Lam Research Corporation

Good day and welcome to the LAM Research Corporation's March 2021 Quarter Financial Conference Call. At this time, I would like to turn the conference over to Tina, Corporate Vice President of Investor Relations and Corporate Finance. 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 March 2021 quarter and for the June 2021 quarter. The press release detailing our financial results was distributed a little after 1 o'clock p.m. Pacific time this afternoon. The release can also be found on the investor relations section of the company's website, along with the presentation slides that accompany today's call. Today's presentation and Q&A includes 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 today's earnings press release. This call is scheduled to last until 3 o'clock p.m. Pacific time. A replay of this call will be made available later this afternoon on our website. And with that, I'll call over to Tim.

Great. Thank you, Tina, and thank you to everyone joining the call today. LAM posted excellent results in the March quarter, with record revenues from both systems and install businesses, as well as record cash flow from operations and record earnings per share. Our performance reflects solid execution by LAM employees and our partners worldwide, despite ongoing COVID-19 related impacts. The investments we are making in manufacturing and supply chain resiliency are enabling us to support our customers' needs amid a broad-based strengthening in semiconductor demand. We are very optimistic on our positioning and see continued strong growth for LAM in the future. Let me first begin by updating our expectations for wafer fabricate equipment spending. Since our last earnings call, we have seen WFE spending plans increase for the calendar year. Our outlook for 2021 WFE is trending above $75 billion, and we now believe that WFE spending in the second half of the calendar year will be higher than the first half across all device segments. Several factors are at play in driving this robust WFE growth. First, secular tailwinds such as AI, 5G, and I continue to strengthen. And over the past year, COVID-19-related impacts like work and learn from home have accelerated adoption of these technologies. Second, the complexity of manufacturing advanced semiconductor devices continues to increase at a rapid rate. leading to a rise in equipment capacity across all segments. Third, innovative consumer products are incorporating more semiconductor-enabled functionality, driving faster growth in semiconductor content per year. On our last call, we talked about new gaming consoles as an incremental driver for semiconductor demand and WFE. A similar example is the PC and wearables. These devices are utilizing an increasing number of sophisticated sensors manufactured using mature technology nodes to deliver added functionality such as body temperature measurement, heart rate monitoring, and blood oxygen sensing. Wearables are integrating these sensors with advanced node semiconductors that deliver lower power and lower latency in addition to the computation capability required to support new AI and machine learning-enabled applications. This is having a marked effect on semiconductor content in these products, and today's wearables contain nearly double the amount of DRAM and four times the amount of NAND versus five years ago. Semiconductors are also capturing a greater share of the value within the electronics supply chain, and we see 2021 semiconductor revenues as of electronics revenues breaking out of the historic averages of the last 15 years. And finally, The growing importance of semiconductors to global industries has led governments in the U.S., Europe, and Asia to call for actions to mitigate supply chain risk, which will likely include increased investment in regional semiconductor manufacturing capacity. When combined, these four factors of accelerated technology adoption, growing complexity, increasing semiconductor content, and capacity investment support a compelling case for a strong multi-year WFE spending environment, one in which LAM is executing extremely well. In 2020, we gained share across both etch and deposition, including significant gains in conductor etch. We expect to deliver overall share growth again in 2021. Our positive momentum demonstrates how we are successfully positioning LAM as the partner of choice for our customers at a time when technology complexity is increasing, 3D scaling of device and packaging architectures will be a primary focus of the industry for the remainder of this decade. And LAM approaches this challenge with unique experience. We were the leader in enabling the transition to 3D devices through our early engagement in the nation. And as a result, we built enduring leadership positions in the most critical etch and deposition applications. And as the 3D NAND roadmap is evolving to multi-stack scaling for higher layer counts, our technical contribution continues to grow. To integrate multiple stacks to build taller devices, innovative solutions are required for stress management, etch selectivity, and defect control. The increase in complexity of multi-stack scaling is creating new product opportunities for LAM, and this quarter we recorded a key deposition win for a multi-stack enabling film and a leading memory customer. Through our leadership in the 3D NAND market, LAM has developed a portfolio of products and acquired the expertise in high-volume manufacturing to help customers' highly complex 3D scaling challenges across other device segments. In Foundry logic, the adoption of 3D-like gate-all-around or nanosheet-type structures introduces unique processing requirements. In the last earnings call, I highlighted the momentum of our latest conductor etch system, Keogx, which utilizes an innovative plasma pulsing capability to deliver superior high aspect ratio etch results for nanosheet structures. In order, we saw additional application wins with Keogh at multiple Foundry Logic customers. We are also seeing share gains with our new suite of selective edge products designed for ultra-high selectivity removal processes previously performed using systems. Related to the challenge to the back end of line scaling, we are taking new approaches to deposit lower K materials and deliver better interface controls. New material integration schemes enabled us to win multiple 5-nanometer back-end-of-line applications, and in the March quarter, we extended our wins to more advanced nodes as well. In addition to device scaling, we remain equally focused on our customers' objectives to improve cost and operating efficiency in their fabs. You will recall that we announced our new Vantex dielectric etch process module on the Sensai platform. Vantex on Sensai delivers best-in-class etch technology and brings to market unique and innovative solutions to lower overall cost of ownership. The Sensai platform architecture increases wafer output per square meter of fab space. New RF power designs consume less energy to support cost and ESG roadmaps. And advanced equipment intelligence and self-maintenance capabilities minimize required onsite human intervention. With semiconductor demand at unprecedented levels, these factors have become critical differentiators as customers look to cost effectively and sustain ramp capacity on advanced nodes. As a result, we continue to make solid progress on Sensei adoption and leading customers. Our focus on helping customers solve productivity and manufacturing challenges is also reflected in the excellent performance of our install-based business, where we are safe and in growth. CSBG revenue eclipsed $1.3 billion in the March quarter, yet another record. We are executing very well in this business, and as we sit here today, we are tracking ahead of the growth model that we shared with you at last year's Investors Day. All product lines within CSBG had record revenues in the quarter. Our upgrades business is expected to roughly double over the two-year period ending in 2021. By enhancing productivity and extending installed base capability for multiple generations, our upgrades business plays an important part in our customers' cost reduction roadmaps. In Reliant, we see specialty technologies continuing to grow in areas like CIS, power, and RF devices. In SPARES, we successfully closed with a key customer the single largest annual contract in the company's history, which includes commitments for critical leading-edge parts. And lastly, we are seeing great progress in services. Big data and equipment intelligence are playing an increasingly critical role in the operation of advanced semiconductor fabs. This quarter, we closed a multi-region data services license contract, with a major memory manufacturer to provide enhanced tool data to enable their smart manufacturing roadmap. Additionally, our services team completed the first year of a comprehensive multi-year equipment intelligence services contract at another major memory producer. System performance under this contract exceeded objectives, leading to a significant return on investment for the customer. So to conclude, We are in an environment where industry fundamentals continue to strengthen. The strategic relevance of semiconductors is reaching new height, and semiconductor capital equipment is well positioned to benefit. Amidst strong WFE spending, GLAM is delivering great results and making foundational investments in new products and infrastructure to drive continued outperformance. Thanks again for joining today, and now here's Doug.

