U.S. markets closed
  • S&P 500

    3,841.94
    +73.47 (+1.95%)
     
  • Dow 30

    31,496.30
    +572.20 (+1.85%)
     
  • Nasdaq

    12,920.15
    +196.65 (+1.55%)
     
  • Russell 2000

    2,192.21
    +45.29 (+2.11%)
     
  • Crude Oil

    66.28
    +0.19 (+0.29%)
     
  • Gold

    1,698.20
    -0.30 (-0.02%)
     
  • Silver

    25.30
    +0.01 (+0.03%)
     
  • EUR/USD

    1.1923
    -0.0056 (-0.47%)
     
  • 10-Yr Bond

    1.5540
    +0.0040 (+0.26%)
     
  • GBP/USD

    1.3834
    -0.0060 (-0.43%)
     
  • USD/JPY

    108.3420
    +0.3660 (+0.34%)
     
  • BTC-USD

    50,330.18
    +1,874.91 (+3.87%)
     
  • CMC Crypto 200

    982.93
    +39.75 (+4.21%)
     
  • FTSE 100

    6,630.52
    -20.36 (-0.31%)
     
  • Nikkei 225

    28,864.32
    -65.78 (-0.23%)
     

Edited Transcript of KLAC.OQ earnings conference call or presentation 3-Feb-21 10:00pm GMT

