Lam Research Q3 2025 Earnings Report

Lam Research EPS Results

• Actual EPS: $1.04
• Consensus EPS: $1.00
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $7.79

Lam Research Revenue Results

• Actual Revenue: $4.72 billion
• Expected Revenue: $4.64 billion
• Beat/Miss: Beat by +$80.30 million
• YoY Revenue Growth: +24.40%

Lam Research Announcement Details

• Quarter: Q3 2025
• Date: 4/23/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 5:00PM ET

Lam Research (NASDAQ:LRCX) designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers ALTUS systems to deposit conformal films for tungsten metallization applications; SABRE electrochemical deposition products for copper interconnect transition that offers copper damascene manufacturing; SOLA ultraviolet thermal processing products for film treatments; and VECTOR plasma-enhanced CVD ALD products. It also provides SPEED gapfill high-density plasma chemical vapor deposition products; and Striker single-wafer atomic layer deposition products for dielectric film solutions. In addition, the company offers Flex for dielectric etch applications; Kiyo for conductor etch applications; Syndion for through-silicon via etch applications; and Versys metal products for metal etch processes. Further, it provides Coronus bevel clean products to enhance die yield; Da Vinci, DV-Prime, EOS, and SP series products to address various wafer cleaning applications; and Metryx mass metrology systems for high precision in-line mass measurement in semiconductor wafer manufacturing. The company sells its products and services to semiconductors industry in the United States, China, Europe, Japan, Korea, Southeast Asia, Taiwan, and internationally. The company was incorporated in 1980 and is headquartered in Fremont, California.

Lam Research Q3 2025 Earnings Call Transcript

Key Takeaways

• Record Q1 performance: Lam exceeded guidance with revenues of $4.72 B, gross margin of 49%, operating margin of 32.8%, and EPS of $1.04—each a record since the Novellus merger.
• Leading-edge product wins: New ALD (Spark, Halo Molybdenum) and Aqara etch tools secured multiple key customer wins in foundry logic, 3D NAND, and DRAM, driving market share gains.
• Services and upgrades momentum: CSBG revenue rose 21% YoY with record upgrade sales and a new multi-year spares agreement, as customers retrofit and optimize installed tools.
• Strong Q2 outlook: Guidance of $5 B ±$300 M revenue, 49.5% ±1 pt gross margin, 33.5% ±1 pt operating margin, and $1.20 ±$0.10 EPS targets the highest profitability in company history.
• Market outlook and risk mitigation: Lam maintains a ~$100 B 2025 WFE forecast, noting no major customer plan changes and leveraging an agile global manufacturing footprint to manage tariff uncertainties.

Presentation

[Operator]

Good afternoon and welcome to the Lam Research March twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ram Ganesh, Vice President, Investor Relations. Please go ahead.

[Ram Ganesh, Vice President, Investor Relations at Lam Research]

Thank you, and good afternoon, everyone. Welcome to the Lam Research quarterly earnings conference call. With me today are Tim Marcher, 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 will review our financial results for the March and our outlook for the June. The press release detailing our financial results was distributed a little after 1PM Pacific Time.

[Ram Ganesh, Vice President, Investor Relations at Lam Research]

The release can 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 and A include forward looking statements that are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC public filings. Please see accompanying slides in the presentation for additional information. Today's discussion of our financial results will be presented on a non GAAP financial basis unless otherwise specified. A detailed reconciliation between GAAP and non GAAP results can be found in the accompanying slides in the presentation.

[Ram Ganesh, Vice President, Investor Relations at Lam Research]

This call is scheduled to last until 3PM Pacific Time. A replay of this call will be made available later this afternoon on our website. And with that, I'll hand the call over to Tim.

[Tim Archer, President and CEO at Lam Research]

Great. Thank you, Ram, and thank you all for joining the call today. Lam's March quarter results reflect continued strong execution across the company with revenues, gross margin, operating margin and EPS all exceeding the midpoint of our guidance. We delivered a record quarter for foundry revenues, demonstrating our solid product momentum in leading edge technology inflections. Gross margin percentage was also a record for the company since the Novelis merger, as the investments we have made over the past several years in our manufacturing and supply chain operations are contributing positively as we scale the business.