Great, great. Thanks, Jim. Good afternoon, everyone, and thank you for joining us today during what I know is a busy earnings season. I hope you and your family is safe and healthy since we last spoke with you. GLAM delivered outstanding results for the March quarter, with record quarterly revenue and strong profitability metrics. For the quarter, our revenue and gross margin came in above the midpoint of our guidance, in both operating income and earnings per share were above the guidance range. We've continued our excellence in execution, not only in delivering impressive financial results, but also in being our customer's most trusted partner. We delivered revenue for the March quarter of $3.85 billion at the high end of our guidance range, which was an increase of 11% from the quarter. Our solid revenue performance was mainly due to an increase in boundary-related systems, as well as record performance in our customer support business group, or CSPG, where we had increases in all parts of that business. Our customers' fabs are running at high utilization levels, which drives the need for consumption of spare parts and services. First, let's focus on our systems revenue, where we saw continued strength in the memory segment, which represented 62% of systems revenue in the March quarter. The NAND segment was 48% of our systems revenue, compared with 51% in the prior quarter, with customers investing in higher 3D device layer and added capacity to address the overall broad demand for storage bits. The March quarter NAND systems revenue amount reached a record level, again demonstrating GLAM's leadership position in the NAND segment. Customers were primarily investing in equipment for 96- and 128-layer class devices. In DRAM, we had 14% of our March quarter systems revenue in this segment, compared with 17% in the prior quarter. DRAM investments consisted of both conversion and capacity additions with concentration in the 1Y, 1Z, and 1 alpha nodes. We expect to continue to see healthy and prudent levels of investment in the overall memory segment in calendar year 2021. We've had our highest quarterly revenue level in the March quarter for the foundry segment, and it came in at 31% of our system's revenue, compared with 26% in this quarter. We're seeing leading-edge investments focused on 5 nanometer, as well as spending related to mature technology nodes required to meet higher demand for specialty consumer-oriented integrated circuits. And finally, lastly, another contributed the remaining 7% of systems revenue in the March quarter, up slightly from the prior quarter level at 6%. Let me now shift to the regional profile of our revenues. The China region came in at 32% of our total revenues, down slightly from 35% December quarter. The majority of the China spending this quarter was from domestic Chinese customers. The Korea region was also strong for us in the March quarter, representing 31% of revenues, which is up 10 points from the prior quarter. And as Tim mentioned, we achieved another record quarter of revenue for our customer support business group coming in at $1.3 billion, which is an increase of 13% from December and up over 50% versus the same quarter in 2020. The growth we've seen in each of the subsegments of this business is a testament to the value we're providing to our customers for technology and productivity enhancements, as well as the strength of this market supported by our Reliant product line. We're also supporting customers' requests for increasing spare parts purchases to support both higher equipment utilization and some level of inventory stocking. We expect continued strength in CSVG through the remainder of the year. Let me now shift to profitability. March gross margin was 46.3%, generally in line with our expectations. And I'll remind you, as I always do, gross margin fluctuates quarter to quarter due to overall business levels, along with customer and product mix. We do continue to incur higher freight and logistics costs because of the COVID environment, and we expect these costs will remain until we see a normalism of air freight volumes. Operating expenses for the March quarter were $567 million, slightly higher than the prior quarter, reflecting our commitment to managing expense levels while we invest to grow the company. We've prioritized our spending towards R&D, which represents over two-thirds of our operating expenses, enabling us to build on our deposition and S leadership positions. Operating income exceeded $1.2 billion in the March quarter, with operating margin coming in over the guidance range at 31.6%. Our non-GAAP tax rate for the quarter was 7.8%, which came in lower than we expected due to incremental deductions from equity compensation for annually investing that occurred during the quarter. As we've discussed in the past, we will have fluctuations in the tax rate from quarter to quarter, and you should continue to expect the ongoing tax rate to be in the low teens level for the 20th calendar