·50 min read

Q2 2021 KLA Corp Earnings Call MILPITAS Feb 4, 2021 (Thomson StreetEvents) -- Edited Transcript of KLA Corp earnings conference call or presentation Wednesday, February 3, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Bren D. Higgins KLA Corporation - Executive VP & CFO * Kevin M. Kessel KLA Corporation - VP of IR * Richard P. Wallace KLA Corporation - President, CEO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Christopher James Muse Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst * Harlan Sur JPMorgan Chase & Co, Research Division - Senior Analyst * J. Ho Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Technology Sector * John William Pitzer Crédit Suisse AG, Research Division - MD, Global Technology Strategist and Global Technology Sector Head * Joseph Michael Quatrochi Wells Fargo Securities, LLC, Research Division - Associate Analyst * Krish Sankar Cowen and Company, LLC, Research Division - MD & Senior Research Analyst * Quinn Bolton Needham & Company, LLC, Research Division - Senior Analyst * Shek Ming Ho Deutsche Bank AG, Research Division - Director & Senior Analyst * Timothy Michael Arcuri UBS Investment Bank, Research Division - MD and Head of Semiconductors & Semiconductor Equipment * Vivek Arya BofA Merrill Lynch, Research Division - Director ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day. My name is Priscilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation December Quarter 2020 Earnings Conference Call and Webcast. (Operator Instructions) I will now turn the call over to Kevin Kessel, Vice President of Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Kevin M. Kessel, KLA Corporation - VP of IR [2] -------------------------------------------------------------------------------- Thank you, and welcome to KLA's Fiscal Q2 2021 Quarterly Earnings Call to discuss the results of the December quarter and the outlook for the March quarter. With me today is Rick Wallace, our Chief Executive Officer; and Bren Higgins, our Chief Financial Officer. During today's call, we will discuss quarterly results for the period ended December 31, 2020, that we released today after the market close in the form of a press release, shareholder letter and slide deck. All are available on the KLA IR section of our website. Today's discussion is presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation of GAAP to non-GAAP results is in today's earnings material posted on our website. Today's call also represents the end of the calendar year. We will make references to both 2020 and 2021. Please note all references are for the calendar year. Our IR website also contains future virtual investor conferences as well as presentations, corporate governance information and links to our SEC filings, including our most recent annual report and quarterly reports on Forms 10-K and 10-Q. Our comments today are subject to risks and uncertainties reflected in the risk factor disclosure in our SEC filings. Any forward-looking statements, including those we make on the call today are also subject to those risks, and KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. As many of you now know, we changed the format of our earnings 2 quarters ago to include prepublishing a detailed shareholder letter that provides updates on our business performance. The prepublishing allows this call to be efficient by providing more streamlined comments while also freeing up more time for your questions and answers. With that, I'd like to turn the call over to our President and Chief Executive Officer, Rick Wallace. -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [3] -------------------------------------------------------------------------------- Thanks, Kevin, and thank you for joining us today and for your interest in KLA. As we reflect on the accomplishments of 2020, it's important for me to first appreciate and acknowledge the global KLA team. Your perseverance, drive to be better and determination enabled KLA to rise to the challenge and deliver for our customers. 2020 was like no other year we have seen. And while our teams have not been physically together for the most part, our company continues to demonstrate the great KLA culture of collaboration and innovation and is emerging stronger than ever. In the process, we delivered exceptionally strong financial results in the December quarter, closing a strong year for the company. In our shareholder letter published today, we articulate how KLA's record results are driven by success on multiple fronts, including the resourcefulness of our global workforce, the resiliency of our business model and our commitment to returning value to our shareholders. As most of you have already seen from our results, 2020 was an impressive year for KLA on multiple fronts. We delivered strong growth, profitability and free cash flow while continuously adjusting to the changing work environments driven by COVID. Through it all, we remain focused on meeting customer demand and delivering strong return to shareholders in the rapidly growing semiconductor market. Bren will have much more to highlight on the financials for both the quarter and the year, but I'd like to hit on a few of the annual milestones. For the year, KLA revenue grew 15% to $6.1 billion, marking the fifth consecutive year of growth. We also delivered notable profitability growth with non-GAAP operating profit and non-GAAP earnings per share increasing 28% and 32%, respectively year-over-year. Our free cash flow grew 44% to $1.8 billion, and we returned $1.2 billion to shareholders through share repurchases and dividends. In the December quarter, we saw diversified strength across each of our segments. Semiconductor Process Control revenue was once again above plan. The Electronics, Packaging and Components group met its target. And our Services business continued and delivered another quarter of growth and strong operating leverage. We ended the year with strong backlog, setting the stage for double-digit growth in 2021 as we continue to execute at a high level. We're operating from a position of strength in our marketplace. And given the accelerated growth of our served markets, we remain solidly on track to meet and likely exceed our 2023 financial targets. All this reflects the dedication of our global teams and the enabling role KLA plays in our customers' technology road maps and enhancing their return on capital investment. Moving to today's demand environment, which continues to demonstrate accelerated adoption of several semiconductor and electronics industry growth drivers that we've been highlighting for the past few years, technology continues to transform how we live and work. And the data-driven economy is fundamentally changing how businesses operate and deliver value. This digital transformation is enabling secular demand drivers such as high-performance computing, artificial intelligence and rapid growth in new automotive electronics and 5G communications markets. Each of these secular trends are driving investment and innovation and advanced memory and logic semiconductor devices as well as new and increasingly more complex advanced packaging and PCB technologies. With our market leadership in Process Control and growth and expansion to new markets like specialty semiconductor process equipment, PCB and finished die inspection in our EPC group, KLA is essential to enabling our increasingly digital world. As much as things have changed over the past year, one thing that's remained constant is our KLA operating model. KLA operating model is the enduring framework that we rely on to guide the execution of our long-term strategic objectives. We deploy the KLA operating model to align the company on a consistent strategy, tie accountability to results, drive product development execution, respond to changing market conditions and facilitate continuous improvement, while ensuring the company operates with strong fiscal discipline as we pursue our long-term performance and profitability objectives. Let's turn now to 5 top highlights for our -- and our results for the quarter and for 2020. First, we saw continued strength and breadth in foundry/logic demand in the quarter. As expected, memory demand also grew as memory customers plan for growth and equipment investment in 2021 to meet improving end demand. We expect higher business levels across a broader set of customers in the March quarter, with demand momentum continuing throughout 2021 across our major end markets. The strength in demand we're seeing reflects KLA's essential role in supporting our customers' drive to innovate and continue to invest in future technology nodes. Second, we're seeing strong momentum in the marketplace for new products, driving market growth and share opportunities in both the Semiconductor Process Control and EPC groups. Fueled