[Tim Archer, President and CEO at Lam Research]

As our guidance indicates, gross margins are set to expand again in the June. On our January earnings call, we laid out what we saw as the fundamental drivers of WFE spending in the year ahead. To date, these have played out largely as expected, with strength in leading edge foundry logic, technology driven conversions in NAND, and a focus on high bandwidth memory in DDR5 and DRAM. From an overall industry perspective, we continue to forecast calendar year 2025 WFE spending in the $100,000,000,000 range. We recognize that the current tariff and global economic environment is dynamic, but thus far we have not seen any meaningful changes to our customers' plans.

[Tim Archer, President and CEO at Lam Research]

We are closely monitoring the situation alongside our customers and ecosystem partners. We believe that the agile manufacturing and supply chain capability that we have developed in recent years provides us with the flexibility to lessen the direct impact of tariffs. Our strategic focus in this environment remains on delivering the new products, advanced services, and digital transformation initiatives required to achieve the growth and profitability outperformance goals we described at our Investor Day in February. As a reminder, we identified three key drivers that underpin our ability to outperform overall WP growth over the next several years. First, we expect to expand our served market, or SAM, faster than WFE as deposition and etch intensity rises due to greater semiconductor device complexity.

[Tim Archer, President and CEO at Lam Research]

Second, we expect to gain share with the strongest product portfolio in the company's history, targeted at billion dollar plus technology inflections such as gate all around, backside power distribution, advanced packaging, and dry EUV photoresist processing. And third, we expect to grow our CSBG revenue faster than our installed base as customers look to Lam's upgrade automation and equipment intelligence offerings to enhance productivity and execution as they expand their global fab operations. Year to date, we are already witnessing incredible momentum in these areas. In deposition, Lam's Atomic Layer Deposition or ALD products are making strong gains. Our Stryker Spark ALD tool delivers the industry's densest conformal low K carbide dielectric films.

[Tim Archer, President and CEO at Lam Research]

Leveraging this capability, we have secured multiple key wins for spacer applications and a leading edge foundry. Our Altus Halo system enables barrierless atomic layer deposition of molybdenum, reducing the resistance of critical contact and interconnect layers by 50% compared to legacy technologies. In the case of three d NAND, this reduction is critical to achieving the superior IO performance needed for AI applications. As a result, Lam's Halo Molybdenum process is seeing increased adoption across our leading three d NAND customers. In Etch, our new Aqara system has gotten off to a great start, rapidly solidifying and expanding our market leading position in conductor etch.

[Tim Archer, President and CEO at Lam Research]

Featuring a proprietary industry first innovation for ultrafast plasma control, Aqara delivers previously unachievable levels of performance in edge selectivity and profile patterning precision. We have previously announced leading edge foundry logic momentum with this tool. And just since our Investor Day, Aqara has also won multiple critical etch applications at a major DRAM manufacturer. By enabling current DRAM and logic roadmaps with Aqara, we are setting the stage for Lam to make further gains as the industry looks to implement even more challenging device architectures like three d DRAM and CFET over the next decade. Turning to CSBG.

[Tim Archer, President and CEO at Lam Research]

We saw record revenues in our upgrades business. While the growth in upgrades was primarily driven by NAND technology conversions as forecasted at our Investor Day, key DRAM and foundry logic customers are also more actively upgrading and repurposing existing tools for new applications to optimize capital spending. Looking forward, we see the upgradable architecture of our systems being a growing point of differentiation for Lam. We are enabling our customers to cost effectively scale technology on the equipment they already own while creating revenue and share gain opportunities for us. Our collaboration with customers on operating cost optimization extends across the entirety of our installed base business and over longer time horizon.

[Tim Archer, President and CEO at Lam Research]

For example, in the March, we signed a new multi year spares agreement with a large memory customer for their latest technology node. This enables us to deliver value to the customer through assured component quality, cost, and availability. Finally, in specialty technologies, we achieved a couple of key milestones recently. First, we displaced a competitor and shipped multiple 200 millimeter PCVD tools for silicon carbide based wide band gap power device fabrication. Second, our PULSE laser deposition solutions are being extended into more use cases, and we will be shipping our latest tool this year for an advanced memory application.