year. I would mention we continue to monitor potential tax changes that could come from the new administration in the United States. Other income and expense was approximately $42 million in expense, which is lower than the prior quarter and lower than the typical run rate, primarily due to marketed items like foreign exchange and interest rates. And as a reminder, beginning of the March quarter of last year, the benefits and costs of our employee deferred compensation plan are no longer mismatched in our non-GAAP results. This mismatch was $8 million for the March 21 quarter, and you can see the details of this in the GAAP reconciliation table of our earnings release. We paid $187 million in dividends and allocated over $900 million towards share repurchases tracking nicely with our committed LERM capital return plans. Part of the buyback in the quarter went to a structured repurchase program, which was supplemented with open market repurchases. Diluted earnings per share came in at $7.49, above the guidance range. This was the result of the higher revenue and gross margin, as well as her ability that I mentioned in the tax rate. Our diluted share balance was down from the December quarter level, coming in at 145 million shares, as we expected. The share count includes the dilutive impact of approximately 500,000 shares from the 2041 convertible notes. An addition to mention is that late in the March quarter, we issued a redemption notice for the 2041 convertible notes. As of March quarter end, we had approximately $17 million remaining on these notes. This redemption would retire the last of the convertible notes in our capital. Let me shift to the balance sheet. Cash and short-term investments, including restricted cash, decreased slightly to $6 billion from $6.3 billion in the prior. The decrease was attributed to the capital return activity offset by the strong performance we had in the March quarter cash flows from operations, which came in at a record level of $0.2 billion. Day sales outstanding decreased to 66 days in the March quarter, from 76 that we saw in December. This improvement was driven by strong cash generation with a higher level of business, and, as I alluded to last quarter, the timing of collections across the December and March quarters. Inventory terms were flat with the prior core coming in at 3.2 times. Given the overall demand strength we're seeing, as well as our focus to mitigate potential supply chain disruptions, inventory terms will likely remain these current levels for the foreseeable future. Non-cash expenses included approximately $56 million for equity compensation, $61 million for depreciation and $18 million for amortization. Capital expenditures for the March quarter were down slightly versus the December level coming in at $90 million. As I noted in our last earnings call, we're investing to support the expanding operations at our new Malaysia factory, our manufacturing facility in Ohio that's focused on critical spare parts, and the upcoming Korea Technology Center. We expect to see somewhat higher levels of capital expenditures in 2021 as we support these critical growth initiatives. The headcount level ending the March quarter was approximately 13,100 regular full-time employees. Resources have been added in our factories to meet the increased output levels in this robust business environment. Within this, we opportunistically bought out our aging joint venture manufacturing facility that is focused on a reliant product line. This added half of the growth in headcount that you saw in the quarter. Additionally, we've added field service and R&D personnel with a focus on delivering best-in-class technology services and solutions to our customers. Now, looking ahead, I'd like to provide you our non-GAAP guidance for the June 2021 quarter. We're expecting revenue of $4 billion plus or minus $250 million. Gross margin of 46.5% plus or minus 1%. Operating margin margins of 32% plus or minus 1% is blank. And finally, earnings per share of $7.50 plus or minus 50 cents based on a share of approximately 144 million shares. So in summary, I'm quite pleased with our operational execution, which is reflected in the strong financial performance of the company. We now see greater strength in WFE as we go through calendar 2021, with the second half looking stronger than the first half. We are guiding to continuing record financial performance for the company, and we are well on the path to achievement of our growth objectives that we spoke to you about at our today in March of last year. I've personally never been so excited for the things the semiconductor industry is enabling, and I'm proud of the results LAM has continued to deliver enabling this industry. That concludes my prepared remarks. Operator, please open up the call for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you were using a speakerphone, please make sure your mute function is off. to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.