by expanded customer investment in EUV lithography, the Semiconductor Process Control business is driving adoption with new applications in optical inspection portfolio, such as EUV print check for GEN5, and expanding our share in new markets for KLA, including the eSL10 e-beam inspection Platform and the nascent use of x-ray technologies for metrology applications. Third, our Services revenue grew to $1.56 billion or 25% of total sales in 2020. This is driven by growth in our installed base, higher utilization rate and increasing expansion of Service opportunities in the trailing edge and in the EPC group. The strong results delivered in 2020 show how the Services team continues to do a fantastic job leveraging the KLA operating model to deliver at a high level. Working in close collaboration with customers and partners, the Services business innovated and drove new initiatives against the unprecedented challenges of COVID. Not only did our Services business received praise from our customers, but also grew share of wallet. And we've seen our contact penetration steadily increase in 2020 from 70% to 75% plus, which fuels recurring revenue streams and generate strong operating leverage and cash flows. Fourth, this was a very encouraging year for the newly established EPC group, demonstrating success in KLA's growth strategies and highlighting how execution of the KLA operating model drives market leadership and improved operating leverage in acquired businesses. Revenue growth was strong, and we believe that on a net basis will exceed our $50 million annual acquisition cost synergy target by at least another additional $30 million. With EPC, KLA is now providing a more comprehensive and broader product portfolio and addressing fast-growing new markets in the electronics value chain, such as RF, automotive, 5G wireless connectivity and display. Relative to the adoption of 5G, KLA has exposure to many key components in the electronics value chain as well. The EPC group ended the year with record backlog, setting the stage for double-digit growth in 2021 and for incremental operating margins on that growth in line with the total company model. Finally, in keeping with our commitment to deliver strong and predictable capital returns to our shareholders, in the December quarter, we repurchased $177 million of common stock and paid $140 million in dividends. Back in July, KLA's Board of Directors authorized the 11th consecutive annual dividend increase to a yearly run rate of $3.60 per share. Since inception in 2006, KLA's dividend payout has grown at a CAGR of approximately 15%. In 2020, KLA returned $1.23 billion to shareholders or 70% of free cash flow. Before Bren gets into the greater detail of our financial highlights, let me briefly summarize, despite the disruption and unforeseen challenges that persisted throughout the year associated with COVID, KLA has benefited from the resourcefulness of its global workforce, we've adapted well and we end 2020 in a position of strength while delivering record results and set the stage for the sixth consecutive year of growth. KLA is exceptionally well positioned at the forefront of technology innovation with a comprehensive portfolio of products to meet the demanding customer requirements, which balance sensitivity and throughput. The semiconductor and electronics landscape is constantly changing, and we're seeing broadening customer interest which is being applied to more technology innovation than ever before at leading edge. We believe the secular factors driving industry demand that we identified at our last Investor Day are even more relevant now than they were then, and this will help us to meet and likely exceed our 2023 financial targets. At the same time, our strategy of driving diversified growth with strong long-term operating leverage should provide consistent capital returns to our shareholders. And with that, I'll pass the call over to Bren. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Rick, and good afternoon, everyone. KLA's December quarter and 2020 results highlight the soundness and strength of our ongoing strategy. We continue to demonstrate our ability to meet customer needs and expand our market leadership, while growing operating profits, generating record free cash flow and maintaining our long-term strategy of productive capital allocation. 2020 was a year of strong growth and profitability across multiple areas of our business. All of this was accomplished while simultaneously continuing to return high levels of capital to shareholders. Total revenue in the December quarter was $1.65 billion, at the very top of the guided range for the quarter of $1.51 to $1.66 billion. Non-GAAP gross margin was 61.8%, slightly below the midpoint of the guided range for the quarter of 61% to 63%. Non-GAAP EPS was $3.24, solidly above the midpoint of the guided range of $2.82 to $3.46. GAAP EPS was $2.94. At the guided tax rate of 13%, non-GAAP EPS would have been $0.03 higher or $3.27. Total operating expenses were above the guided range of $393 million, including $228 million of R&D expense and $165 million of SG&A. Non-GAAP operating income as a percent of revenue was strong at 38% and in line with expectations. The higher operating expenses in the quarter were due in part to adjustments in variable compensation programs as well as the timing of prototype material purchases for product development programs. Based on revenue expectations for 2021, product development requirements, particularly in programs supporting next-generation reticle inspection capabilities and the regionalization of additional customer engagement resources, we expect operating expenses to be approximately $400 million in the March quarter and we are budgeting quarterly operating expenses roughly within the range of $400 million to $405 million over the near-term horizon. Given top line expectations for 2021, we expect that the business will continue to outperform its target operating model in terms of overall profitability and operating margin leverage. Other interest and expense in the December quarter was $43 million, and the effective tax rate was 13.8%. Though we always have some variability in our tax rate, given the timing and impact of discrete items and the geographic distribution of revenue and profit, we believe it is prudent to adjust our long-term tax planning rate up slightly to 13.5% going forward. Of course, we are monitoring the corporate tax discussions in the United States, and we'll provide updates on how those will affect or would affect KLA, as appropriate, in the future. Non-GAAP net income was $504 million, GAAP net income was $457 million, cash flow from operations was $561 million and free cash flow was a record at $502 million. This resulted in the free cash flow conversion of nearly 100% and a very healthy free cash flow margin of just over 30%. Our segment revenue was strong in the quarter, driven by growth in our Semiconductor Process Control business. The EPC group delivered results in line with our model heading into the quarter. Revenue for the Semiconductor Process Control segment, including its associated Service business, was $1.38 billion, a sequential quarterly increase of 9% and up 15% for 2020. Approximate customer segment mix is as follows: foundry was strong as expected at 49%, logic was 10% and memory grew to 41% from 32% in the December quarter. Within memory, the business was roughly 60% NAND and 40% DRAM. Going forward, we will be combining the foundry and logic segments into one category to remove some of the noise as to whether a customer is in one category or another, given the various markets they serve and to better align with industry reporting practices. Revenue for the Specialty Semiconductor Process segment in December was $91 million, up 2% sequentially and up 24% in 2020. Demand in this segment was driven by growth in RF, MEMS and advanced packaging. PCB, Display and Component Inspection revenue was $179 million, down 1% sequentially, but up 12% for 2020 as strength in PCB and component inspection offset a weaker business environment in the display business. In terms of balance sheet highlights, KLA ended the quarter with $2.3 billion in total cash, total debt of $3.46 billion and a flexible and attractive bond maturity profile supported by investment-grade ratings from all 3 agencies. From a cash flow and capital returns perspective, during the December quarter, we repurchased $177 million of common stock and paid $140 million in dividends. In 2020, KLA returned $1.2 billion to shareholders or 70% of free cash flow, including $547 million in dividends paid and $681 million in share repurchases. We believe our track record for delivering strong capital returns is a key component of the KLA investment thesis and offers predictable and compelling value creation for our shareholders. As it relates to guidance, as we begin the new year, our view is that the wafer fab equipment or WFE market will grow in the mid-teens, plus or minus a couple of percentage points, in 2021 off a baseline of $59 billion to $60 billion. 