable to withstand the harsh chemistries used in subsequent process steps.

Lam's low-K ALD solution employs a unique single wafer remote plasma reactor and a novel precursor to deposit thin defect-free films with the desired silicon carbon bonding structure. As a result, Lam's ALD films have demonstrated superior durability on the remainder of the chip making process. and we recently secured critical wins at foundry logic and DRAM customers for low applications using this process.

Beyond traditional device inflections, Lam is also benefiting from healthy growth in advanced packaging. Our SABRE 3D plating and Syndion etch systems are industry leaders and should continue to see strong demand in 2026 as AI-related spending grows.

Looking further ahead, we are investing in new advanced packaging opportunities. Today's packaging production lines primarily use 300-millimeter diameter wafers. But as AI and high-performance computing demand larger chips to integrate more accelerators, memory and interconnects panel-level packaging is emerging as a scalable solution.

By processing multiple units on larger format panels, it significantly improves manufacturing efficiency and supports the integration of increasingly complex and larger semiconductor devices. Lam's SABRE 3D, Calisto and Phoenix tools are being engineered to meet future panel packaging needs.

We are collaborating across the ecosystem to drive industry-wide standardization and co-development, both of which are essential for scaling high-volume manufacturing and next-generation integration solutions. We expect to end this year with tools shipped to or install at 20 customers worldwide. Our growing installed base of panel packaging tools is rapidly building experience and maturity that should prove valuable as this technology becomes mainstream in the future.

So to wrap up, Lam is poised to close out a record calendar year 2025, and our setup is strong heading into 2026, where we expect solid WFE growth. The technology requirements of AI play extremely well to Lam's product strengths, and we are excited by the breadth of opportunities we see ahead for the company.

Now here's Doug.

Thank you, Tim. Good afternoon, everyone, and thank you for joining our call today during what I know is a busy earnings season. We executed well in the September '25 quarter, delivering gross margin performance of 50.6%, which is a record in the post Novellus period.

Financial results for the quarter came in above the midpoint of all of our guidance ranges. We also delivered many financial records throughout the P&L. The company truly performed well in the quarter.

Let's turn to the details of our September quarter results. Revenue for the September quarter came in at an all-time record of $5.3 billion, which is up 3% from the June quarter. Deferred revenue balance at quarter end was $2.77 billion, up slightly from the June quarter due to increases in services and system-related transactions where revenue recognition was not yet complete.

This was partially offset by approximately $100 million of reduction in customer advanced down payments. We do expect to see these down payments continue to decline in the December quarter. From a market segment perspective, foundry accounted for 60% of our systems revenue in the September quarter, up from 52% in the June quarter.

This marks our third consecutive record quarter underscoring the strength of our strategic focus and execution in foundry. Foundry strength came from investments at the leading edge in addition to mature node spending in China.

Memory was 34% of systems revenue, which was down from 41% in the prior quarter due to the timing of customer investment plans. Within Memory, nonvolatile memory contributed 18% of our systems revenue, which was down from 27% in the June quarter. The trajectory of the NAND spending this year is broadly consistent with our expectations coming into the year.

And as the industry transitions to devices of up 200 layers, we continue to estimate over $40 billion in upgrade spending will be required over the next several years. DRAM increased from the June quarter accounted for 16% of systems revenue compared to 14%. Investments in high-bandwidth memory continue to remain strong, driven by AI-related customer demand.

We're also seeing traditional node migrations to the 1B and 1C nodes, enabling the transition to DDR5. The Logic and Other segment came in at 6% of systems revenue in the September quarter, roughly in line with the 7% we reported in the June quarter.

Let's turn to the regional breakdown of our total revenue. China came in at 43%, an increase from the prior quarter level of 35%. While the multinationals in China remain steady, the domestic Chinese customers grew and the majority of our China revenue continued to come from them. The next largest geographic concentrations were Taiwan at 19%, which was flat sequentially and Korea at 15%, down sequentially from 22%, again due to the timing of customer investment plans.

The customer support business group generated approximately $1.8 billion in revenue for the September quarter, slightly higher sequentially and year-over-year. This is being driven by continued strength in spares and upgrades. CSBG remains a key part of our growth strategy given the expanding installed base and our innovation in advanced services.