We'll take our first question from Harlan Sir with JP Morgan.

Good afternoon and congratulations on the strong results in execution. I assume that given the strong demand trends across leading edge and lagging edge, that the team has seen extended beefier tools. Wondering if you can quantify, is the team already starting to book into the second half of this year? And if I'm a customer that places an order today for one of your tools, when will this tool actually be producing wafers? Is it nine months from now, 12 months from now? Would appreciate any insights. Yeah, Harlan, thanks for the question.

Obviously, for a lot of reasons, we're not going to divulge our lead times on this call, but we will say that, you know, clearly what was said is unprecedented demand, and combining that with COVID impacts capacity is tight, and it has extended our lead times. We would say our visibility into our future is quite good at this point. But we don't want to go into exactly how long it takes for a customer to order a tool and get it and qualify it at this point for competitive reasons, ours and our customers.

I appreciate that. If I think about the fundamental environment, right, if I look at your memory business and I look at your customers, so both NAND and DRAM pricing fundamentals continue to move higher, combination of strong demand, relatively disciplined supply spending, in fact, relatively just you know, discipline and supply spending since, you know, the last week in 2018. Most of your customers are anticipating that DRAM and NAND BIT demand will exceed BIT supply growth here in 2021. I know you guys do a pretty good job on the analytics side around supply and demand. I'm just wondering how you see the supply-demand balance in memory, especially as we move through the back half of this year and factoring in the incrementally better WFE outlook that you outlined today.

Yeah, I'll go ahead and make a couple of comments and then let Doug chime in with some of the specifics on the bid supply. You know, clearly we've said even entering this year, we felt it was going to be a very good year for memory for a couple of reasons. One, DRAM had gone through a couple of years of very conservative spending, and so it you know, there was some pent-up demand there for spending both on technology and some capacity. From a man perspective, we talked a lot about the increasing spend related to layer transitions that were going to be occurring this year. And so we have seen that playing out. I think you combine that with, again, growing demand across many, many different end market segments and also increasing the need to add capacity both in a greenfield perspective as well as conversions, and that's led to an ongoing stronger outlook. We do model, obviously, fit supply and demand. I'll let Doug talk a little bit about what we're seeing there.

Yeah, Colin, thanks for the question. Yeah, you know, we came through 19 where spending was held pretty closely in check, and even through a good chunk of 20, and maybe all the way through 20 for DRAM. And when you look at the two years of investment there, exiting last year and you look at supply growth, it was below where longer-term demand growth was in both NAMD and DRAM. And I think you saw that and are still seeing it in pricing. You know, and as a result, our customers respond. We see them responding carefully, prudently is the way I like to describe it, consistent with where they see demand growth. and the investments we're starting to see increase somewhat in both NAND and DRAM are a result of that. We continue to believe long-term demand to be in the mid-high 30% in good supply, not caught up with that yet, and that's why investment is up. Similarly, in DRAM, we think longer-term demand is in high teens, maybe approaching 20%. And as a result, the supply growth is being invested in to try to get caught up with that. That's really what we see going on.

Thank you for the insight. Thanks, Harlan. Thanks, Evan. Thank you. We'll take our next question from John Pitzer with Credit Suisse.

Yeah, good afternoon, guys. Congratulations on the strong results. Tim, Doug, I wanted to talk a little bit about kind of marketing and your prepared comments You talked about your expectation for this being another market share gaining year for you. And at the analyst day a year ago, I think to your 2023 model, you guys had sort of embedded sort of 4% to 8% points of share in edge and depth. I'm just kind of curious, to what extent was that sort of time sensitive versus volume sensitive? And as WFE kind of gets ratcheted up here at a faster rate, do you expect share gain to happen more quickly? And while you're on the topic of share, you know, the perception on Wall Street is that you guys are extremely well positioned in the NAND market. But I think perhaps people are underestimating your positioning and kind of logic found. I'm kind of curious if you can talk about the areas outside of NAND where you feel most comfortable about share growth this year and going forward.

Yeah, sure. John, I'll start this one. I think it's a great question, and I would actually say this, breaking it in this way of time versus volume, where we already possess a very strong leadership position, like 3D man, increased WFE volume helps with share gain immediately. But it's not just a volume story because time progresses and transitions occur to greater numbers of layers. We actually see both more equipment needing to be purchased to deposit and etch those thicker stacks, but also new applications that get created that, again, expand our SAM and with time even build on a really strong NAND position. So there's kind of an element to both volume and time in there. On FoundryLogic, a little bit of the same, although I think most people know that we've laid out a story of how some of the technical inflections really do create new opportunities for LAMs to introduce new products, gain share, and build a strong position in FoundryLogic. I would say there definitely is a time element in that we need technology transitions to occur. We need to go from 7 to 5 and 5 to 3 and ultimately 3 to 2 because we're focused on catching the new applications that are being created by the most difficult technical challenges. And so in my prepared remarks, I talked about things like nanosheets, gate all around, the 3D-like inflections that are occurring, and there's a time element. Those nodes have to ramp, and they're not ramping just yet. We talked about EUV and our new dry resist process. Again, a great opportunity for Lambda to enter into a space that's in foundry logic that we just haven't been in up to this point. but those are future node-looking opportunities for land over the next several years. And so, again, I think that's why what you hear from us is confidence that we benefit from the strong environment we're in now, but we're laying the foundation for an even stronger future as time evolves.