2021 is expected to be a year of strong demand and growth across our major end markets, with the strongest percentage growth coming in memory, led by DRAM investment and with foundry/logic delivering another year of solid growth. Looking ahead, based on our current backlog, sales funnel visibility over the next couple of quarters and product lead times, we are encouraged by the sustainability of our current demand profile for the year. As a result, we would expect the company revenue to be roughly consistent quarter-to-quarter across the year. Our March quarter guidance is as follows: total revenue is expected to be in a range of $1.74 billion, plus or minus $75 million. Foundry/logic is forecasted to be about 68% of Semi Process Control Systems revenue. Memory is expected to be approximately 32%. We forecast non-GAAP gross margin to be in a range of 61.25% to 63.25% as we expect a richer product mix, continued service leverage and higher volume lead to improved gross margins compared to the December quarter. Based on revenue and product mix expectations for 2021, we are modeling gross margins between 61.5% and 62% in 2021. Given the structural trends in our business in both cost and product positioning, my bias today is to the high end of this range. Other model assumptions include operating expense of approximately $400 million, interest and other expense of approximately $43 million and an effective tax rate of approximately 13.5%. Finally, GAAP diluted EPS is expected to be in the range of $2.98 to $3.66 and non-GAAP diluted EPS in a range of $3.23 to $3.91. The EPS guidance is based on a fully diluted share count of approximately 155 million shares. In closing, the end market dynamics driving semiconductors and investments in WFE remain compelling with solid demand across end markets and at multiple technology nodes. 2021 is setting up to be a second consecutive year of double-digit growth for both WFE and KLA. KLA is executing well with continued confidence that we are on track to meet and likely exceed our 2023 financial targets. The KLA operating model positions us well to outperform and also guides our strategic objectives. These objectives fuel our growth, operational excellence and differentiation across an increasingly more diverse product and service offering. They also underpin our sustained technology leadership, deep competitive moat and strong track record of free cash flow generation and capital returns to shareholders. With that, I'll turn the call over to Kevin to begin the Q&A. Kevin? -------------------------------------------------------------------------------- Kevin M. Kessel, KLA Corporation - VP of IR [5] -------------------------------------------------------------------------------- Thanks, Bren. Priscilla, if you could provide the instructions for Q&A? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) We'll now take our first question from Patrick Ho with Stifel. -------------------------------------------------------------------------------- J. Ho, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Technology Sector [2] -------------------------------------------------------------------------------- And a belated Happy New Year. Congrats to you guys. Rick, maybe first off, in terms of process control intensity, we've seen foundry/logic continue to grow as we go through these node migrations. And NAND flash has obviously seen intensity rise with the increasing layer counts. As we look at DRAM and the projected pickup that you mentioned in your prepared remarks, what types of process control intensity increases are you seeing in that marketplace? Maybe excluding some of the EUV options that are out there, what other types of process control intensity trends are increasing in DRAM? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [3] -------------------------------------------------------------------------------- Sure. I think that there -- if you think about DRAM, what they've really been pushing on, and it's very difficult, as you know, to do it, is to continue scaling. And we do think that there's going to be some EUV that comes in. But there's no question that there's scaling happening. And of course, that drives more process control intensity. The other thing that's pretty clear in DRAM is the overlay requirements continue to get more and more challenging. So we're seeing increased -- trying to understand of how to squeeze more capability out of the lithography sets that they've got. And then we do see some, as I say, EUV adoption. So we think there'll be incrementally more focus on our more advanced optical inspection tools to be able to support that. So that's what we're seeing as a trend. It's not necessarily, obviously, as EUV-heavy as what we'd see in foundry/logic, but there is some element of EUV in there. Does that answer your question, Patrick? -------------------------------------------------------------------------------- J. Ho, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Technology Sector [4] -------------------------------------------------------------------------------- It does, Rick. Bren, as a follow-up to that question, you guys, as you're seeing demand pickup and revenues grow, working capital metrics have actually also improved. What changes have you made, particularly given that you've added Orbotech over the last 2 years, but you see the inventory turns actually improving even as demand picks up. What are some of the dynamics there? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [5] -------------------------------------------------------------------------------- Patrick, it's a great question. And certainly, adding Orbotech in -- and I think we've done a pretty good job of improving overall asset velocity in that business so far. I think there's room for us to improve it going forward. But on the KLA side, one of the areas where you could argue that we -- I think we do something in our business to support, and I think we get paid for it in terms of our profitability, but to support our model, both in terms of the component differentiation we have that drives our differentiation of our products, but also that enables our business. So we've always tended to carry a lot of inventory because we're supporting these tools that last a long time in the field. And we also have very exclusive relationships in a lot of our key supplier relationships that help us, as I said, protect differentiation. So as a result of all that, it does drive higher inventory commitments, and we carry that risk, if you will, although we never get stuck with extra systems. And given the strength of the service business, we tend to move the part. So we think it's a good sacrifice to make. We think we get paid for it in terms of the profitability and structure of our business. And the volume we've seen has allowed us to improve it a little bit. It's -- this is not a turns business for the most part, so I think there's probably an upper limit to it. But we have -- we do focus on, and I think we have improved it a little bit over time. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- We'll take our next question from Joe Quatrochi with Wells Fargo. -------------------------------------------------------------------------------- Joseph Michael Quatrochi, Wells Fargo Securities, LLC, Research Division - Associate Analyst [7] -------------------------------------------------------------------------------- I wanted to go back to your comment about revenue should be relatively consistent quarter-to-quarter in 2021. Is that a process control tool comment as well? I guess what I'm trying to understand is what you're seeing relative to maybe peers talking about WFE being a little bit more first half weighted? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [8] -------------------------------------------------------------------------------- Yes, Joe. So it's a good question. So what we're trying to do, first of all, it's really for both groups of our business. If you look at the EPC group and -- as well as the process control equipment part of the business. I was really trying to do a few things. First, obviously, we're guiding March, and we've got a nice sequential increase to the March quarter. We wanted to provide our view of WFE growth for '21 and expectations for KLA in the year. And the third thing was to provide just some context on the demand profile as we move through the year. And as I said in the prepared remarks, it looks relatively consistent. Now I'm not guiding the June quarter. I'm not guiding September. I'm not guiding December. But what I wanted to do is provide a little bit more context. Now we do have tools that cost from $10 million to $20 million, sometimes even more than that. So there is the usual variability that you have related to the timing of a shipment to customer acceptance, to consignment buyout and so on. But when we look across our business, it looks relatively consistent from a demand profile point of view. And I think starting with the backlog we have, the visibility we have in the funnel and then just the general lead time dynamics of our products, it gives me some comfort with that statement. -------------------------------------------------------------------------------- Joseph Michael Quatrochi, Wells Fargo Securities, LLC, Research Division - Associate Analyst [9] -------------------------------------------------------------------------------- Okay. That's helpful. And then you talked about the investments you're making on the product development side. And clearly, you guys are strongly outperforming your long-term profitability targets. So I was curious, how do you think about opportunities to maybe even spend a little bit more and accelerate some of the product development projects you've got going on? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [10] -------------------------------------------------------------------------------- It sounds like you've been talking to some of our guys inside. I think sometimes Rick and I are the only 2 people in the company that think we ought to spend less. But anyway, to answer your question, look, we have a rigorous process where we look at the portfolio of the business and look at how we get returns on that portfolio. So we've ramped up our investments in R&D and product development over the last few years. We think that there are opportunities. One of the biggest drivers that's driving the uptick that I articulated here, as we look at '21, is investment in multiple programs supporting reticle inspection, qualification and so on. So I think that that's been an area of focus for us, but we feel pretty comfortable with our process around R&D and the timing of our road map relative to our customer requirements, and It's worked pretty well for KLA. I think what's driving more of our model upside is more of a gross margin dynamic than a cost dynamic. And so I think the gross margin is reflective of the differentiation that we have with our products in the field and I think the value we're adding to our customers. So hopefully, that answers your question. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- We'll take our next question from C.J. Muse with Evercore. -------------------------------------------------------------------------------- Christopher James Muse, Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst [12] -------------------------------------------------------------------------------- I guess, 2 questions, if I could put them together. The first one would be around EUV shortages at ASML. Is that impacting GEN5 optical demand at all? And then I guess, secondly, I'm a little bit surprised that you're guiding Orbotech businesses flat half-on-half. Typically, there's seasonal uplift into the back half. I'm curious if that's a conservative outlook, whether seasonality has changed or is there something that we should be kind of thinking about? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [13] -------------------------------------------------------------------------------- Yes, C.J., nicely done. Those are not related at all, those 2 questions, as you know. But I will take them. The first one, no, we don't see any slowdown in the EUV impact if the delays that were outlined by ASML in terms of the demand for GEN5. If anything, it's kind of gone the other way. What's happened in the last few months is I think the realization that some of the yield challenges associated with EUV are best addressed by having more GEN5 capacity. And so we're actually maxed out and trying to ramp that in order to support it. So we have very strong GEN5. We don't see any delay in that. And we have a lot of conversations with customers about our ability to support that. In terms of Orbotech, in terms of that, it's a complicated business overall to aggregate, and so we don't really see anything -- any signs of concern. We do see continued growth in that business. We feel good about where we set out our plans for 2023 in terms of the original model that we outlaid at the Investor Day, and we're on track to meet or exceed those. So we feel good about it. We'll have to see. This is a little bit newer for us to understand the dynamics of the Orbotech business, but we feel good about the signs that we're seeing. And as we said, we ended with a strong backlog coming out of 2020. So we feel really good about this year. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [14] -------------------------------------------------------------------------------- So C.J., the only thing that I'll add to that is we were guiding it right. This still has the same variability you see quarter-to-quarter is at a different -- obviously, order agitate in our semiconductor process control equipment business. But if you look at what's driving the business overall between 5G infrastructure, mobile and 5G handsets, some of the dynamics within specialty, and then just all the overall PCB dynamics and how it's changing relative to integration and packaging and high-performance computing. So all of that is driving some nice growth in those businesses. So while the display business is, I expect a down year in '21 versus '20, the other businesses are more than making up for it. So I think that overall, it looks pretty consistent more or less as we move through the year. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- We'll take our next question from John Pitzer with Credit Suisse. -------------------------------------------------------------------------------- John William Pitzer, Crédit Suisse AG, Research Division - MD, Global Technology Strategist and Global Technology Sector Head [16] -------------------------------------------------------------------------------- First one is for Bren. But I'm wondering if you could just give a little bit more detail around what happened to mix in the December quarter that drove gross margins a little bit light relative to revenues being at the high end of the range? And as we look out beyond March, are there any other mix considerations we should think about as we think about gross margins? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [17] -------------------------------------------------------------------------------- Yes, John, it's the usual quarter-to-quarter variability. So it was a little bit weaker in the December quarter, and you see a bit of a bounce back into the March quarter. So we were 20 basis points below, and we just guided 25 basis points over the midpoint or over that 62% level. And as I look at the next several quarters and why I put the comments in the prepared remarks that I feel like we're operating in the 61.5% to 62% range. So it was really just a function of the products that actually revenue in the quarter, it's a customer acceptance timing dynamic and not any other reason. -------------------------------------------------------------------------------- John William Pitzer, Crédit Suisse AG, Research Division - MD, Global Technology Strategist and Global Technology Sector Head [18] -------------------------------------------------------------------------------- That's helpful. And then, Rick, as my follow-up, maybe I'll go back to the memory question that Patrick asked first, but ask it a little bit differently. If we're doing the math right, December quarter, memory was a new record. You have to go back to kind of June of '18 to see memory this high. And as you know, we in the investment community always think about that space as being kind of hyper-cyclical. We're willing to underwrite some of the structural drivers in logic/foundry, but maybe not as much in memory. When you look at the level of memory business today, how do you kind of parse out where we are in the "CapEx cycle" for memory versus some of the structural drivers you outlined in Patrick's answer? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [19] -------------------------------------------------------------------------------- Yes. John, I think, as you know, since we're a little more dependent on technology transition than we are to volume, our answer is a little different because it has more to do with the migration and the yield challenges associated with advanced nodes. And what we see that is a pretty steady commitment toward additional capability to drive next generation, and we're seeing that from multiple players. So I think like a lot of things in this industry, KLA's exposure is -- there's less variability in it based on that fact. And so the volume considerations associated with CapEx impact us less than that. And maybe Bren can give some color on how that looks for the -- as we go out through the year. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [20] -------------------------------------------------------------------------------- Well, John, it was fairly weak for most of 2020, and we saw this increase in the December quarter which had some breadth to it, and we expected to see that. So we weren't surprised by it. And then as we look at '21, we expect to see growth overall. We articulated our view earlier about just -- we think the DRAM market overall probably grows at a higher percentage level than the flash market, but we would expect to see growth in the business into '21. But it's been pretty disciplined. So seeing it bounce back in the December quarter and some sustainability here at these levels as we move through the first part at least here at '21, it's encouraging. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- We'll take our next question from Krish Sankar with Cowen and Company. -------------------------------------------------------------------------------- Krish Sankar, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [22] -------------------------------------------------------------------------------- I have 2 of them, too. Rick, just to follow-on the thought process on memory, it seems like KLA, the way it is today is relatively more exposed to NAND than DRAM. Do you think that exposure or process control intensity increases in DRAM as DRAM goes more EUV? And if so, how should we think about KLA's revenue mix? And then I have a quick follow-up. -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [23] -------------------------------------------------------------------------------- Yes. I think that the differences are pretty slight in terms of what the drivers are. It's actually different products that are getting impacted. So if you think about DRAM, we're more -- obviously, scaling is more of a factor there. And so you'll see more of what we're doing in terms of whether it's GEN5. You don't really see that and what's going on in NAND, but you do have some of the new products. We talked about the x-ray technology is really more applicable to that, some of the challenges associated with metrology and even how it impacts our bare wafer business, our Surfscan business because the flatness requirements and the cleanliness for wafers for NAND really get exacerbated when you think about the kind of verticality of those dimensions are going through and the stress that puts on the semiconductor producer for them to be able to manage the yield. So they're different. I think the intensity at this point is slightly higher in the NAND than in the DRAM, but they're both kind of increasing at similar amounts. -------------------------------------------------------------------------------- Krish Sankar, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [24] -------------------------------------------------------------------------------- Got it. Got it, Rick. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [25] -------------------------------------------------------------------------------- Krish, the only thing I would add on DRAM is with the introduction of EUV, and we'll have to see how that plays out, it does drive some infrastructure. Now -- that's 1 level of investment, and is that sustainable over time is, I think, a challenge for our teams. But as customers start to deploy EUV, it will require EUV-related infrastructure to help manage that. So that's a factor that's out there that is also maybe a change moving forward. -------------------------------------------------------------------------------- Krish Sankar, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [26] -------------------------------------------------------------------------------- Fair enough, Bren. And then I had a follow-up for you on Services. In the shareholder letter, you spoke about how the Services attach rate grew from 70% to over 75% through the course of last year. I'm just curious how you can realistically get -- or put in another way, Service is running at 25% of total sales. Can it get to over 30%? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [27] -------------------------------------------------------------------------------- Well, Krish, it will. It's 2 separate questions. It will because it's growing faster than the underlying Systems business. If you look at our service model, it's a 9% to 11% growth rate, which is what we articulated at Investor Day. And I'd argue that, certainly, the increase in demand we've seen on the Systems side gives us a tailwind to that growth rate moving forward. There's -- clearly, customers are valuing the service offerings, particularly as you're seeing more and more demand at the trailing edge and the need for those customers to keep those tools up. A lot of those customers, particularly around automotive, are facing increasing reliability requirements, and that's driving more investment in process control and the information that comes off the tools. So those have all been good drivers for us. So I keep thinking, look, 80%, 85%, I think that's probably reasonable to think that we could aspire to get there. There's always dynamics for certain customers that prefer a billable model. And so we'll have to deal with that resistance to try to move to a contract structure. At the end of the day, contract structures allow us to optimize the cost structure underneath, and we can serve to an entitlement level that drives higher through-cycle profitability. So that's what we aspire to. So I think there's opportunities, but I think there's always going to be some limit to it where customers are going to -- some customers prefer a billable structure as part of their installed base. -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [28] -------------------------------------------------------------------------------- Just to add to it, I mean, the one other factor is the tools that are being shipped today, the complexity is such that if you think about a car analogy, it's pretty hard to service a car today. 15 years ago, it might have been different. And so you think about, over time, the complexity and the associated, more and more of our systems end up having more and more custom design parts throughout the system, and it just becomes more economical to rely on us. And then there's no question that in service model, customer benefits from having a contract over the long term. They take the risk out of episodic events and they have more reliability of uptime. So I agree with Bren. I think it goes up over time, but nothing moves particularly fast in the services world, given the size of the installed base. So it takes a little time for that number to keep creeping up. But we're firmly convinced and committed to driving it. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- We'll take our next question from Vivek Arya with Bank of America. -------------------------------------------------------------------------------- Vivek Arya, BofA Merrill Lynch, Research Division - Director [30] -------------------------------------------------------------------------------- I had 2 as well. First is, if I take your March quarter outlook and kind of annualize it, suggests this calendar year growth in line with WFE growth. But when I look at some of the investments that are being made in 5 and 3-nanometer on the foundry side, and then the DRAM, which is more kind of logic like, I'm curious what are the prospects of outgrowing WFE? I guess it's the process control intensity question just asked in a different way. Like, what would help you grow above or below WFE this year? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [31] -------------------------------------------------------------------------------- Well when I look at it, Vivek, I think that there's -- you have a little bit more memory investment this year than in '20. And so that puts downward pressure on process control intensity. But you're right about the opportunities in foundry/logic and some of the product offerings that we expect to have over the course of 2021. So when I look at it and -- I think that we will at least perform in line with the market. I would expect that we'll probably do a little bit better. There are some headwinds and some tailwinds as we look at '21. But overall, I think that that's where process control intensity kind of plays out. And then from a share, if we execute, I think there's probably some opportunities for some modest share improvement as well. So I would think KLA's share of WFE is probably flat to slightly up as we look at '21 from where we sit today. -------------------------------------------------------------------------------- Vivek Arya, BofA Merrill Lynch, Research Division - Director [32] -------------------------------------------------------------------------------- Got it. And a follow-up is a question on cash returns to shareholders. Your profitability is very analog semi like, right, almost 37%, 38% operating margins, but free cash flow returns are -- do leave a lot more room for improvement. Even when I look at the buybacks that you had in December, they were somewhat lower than the average we have seen in the last 2 years. So I'm curious, how are you looking at cash returns going forward if you're going to have such strong growth this year and the longer-term trends are there, why not look at 100% free cash flow returns and looking at boosting dividends or the buyback? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [33] -------------------------------------------------------------------------------- Well, so if you go back to Investor Day, and I think even over time, every time we get the question, we've been very explicit about how we think about capital allocation in the company and our belief that, in generally, cash doesn't get valued unless it's deployed productively. And so when you look at what we're doing going forward, we expect that at a minimum, we'd be able to return 70% and investors can model that as they think about the returns profile over time. We're right around that this year, but this was a little bit of a unique year with some of the COVID dynamics at the beginning of the year. We did build our cash balance a little bit. But you're right, given the growth of the business, I would expect that we can deploy more. We do an exhaustive exercise here to understand the liquidity of the company and how much cash we need to run it, and we're operating at that level today. And so we have to juxtapose those alternatives against opportunities for growth in the company, and I think we've done a pretty good job of that. But generally, I think the 70% tends to be a floor. And given the uptick in the business that we're describing, I would expect our quarter-to-quarter share repurchasing to increase as we go forward here. Now on the dividend side, a, we've raised it 11 years in a row, 35% or so payout ratio target through-cycle to enable us to continue to raise it year in and year out and have a payout ratio that gives us the ability to do that and even raise it in difficult years. We're going to grow it in line with the growth rate in free cash flow. And so over time, you can expect that the dividend payout ratio will grow roughly in line with the growth in free cash flow. So that's our model, and we do our exercise here each year, and we'll continue to do it that way. I don't think anything's changed. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- We'll take our next question from Sidney Ho with Deutsche Bank. -------------------------------------------------------------------------------- Shek Ming Ho, Deutsche Bank AG, Research Division - Director & Senior Analyst [35] -------------------------------------------------------------------------------- Great. My first question is on China. I think China was -- if my math is right, the China revenue was down about 20% quarter-over-quarter after a pretty good third quarter, but still up very solidly for the year by 20%. What are your expectations for your opportunity in China this year? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [36] -------------------------------------------------------------------------------- So I would expect WFE in China to be flat to up. I'm looking at our business levels, and they match that. So it -- I would say it's very consistent with the profile of '20, maybe a little bit better. And it's different customers that are investing. But in general, that's how we see it. -------------------------------------------------------------------------------- Shek Ming Ho, Deutsche Bank AG, Research Division - Director & Senior Analyst [37] -------------------------------------------------------------------------------- Okay. Great. Maybe my follow-up question is related to your target model. You printed operating margin 38%, guiding up to 39% plus, well ahead of our target model. And it sounds like you're comfortable that you will continue to exceed that. But are there things that we should be aware of that may bring down operating margin as your revenue continue to grow in the next few years in terms of either cost of goods sold side of things, gross margin, obviously, operating expenses side that may try to normalize a little bit over the next few years? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [38] -------------------------------------------------------------------------------- Well, there's always quarter-to-quarter fluctuations. But when you look at our long-term plan of growing our top line at least in the 7% to 9% range and dropping 1.5x that revenue growth rate in terms of EPS growth. But that drives effectively an incremental operating margin that's between 40% and 50%. And that's how we're going to run the company over time. So you always have the drivers that influence margin -- gross margin, whether it's a product mix. Obviously, service has a dilutive element at the gross margin line. But we factor that into how we think about the model when we put out there. So yes, we're outperforming the public model. I think the strength and the speed of the growth that we've seen over the last couple of years has helped drive a fair amount of leverage in the business. And I think that a lot -- as I said earlier and said in the prepared remarks, a lot of it is sustainable. So that's our model, and we're outperforming it and expect to over the next number of quarters, as I outlined. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- We'll take our next question from Timothy Arcuri with UBS. -------------------------------------------------------------------------------- Timothy Michael Arcuri, UBS Investment Bank, Research Division - MD and Head of Semiconductors & Semiconductor Equipment [40] -------------------------------------------------------------------------------- Bren, I'm sorry, you might have already talked about this, but I actually jumped on late. So it seems like if you're going to hold WFE share pretty flat, which I think is pretty reasonable in the [6 3] or [6 4] range, it seems like process control shipments are going to be -- or revenue is going to be in the 1.05 range for March, and then it's going to sort of stay in that range throughout the rest of the year. So you're not going to see this pronounced half-on-half decline that maybe some others will. Is that sort of the right way to think about the -- some of these process piece? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [41] -------------------------------------------------------------------------------- So Tim, yes, you missed it. I covered it earlier. And there were some prepared remarks that I had that were about a sustained or consistent demand profile over the next number of quarters. So that isn't guidance, but that was just to give some context on how we see the year shaping up, notwithstanding the issue that we have around just general ASPs of our tools that can cause some variability quarter-to-quarter. If you look at the March quarter -- and again, we run the -- we guide one revenue number, but my expectations around the semi process control business are somewhere between [1.435] and [1.455], including service, so somewhere in that ballpark. -------------------------------------------------------------------------------- Timothy Michael Arcuri, UBS Investment Bank, Research Division - MD and Head of Semiconductors & Semiconductor Equipment [42] -------------------------------------------------------------------------------- Including service. Okay. Okay. Got it. Got it. And then I had a question on NAND. So I know you don't have a ton of visibility there, but your commentary that NAND is going to be sort of the weakest in terms of the relative end markets on a year-over-year basis this year is kind of interesting. I think some others are beginning to try to say the same thing. It sounds like about flat is the growing consensus. There was a pretty big budget flush from one of the big customers in the fourth quarter. So that was higher. But I guess my question is, is your view on NAND, is it because things have been cut? So because the procurement has been cut later on in the year as to why it's flat? Or is it because the number is the same, it just is off of a bigger base in 2020? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [43] -------------------------------------------------------------------------------- Yes. I think there's some growth in NAND. It's the lowest percentage growth rate of the 3 segments that we articulated. So I think it's probably a mid-single-digit type growth rate. And that's obviously off of a bigger base as we look at '21. -------------------------------------------------------------------------------- Timothy Michael Arcuri, UBS Investment Bank, Research Division - MD and Head of Semiconductors & Semiconductor Equipment [44] -------------------------------------------------------------------------------- But it's not because things have been cut, Bren. That's -- I guess... -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [45] -------------------------------------------------------------------------------- No. I'm not so sure I understand the question, but I think it's been fairly consistent I think here. I think it upticked a little bit in the second half, to your point. And I think that there's some growth next year off of '20. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- We'll take our next question from Harlan Sur with JPMorgan. -------------------------------------------------------------------------------- Harlan Sur, JPMorgan Chase & Co, Research Division - Senior Analyst [47] -------------------------------------------------------------------------------- Great job on the quarterly execution and strong results. In 2019, in Semiconductor Process Control, you guys gained about 300 basis points of share on the Systems side. Revenue-wise, you're about 5x larger than your nearest competitor. It looks like your process control systems business grew about 17% in 2020. Do you guys think you sustained or gained overall process control market share in 2020? And in what areas do you think you drove the most share gains? And on your view of double-digit percentage revenue growth in 2021, what are going to be the fastest-growing segments within process control? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [48] -------------------------------------------------------------------------------- Harlan, I think it kind of -- there's kind of 2 ways to answer it. What were the end drivers for it? And what were the products? And I say that because EUV really drove a lot of our BBP performance, but it isn't necessarily the only thing BBP is used for. So we feel good about how we finished up the year. As you said, we gained share and we feel like we held it. We'll see what the final numbers come out. But remember, at Investor Day, we were modeling a slower growth in share than what we're actually seeing. So we feel really good about where we are in terms of the BBP adoption and had a very strong year in optical inspection in calendar '20. As you shift to '21, we feel like we're well positioned to continue to build on the share gains or process control adoption gains that we had, again, based as much on end demand as some products that are coming to market that will continue to build that, plus continued adoption. The optical inspection strength is really remarkable, and we feel good about how we're positioned there. So I think that you're right. We gained more in '19 than in 2020. We held our gains, maybe built on it a little. And I think we're positioned to continue that trajectory as we go towards our '23 plan, but certainly for '21. That's the way the year is lining up. That's the way our build plans look right now. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [49] -------------------------------------------------------------------------------- Yes. The product families overall, all of them are showing growth. I would think that Rick talked a lot about broadband plasma and the strength there. Because of the memory uptake we're seeing and after a couple of years now of digestion, we're seeing more pattern inspection -- unpatterned inspection investment. And so that's a good indicator both to support the wafer output, but also, which in memory tends to drive wafers, so that drives that business. And then the tool monitoring that is done with unpatterned inspectors running monitor wafers in memory. And then in reticle inspection, I'd expect to see growth year-over-year above market kind of growth levels in that business as well. -------------------------------------------------------------------------------- Harlan Sur, JPMorgan Chase & Co, Research Division - Senior Analyst [50] -------------------------------------------------------------------------------- Great. And on the EPC side, it's brought very good diversification to the business. Going back to the 2019 Analyst Day, the team's outlook for EPC was kind of like a 9% to 10% CAGR, $1.4 billion, $1.5 billion in revenues in 2023. Based on the results that you put up in 2020, looks like you guys grew that business about 10%, 11% if you included the full quarter of Orbotech in your March 2019 quarter. So good to see the team tracking to or slightly ahead of those targets. What type of growth are you guys expecting for EPC this year? Would it be more in line with that 9% to 10% CAGR that you've been targeting? Or could it be more in line with the overall top line growth of sort of mid teens? And what segments are going to be driving the largest growth in any segments that will lag the growth? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [51] -------------------------------------------------------------------------------- Sure, Harlan. Great question. We do feel good about where we're positioned. And as you know, I think we're fully integrated now and feel really good about the message we have for our customers. I mentioned in prepared remarks, we feel good about the progress we've made on the synergies. We have seen the target that we laid out in 2023. We're on track. But to your point, and Bren mentioned it, FPD will be down in calendar '21, which means -- and we think, overall, the rest of the business, if you take out FPD, probably be up closer to 15%. So -- and FPD was relatively weak in '20. So the parts of the business that were, I think, the most levered to in terms of advanced packaging and a lot of the work that's going on, where we have overlap with some of our existing front end customers really a lot of good progress. And as you know, Oreste is running that. I think he's confident that we can build on our success as we go forward based on the interactions that we're having with customers. We feel good about specialty. PCB has been great, and we've been really happy with the work that's going on in the packaging, inspection, the ICOS businesses. So those 3 are really hitting it and feel really good about it. I also mentioned we're seeing the same operating margin leverage. Obviously, those are lower profitability businesses, but they have the same leverage in the operating model as the rest of KLA. So we feel good about that as well. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- We'll take our final question today from Quinn Bolton with Needham & Company. -------------------------------------------------------------------------------- Quinn Bolton, Needham & Company, LLC, Research Division - Senior Analyst [53] -------------------------------------------------------------------------------- Guys, you somewhat addressed it in answering Harlan's question there, but I was looking at the wafer inspection business up 32%. Just wondering if you can give a little bit more detail on what's driving that strength? Is it mostly GEN5? Is it Surfscan? And in the script, I think you also mentioned some new applications in optical inspection. So I was just looking for some more color there. -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [54] -------------------------------------------------------------------------------- Yes. It's really related, Quinn, to the optical inspection in GEN4, GEN5. So it's not just what we're seeing in GEN5. But GEN5 is certainly where we're seeing the increased application around specifically supporting EUV. And there -- that's -- we laid out that thesis at Investor Day. We haven't really seen it at that time that we thought the print check. So when customers will print down the EUV and they'll validate that image, that was going to be an application we believe there was a big market requirement for it. That's proving to be true, and that's driving a lot of the business success going forward. The other thing that's happening, of course, as EUV is becoming more prevalent than just in general, scaling matters more, smaller defects, and that pushes the mix toward more GEN5 than perhaps would have been GEN4. So we're benefiting from both of those trends, new applications, additional scaling. All right. We appreciate everybody's time and interest, and I'll pass the call back over to Priscilla to go ahead. -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- This concludes the KLA Corporation December Quarter 2020 Earnings Call and Webcast. Please disconnect your line at this time and have a wonderful day.