We expect CSBG to deliver year-over-year growth in 2025. And I just mentioned that in the 13 years since we brought Lam and Novellus together, CSBG has grown every year except for one.

Let's look at profitability. Gross margin in the September quarter was 50.6% at the higher end of our guided range and improving from the June quarter level of 50.3%. The increase is primarily driven by favorable customer mix, partially offset by the impact of tariffs. I expect the impact from tariffs to continue to increase somewhat in the December quarter.

Operating expenses for September were $832 million, which was up from the prior quarter level of $822 million. The increase is primarily due to increased headcount and incentive compensation, which is tied to the company's improved profitability. R&D accounted for 68% of the total operating expenses.

We're investing in innovations like Vantex, Okara, Halo and Dextro, to continue our leadership in providing a differentiated product portfolio for our customers. The September quarter operating margin was 35% at the high end of our guidance. This operating profit represents a record level for land in both dollars as well as percentage terms.

The non-GAAP tax rate for the quarter came in at 14.2%, generally in line with our expectations. We continue to see the tax rate in the low- to mid-teens for the near term. We do expect, however, with the increase in the guilty rate in the United States as well as the advent of the global minimum tax regime outside of the United States, you will see a slight increase in our effective tax rate as we get into calendar year 2026.

Other income expense for the September quarter was approximately $8 million in income compared with $4 million in income in the June quarter. The slight increase in OI&E was primarily the result of increased interest income tied to a higher cash balance. As we've talked about in the past, you should expect to see variability in OI&E quarter-to-quarter.

Let's look at capital return. In the September quarter, we allocated approximately $990 million through share buybacks through open market share repurchases. Our average buyback price in the quarter was approximately $106 per share. Year-to-date, we've repurchased nearly 30 million shares at an average price of a little more than $88 per share. We also paid $292 million in dividends in the quarter. I'll remind you that we increased the dividend from $0.23 to $0.26 per share earlier this month.

Moving forward, we remain committed to returning at least 85% of free cash flow to our shareholders over time. The September quarter diluted earnings per share were $1.26 above the midpoint of our range. The diluted share count was 1.27 billion shares, which was a reduction from the June quarter and consistent with our guidance. We have $6.5 billion remaining on our Board authorized share repurchase plan.

Let me pivot to the balance sheet. Cash and cash equivalents totaled $6.7 billion at the end of the September quarter, an increase from $6.4 billion at the end of the June quarter. The main reason for the cash increase was cash generated from operating activities, which was partially offset by cash allocated to capital return as well as capital expenditures.

Days sales outstanding was 62 days in the September quarter, which was up slightly from 59 days in the June quarter. September quarter inventory turns improved to 2.6x compared with 2.4x in the prior quarter and up from the levels 2 years ago of 1.5x.

We've remained focused on driving asset utilization during this time frame, and I was pleased to see us deliver this outcome. Our noncash expenses for the September quarter included approximately $97 million for equity compensation, $89 million for depreciation and $13 million for amortization.

Capital expenditures in the September quarter were $185 million, which was up $13 million from the June quarter. Spending was primarily focused on lab investments in the United States along with expansion of manufacturing sites in Asia. This remains consistent with our global strategy to be close to our customers' development and manufacturing locations.

We ended the September quarter with approximately 19,400 regular full-time employees, which was an increase of approximately 400 people from the prior quarter. Headcount increases were in R&D to support our long-term product road map. Additionally, we had increases within the field organization to support customer growth and a higher volume of tool installations.

Let's turn to our non-GAAP guidance for the December 2025 quarter. We're expecting revenue of $5.2 billion, plus or minus $300 million. We expect a decline in China revenue offset by stronger spending from the global multinationals. We're expecting gross margin of 48.5%, plus or minus 1 percentage point.

I expect customer mix and tariffs will be contributing to the sequential decline in gross margin. We're expecting operating margins of 33%, plus or minus 1 percentage point. And finally, earnings per share of $1.15, plus or minus $0.10 based on a share count of approximately 1.26 billion shares.

I want to give you a few things to think about as you build your 2026 models. While we are not yet quantifying the level of growth in WFE, I will tell you that calendar '26 looks somewhat second half weighted as we sit here today. The newly restricted China entities would have been weighted to the first half of next year.