That's helpful. Thank you.

Thanks, Johnny. Thanks, Johnny. Thank you.

We'll take our next question from Stacy Rescon with Bernstein Research.

Hi, guys. Thanks for taking my question. I wanted to talk about the customer service business a little bit. Can you give us some idea of how much of the strength in the quarter was coming from the Reliant, you know, I get the idea that there's more mature node capacity than we do right now. Do you feel like that is a long-term trend? Is that sustainable? And maybe if you could give us any further color on the amount of the CSBG group that's actually coming from upgrades. And I guess the same question, are there more like a one-time element to that, or do you think kind of the run rate of what we're seeing right now is sort of a sustainable driver after that business workflow?

Yeah, Stacy, thanks for the question. Maybe I'll take this and let Tim add on afterwards. I think both Tim and I said in our script, all components of PG Business delivered record performance last quarter. You're right about the Reliant product line very much focused on maybe trailing edge 28 nanometer and above nodes. Another record, I think, you know, we're – printing double-digit number of quarters where we've delivered records there because of things you're referencing or referring to. Upgrades were very strong, which is always a high ROI for the customers to get increased capability from the installed base. Spares were very strong. Think of that as being driven by utilization in the industry, broadly speaking. Utilizations are very high. I see our customers trying to build a little bit of inventory in spares similar to what we're doing with our own inventory because of concerns about different supply chain disruptions. And then service. Service also correlates with utilization in the industry. So honestly, when you think about what's going on in the totality of CSBG, $1.3 billion, up 50% from a year ago, is fitting on all four cylinders that I just mentioned. And each of them have their own unique tailwinds that are driving the business.

Yeah, I think it sounds like – Maybe just – oh, sorry, go ahead, Susie. No, no, please, go ahead. No, I was just going to add on. I think to your point about the sustainability of upgrades, I think the one key point is that, you know, we said the install base grows every year. And so really that is our opportunity. So we naturally, by lamb shipping like in a year like this, so many new systems out into the field, our SAM expands for upgrades every single year. And so, you know, we really do think that through innovation and coming up with ideas for how the customers extend the capability of the tools and improve productivity, it's in our hands to continue to deliver greater revenue capture from every one of those tools that's out in that installed base. And so I think that's quite sustainable. And then to your point of the lagging edge, clearly there's a very strong demand at this point, and kind of to the first question about capacity constraints and lead times, that problem doesn't get solved probably in a very short order of time. And when I think about sustainability there, it goes to this point I made in my talk about It's about semiconductor content in everything, enabling new functionality, and, you know, many of those items are making great use of mature technologies. So, you know, we've seen that business just grow quarter after quarter after quarter, expanding with the overall market. So I think both have a strong sustainability component to their revenues.

Do you think it would be possible to give us some rough split of how the customer service business breaks up right now between those four categories, upgrades and spare and services?

We haven't quantified it, and I'm not going to now. I think the color we have given is the spare parts piece of it is the largest component, but we haven't quantified it.

Got it. Thank you very much, guys.

Thank you.

Thank you. We'll take our next question from Timothy Arcuri with UBS.

Thanks a lot. Actually, I have two. I guess the first one, Doug, you know, obviously, CSBG is running like roughly 15% above your, you know, 2023 and you gave that a little bit over a year ago. So, I guess the first question is sort of what did you want to appreciate in that model a year ago? I know that, you know, WFE and your systems business has really just taken off and, you know, maybe that's the answer that you're still growing. double the installed base and that that's just, you know, taken off more than you thought. And then I had a second question as well.

Yeah, I mean, Tim alluded to Chamber County. Clearly, it's been a very strong year. And so Chamber County is higher than I think I would have thought a year ago. Industry utilization is probably stronger than I would have expected a year ago as well. And upgrades is probably benefiting from that also, Tim. So You know, there's probably an aspect of it in each of the segments. And, yes, we are certainly ahead of the model that we gave you a year ago. I'm not ready to update the model, but clearly we're ahead of where that model was.

Yeah, okay, thanks. And then also I keep getting a lot of questions on NAND and your business. And, you know, you guys do a great job mapping NAND WFE back to BITS. And my math says we're running close to $5 billion a quarter in WFU right now, and it sounds like you think that goes up into the back half of the year. So if that's right, and then I tie it back to your comments that you, you know, mapped kind of $15 billion a year to drive mid-30s bid growth, and then I think you said $350 million for each 100 basis points beyond that, that would sort of scale up to like 45% bid growth, maybe as high as 50%. just on, like, a run rate basis. So, you know, I keep getting pinged on that from people, you know, asking about that. So can you sort of tie those numbers back? Thanks.

I don't know if I can do all the math that you just asked on the call, Tim. I mean, investment ebbs and flows. It ebbs and flows in each of the end markets. It flows in the end. We did say we expect the second half to be stronger investments in all aspects of the market, including the end. Yeah, it's up this year from where it was last year. It's getting caught up with kind of the underinvestment we saw in 2019 to a certain extent. You're still seeing very strong pricing, and as a result, people are investing, trying to get caught up with where demand is, honestly. And it'll ebb and flow. It won't go up every single quarter. We see a very strong investment this year, and I think it's going to continue in the long term to be very strong. But I can't do all the math that you just asked sitting here on the call. I'd be happy to follow up if you don't mind. Thanks, Doug. Cool. Thanks. Yeah. Thanks, Tim.

Thank you. We'll take our next question from Chris Sankar with Cowan & Company.

Hi. Thanks for taking the question, and congrats on the very strong results. I have two. One is a short-term and one is a long-term question. The short-term question for Doug is, is there a way you can quantify how your second-half revenues are going to trend with the first half, or do you think CSBG revenues would outperform system revenues in calendar 21? And then I had a follow-up for Tim. Chris, did you say second-half earnings? I didn't quite catch. Second-half revenues versus first-half revenues, and would CSBG be greater than system revenue growth this year?

Yeah, you know, Chris, we guide one quarter of our time, and then we give you color about what we see for the year. And I'll remind you what we tried to say. We see WFE in the second number, which is good for the trajectory of our business. So you can read into that what you think for our revenues. But WFE stronger is going to be a good thing for us. We just guided June up to $4 billion. So that's as much as I'm going to give you on the revenue side. So, yeah, it's been like a pretty strong year, and we see the second half spending stronger than the first half across all of WFP. And what I said on CSBG is I expect it to be a strong year for CSBG, a continued strong year. Maybe a hard number on it, but, you know, all the tailwinds that I described look like they're continuing.

Fair enough. Thanks, Doug. I mean, just to follow up with Tim, a longer-term question. You know, when you look at, like, some of the upcoming technologies like GATE all around, you know, it looks like selective removal of leverage would be important in addition to EPI. So I'm kind of curious, how is LAM positioned for GATE all around, and is there a way you can quantify the dollar or revenue opportunity for LAM?

No, I don't think there's a way we can do that. But what we've said is that, you know, LAM-SAM expands at every technology node. And, you know, clearly GATE all around is within that. What we tried to point out is, again, what's, you know, what is sort of the embodiment of our product and technology strategies to identify, you know, new applications, new requirements that emerge when device technology changes or when architectures change and ensure that LAM is positioned early for those. with products and with our customers so that when the change happens, we're in a great position to win those. We've given you a few examples, not all of the examples, but I think that that's, again, it's just to give you a sense that when these inflections occur, we have a track record of doing quite well. It's also why we keep pointing back to the same strategy we executed through the 3D NAND inflection, and ultimately over time it's built for us a – an incredible business. And so I think gate all around is coming as an opportunity for us in that way. We pointed out EUV and the ultimate changes in the way patterning is done and what we see anyway for the opportunity for driver assist is another. While not gate all around focused, it's kind of at the same technology nodes where those changes occur. So we see promise in founder logic for our future.

Thanks, Jim. Thanks, Doug.

Thanks, Griff. Thank you. We'll take our next question from CJ Muse with Evercore.

Yeah, thank you for taking the question. I guess first question, you talked about second half WFP higher than first half. Curious what magnitude of upside this could support versus simply just being sold out and pushing demand into the first half at 22. And as part of that, can you speak to the timing of ramping capacity in Malaysia and you know, bringing more resources on for you guys.

Okay, CJ, let me get a go on this one. You know, clearly what we've said is that capacity is tight. And so, you know, to the very first question, I probably could have even added, if a customer were to order a tool today, When they get it, I won't divulge, but, I mean, clearly it will not be adding to qualifying capacity this year. I mean, that's sort of a – it's just some sense of where lead times and such are. But we do have a couple of events coming in the second half of the year that are meaningful for us, and that is expansion of our Asian manufacturing facilities. Doug talked about the buyout of our JV in Taiwan as an opportunity for us to take a little bit more control over that entity and continue ramping. and Malaysia is the second half 2021 story for us in terms of its ramp. And so, you know, we are confident in long-term capacity needs for the company, and we want to be able to support and return lead times back towards more historical levels for the company. And as I said, they're extended now. Part of this capacity expansion is to return those more to normal as we get towards the end of the year.

Very helpful. As a quick follow-up, for domestic China revenues, was that primarily NAND, and as part of that, were you able to obtain a license for SMIC yet?

CJ, demand in local China customer base, prod base. Trailing edge foundry, a little bit of DRAM, a little bit of NAND. To license for our large foundry customer in China, no update. We're still waiting to hear back from the government. Great. Thank you.

Thanks, CJ. Thank you. We'll take our next question from Tashia Hari with Goldman Sachs.

Hi, guys. Thanks for taking the question, and congrats on the strong results. Doug, I wanted to follow up on China. I guess I've been a little bit surprised how long your China business has been over the past quarter or two, despite some of the restrictions placed on FMIC. What's been the offset to the upside in your China business? You just talked about broad-based demand, but did anything stand out over the past quarter or two? And how are you thinking about calendar 21 local China WFE on a year-over-year basis? And I've got a quick follow-up.