Customer mix will be a headwind to gross margin a bit next year, as the China mix normalizes. And the tax rate will likely tick up very slightly, as I previously mentioned. We'll give you better color on all this during the December quarter call.

So let me wrap up. Lam delivered another strong quarter, highlighted by record levels of revenue, record gross and operating profit. Inclusive of our December quarter guidance, we're on track to deliver calendar year 2025 at an all-time high watermark in financial performance closing with 3 consecutive quarters of revenue above $5 billion.

We remain focused on strategic investments that extend our technology leadership, operational efficiencies and long-term value creation.

Operator, that concludes our prepared remarks. Tim and I would now like to open up the call for questions.

[Operator Instructions] And the first question comes from the line of CJ Muse with Cantor Fitzgerald.

I guess, first question, very helpful guidepost for thinking through incremental WFE tied to AI infrastructure spending. But I guess over the last 6, 8 weeks, would love to hear how your conversations with customers have progressed? Are you seeing expedited meetings? Are you seeing actual orders? Would love to see how the announcements around infrastructure spending is translating into visibility on your business?

Sure, C.J. Let me take that. I mean, obviously, when we talk about announcements that are made recently, there's not physical space, there's not near-term demand for those. Those are things that give you a guidepost as to where demand is going further in the future.

I think to look at the conversations that we're having today about near-term needs for equipment, it's a lot of the things I talked about, which is enterprise SSDs and the impact on NAND. You've heard some of our customers, I believe, speak to bit demand that might be a little bit higher than expectations. I just said that our view of NAND upgrades is well on track for '25 and a strong '26.

So it's really down when we talk about our equipment demand, it's near-term needs with those longer-term announcements as opportunity in the future. But they're along the same technology transitions. Those data center investments are going to require faster GPUs made at smaller nodes for foundry/logic. They're going to be made with higher capability HBM.

And that's where all of our products come into play, how we participate and gate all around, our ALD tools, high aspect ratio conductor etch. On the DRAM side, the work we're doing in HBM to enable higher stacking of HBM devices. And so again, we're seeing very robust demand, as we mentioned, going into 2026, but it's for things that are real and here today.

Very helpful. And then maybe thinking through your relative outperformance to WFE. Based on your guide, it looks like you're tracking on a tool shipment basis, up 40%. And I think many investors think we're growing 10% overall. So tremendous outperformance. I guess, how are you thinking about 2026? And as part of that, what would be the critical drivers to drive relative outperformance?

Yes, sure. I'll let Doug add in here as well. But I guess I would just say that you have to remember that as fabs get built and equipment is brought in, there often are timing issues. And so it's a little bit hard to speak to any near-term like outperformance, underperformance for certainly because it depends on what other suppliers are going to be doing and when they're shipping and what their lead times are.

But what we can say with quite a bit of confidence and I think we laid it out at our Investor Day earlier this year, is that over the longer term, Lam's markets, etch and deposition, will outgrow WFE because of nearly every trend is taking place technology-wise in semiconductor manufacturing, whether that's 3D devices, in foundry/logic, in NAND, whether it's a smaller, higher aspect ratio devices and stacking, using advanced packaging in DRAM, whether it's advanced packaging itself. They're all deposition and etch-intensive products. And therefore, I think over the longer term, confidence to outperform WFE is very high.

Nothing to add, Tim, you nailed it. Thanks, C.J.

The next question comes from the line of Tim Arcuri with UBS.

Doug, when we talked 3 months ago, you were thinking that December would be like 4 7. You were saying it'd be sort of back to where March was, and now it's coming in at 5 2. So the incremental $400 million to $500 million, where did that come from? It sounds like maybe a little bit of it pulled in from the first half of next year. Can you just sort of give us a sense like what's actually better than what you thought 3-or-some months ago?

Yes. Listen, I think Tim pointed in fact that WFE is a little bit stronger. We think high in DRAM is a little bit stronger. And maybe everything else was just a little bit stronger, Tim, it's not any 1 thing that I would point to. I would tell you, though, honestly, it would have been even higher if not for the restricted entities in China. So things did strengthen for sure. As we look into next year, clearly, next year is a growth year. .