Yeah, sure. I'll take a crack at it. I mean, it's broad-based. First thing I'll remind you that when you see our regional revenue, it's a shift to FAB location. So there's a balance between local China and global multinationals taking equipment in their FABs in China. I did say that the majority, more than half, last quarter were the local Chinese customers. The quarter before, in the December quarter, it was the other way around. It was more MNC-oriented. So it's pretty broad, and it's been relative to the local China component of it. It's a broad set of customers. Some you probably know, but I would tell you there's a long tail of smaller customers that maybe you're just getting to know or maybe you don't know yet. So it's a broad set of people investing. And thinking about WFP from Wolf of China this year, it's up from last year. It's growing across lighting edge, logic nodes, and memory.

Got it. And then as a quick follow-up on CSBG, Doug, you mentioned the long-term growth outlook there is now better relative to what you presented last year at your analyst day. Is that simply a function of the 2021 base being higher, or has something changed structurally or fundamentally in CSB2? You talked about, you know, the chamber account obviously being higher and utilization rates being higher, but anything kind of structural that has changed over the past 12 months? Thank you.

No, I wouldn't point to anything structural. We're shipping more chambers, so that's a bigger opportunity from, I guess I think, an available market standpoint. And then it's pieces of all four components in CSBG.

Thank you. Yep. Thank you.

We'll take our next question from Joe Moore with Morgan Stanley.

Great. Thank you. Yeah, following up on that last question, you know, Doug, you've made the comment that you can't see the services business. You'd be very surprised to see it not grow each year. And obviously the chamber count growing is a nice kind of lead indicator. But when you talk about a lot of the drivers of higher utilization, people building inventory of spares, things like that that are sort of a function of this very tight supply environment that we're in, you know, do you see those things turning into – headwinds next year? I mean, it still seems like you're likely to grow given the growth in chamber count, but the outperformance versus chamber count, can that continue beyond this kind of very strong near-term environment?

Yeah, I don't have any different view of the business, Joe. I have a hard time seeing it not growing every year. It doesn't mean it's going to grow every single quarter, but we're shipping a lot of chambers this year, which is the momentum of the business going into next year and beyond. Not every component of it may grow every year, but we're feeling really good about where it's going. And like I said, the chamber count is an important metric to think about future business opportunity.

Yeah, and Joe, I don't know if you remember, but at our investor day, we showed an objective we had about revenue capture per chamber as well. And so I pointed out in my comments a couple of places we're making progress. It is about trying to develop some of these data and equipment intelligence services offerings Also, productivity upgrades. Clearly, customers are focused on trying to get as much output out of existing install base as they can, and those types of services and upgrades help them do that. And in that way, as chamber count grows, we're also expanding SAM for those, so that's another reason why we believe year on year we can continue to grow that install base business.

Great. Thank you. Thank you.

We'll take our next question from Vivek Arya with Bank of America Securities.

Thanks for taking my question. I have two as well. First, on the NAND side, I was hoping you could give us a sense for how much of the market right now is not versus greenfield deployments, and how does that compare to what it was last year? And does this ratio impact the benefit you can derive from the market? Like, does the spending intensity change, right, depending on whether there is more conversion versus greenfield?

Yeah, Vivek, I'll take that one first and let Doug comment. But fundamentally, there is, and I said this on our last call, our view for this year is a bit more greenfield investment this year than last year. There's also more conversion investment as well, so the overall market is up. But there is an important difference in terms of the capital intensity per bit in the greenfield, which is higher. Conversions are more efficient. But what's unique for LAM is those conversions, our share, our capture of the WFE is much higher in the conversions. And so while we really do sell the same things in both instances, in the conversion, it's mostly LAM. etch and deposition equipment that's required to continue to build those taller stacks, and so we do very well there. So, this year, it's a blend of both, but I think that, again, it's one of the reasons why, as we look going forward, every tool that gets installed for a greenfield, ultimately, as customers transition to higher layer counts, those tools will ultimately need to be upgraded and move forward to that next layer count, and that means our opportunity for the install-based business just continues to grow the more FAPs ultimately that get built for NAND.

Very helpful, Tim. And for my second question, you know, if I take a longer-term view of WFE, what we have seen is that historically it will grow for two, at most three, and then it will kind of consolidate there for a few years, and then it will take another big step up. You know, when I look at the WFE outlook for this year, this will be the second year of very strong growth. How do you think about WFA intensity from these levels? And when do you think we should start to bake in any incremental benefits from the regionalization or, you know, increased domestic manufacturing headlines that we see in U.S. and Europe?

Yeah.

It's a great question. We were, you know, there's no doubt when you have strong years, people start wondering when you'll get a year this strong. You know, we've We haven't talked about whether 2022 is up or – but we have said we feel we are in a strong multi-year environment. We think it's too early to really know how all these factors I talked about play out in any given year. But over the longer term, you know, we see these new technologies and increasing content. We definitely know increasing complexity. You're hearing that from all of our customers. Increasing complexity is increasing equipment capital intensity. And then your regional comments. Another bit of a wild card, but definitely positive given everything that is going on that you're seeing in chip shortages and all the discussions there. So, you know, I think those items, they will play out over a multi-year period. We're kind of aligned with recent things we've read in the media that say chip shortages don't get solved in 2021. Regional capacity investment ambitions don't get solved in just a couple-year period. These are multi-year trends that we think are tailwinds for Semic and Intercapital equipment.

Thank you, Dan. Professor Smith. Thank you. We'll take our next question from Blaine Curtis with Barclays.

Hey, guys. Thanks for choosing me. I just want to ask specifically analysis of DRAM market spending under supply. You haven't seen, you know, kind of any company really see a big uptick. Just perspective is what's going on there, and if you're see any, you know, uptick as you look in the back half of the second year. And then just for Dove, just, you know, when you laid out your long-term targets, obviously, you know, $75 billion WFE is higher than that. You're dealing with higher shipping costs, which is, you know, perspective on, I don't know when you're going to be able to sell the shipping costs, but perspective on getting that margin back into the $33 to $34 target that you laid out.

Yeah, so you really – you've got two questions you're playing. What's going on with DRAM and then what's going on with the target model? I'll take a cut of both and let Tim come in on either one. Yeah, we see DRAM investment when I look at it, it's a pretty consolidated set of customers, and I just view them prudently managing capacity, prudently managing where they see pricing, you know, prudently managing how they bring capacity online, and – You know, paying attention to profitability is really what I see going on. And so that's why when we look at this year, you know, the first half, DRAM still is fairly muted in terms of level of investment. And you see it ticking up a little bit in the second half as the industry tries to bring supply closer to where demand is. It's just in a pretty healthy place is how I see it. Yeah, that's what I got there. Relative to the long-term model, a couple of things to think about. First, on the logistics costs, you know, we're going to be dealing with elevated logistics costs until global air freight gets back to a more normalized level. I don't know when that's going to happen. I think it's going to require some level of consumer travel again because a lot of stuff flies around in the belly of commercial aircraft. And so I'm optimistic it gets progressively better, but we're still seeing headwinds for the foreseeable future. Then relative to the financial model getting at slightly higher profitability, first, I feel great about where we just guided, right? 32% operating income at the midpoint. That would be the second highest level of profitability the company's generated in its 40-plus year history. So I'm feeling good about what's going on there. There's a time component to the profitability as well, which has to do with some of the things that we talked about on the call today, ramping a factory in Asia, in the Asia regions where cost structure is a little bit better, dealing with those freight and logistics costs. I still feel really good about attaining that financial model, and I think actually you're seeing demonstration of it this year from us already. I don't know, Tim, if you want to add anything.

Yeah, no, I think the only thing I would add is – To echo Doug's comment, we're extremely happy with the 32% guide. And, you know, in the same vein, we're investing a lot for our future. I mean, you know, Doug mentioned the Malaysia factory, which will help new Korea technology center coming up, put us closer to our customers, accelerate solutions, bolster our opportunities for share gain across both memory and foundry logic. new products that are coming out. I can't remember a time when Lamb has had more new products coming out really focused on key technology inflections across all device segments. And so we're very happy we're delivering these financial results and making these investments that we think make us much stronger going forward.

Thanks, Frank.

Excuse me, operator. We have time for one more question, please.

Thank you. We'll take our last question from Weston Twigg with KeyBank Capital Markets.

Hi. Thanks for taking my question. First, I just wanted to ask a follow-up on CJ's question around your revenue capacity capability in the back half of the year. It sounds like we maxed out in terms of your system revenue heading into the June quarter, and it loosens up a little bit, but can you give us a feel for what that peak could be? Is it, you know, is it $2.8 billion? Is it $3 billion? just some sort of boundary in terms of what you're limited by from a revenue perspective.

Yeah, Wes, I'm not going to quantify for you, but we're making investments across all of the factory network. We talked about taking ownership of a Taiwan factory. We talked about ramping a new factory in Malaysia. We're trying to squeeze incremental capacity out of what the other existing – to try to get those lead times back to a more normalized level that Tim was referencing. And so as we do those things, our capability will get bigger. I'm not going to quantify it for you, but we're working on all of that stuff.

Okay. So it just sounds like as long as we think about a gradual improvement over time, we should be, and don't get too crazy, we should be in the ballpark. The other question I have is just in terms of revenue growth drivers. And I'm wondering if you could just give us a feel for the rate of growth of your system's revenue that's driven by 10 nanometer and below in logic versus some of the older nodes where you're also seeing pretty good growth. Is the rate similar, or are you still seeing, you know, quite a bit faster growth at the leading edge, which is what we would typically expect?

You know, the majority of the spending and time I mean, logic is at those leading edge nodes. Even though there's a broad-based type of investment occurring, Wes, because of the capital intensity at the leading edge node, that's usually what drives a lot of what's going on. Okay. That's what I would expect. Perfect. That's helpful. Thank you. Okay. Thanks, Wes.