[Tim Archer, President and CEO at Lam Research]

As customers look to accelerate R and D and scale manufacturing globally, we're finding new ways to add value. We have talked in the past about our semi burst solutions capabilities, which apply advanced modeling, simulation, data science, machine learning, and artificial intelligence to enhance equipment performance and shorten the time required for process optimization. I'm pleased to report that recently we signed new licensing agreements with three large customers for our virtual fabrication platform, Simulator three d. For both its cost and performance benefits, we see virtual fabrication fast becoming a required discipline in advanced technology development. And Lam is leading the industry in this evolution.

[Tim Archer, President and CEO at Lam Research]

So, to wrap up, when I look at our solid March results and strong June guide, I see Lam executing at a high level on all aspects of the outperformance strategy we described at our February Investor Day. This includes new product momentum and key customer wins, value creation from the installed base business, and innovation in equipment intelligence and virtual process development. Near term, we're taking steps to lessen the direct impact of tariffs and closely monitoring for longer term indicators of demand changes. Our priority is to continue delivering the technological innovations and world class support that uniquely enable our customers to scale semiconductor manufacturing faster, more productively, and more cost effectively. Simply put, our competitive differentiation is enabling our customers' competitive advantage.

[Tim Archer, President and CEO at Lam Research]

For this reason, we remain highly confident that Lam is in an excellent position to outperform overall semiconductor industry growth in the years to come. Thank you. And I'll now pass it on to Doug.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Great. Thank you, Tim.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Good afternoon, everyone, and thank you for joining our call today. WAM is off to a strong start in 2025. The March performance exceeded the midpoint of all of our guidance ranges that we gave on the last earnings call. I was pleased with the company's continued solid execution. We reached the highest quarterly gross margin percentage since GLAM merged with Novelis in 2012.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

We achieved this by proactively delivering on our operational efficiencies via our manufacturing strategy of being close to our customers. Let's look at the details of our March financial results. Revenue for the March was $4,720,000,000 which was an increase of 8% from the prior quarter. Our deferred revenue balance at quarter end was $2,000,000,000 which was essentially flat from the December. Within this number though, advanced payments trended lower, while other components of the deferred balance trended higher.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

As we sit here today, I believe our deferred revenue balance will move lower by the end of calendar year 2025. From a market segment perspective, March systems revenue and memory was 43%, a decrease from 50% in the prior quarter. Within Memory, non volatile memory accounted for 20% of our systems revenue, down from 24 in the prior quarter. And just a reminder, this segment includes a domestic China customer that we classified as a non volatile memory producer and that we are currently limited from shipping to. On a dollar basis, NAND saw growth from non China based customers consistent with our expectations from earlier in the year.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

The Nonvolatile Memory segment is being driven by customer spending on technology conversions from 1XX layer to two fifty six layer class devices. We currently expect this segment to represent the biggest percentage growth in systems revenue for Lam in the June. DRAM represented 23% of systems revenue compared with 26% in the December. DRAM spending was focused on technology upgrades across one alpha, one beta, and one gamma nodes to enable DDR5, LPDDR5, and high bandwidth memory. Foundry represented 48% of our systems revenue, up from the percentage concentration in the December of 35%.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

This level represents a new record in dollar terms for Lam. Shipments for gate all around nodes and advanced packaging were strong. We also benefited from mature node spending with domestic Chinese customers. I'd just like to point out that the last time we were at these revenue levels, back in late twenty twenty two, Foundry represented a concentration in the low to mid 30% range. We have clearly broadened and diversified our business since then.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

And finally, Logic and Other were 9% of our systems revenue in the March, down from the prior quarter's level of 15%. The decrease was primarily driven by reduced leading edge spending. Now I'll discuss the regional composition of our total revenue. The China region accounted for 31% flat from the prior quarter. Most of our revenue from China continued to come from domestic Chinese customers.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Our next largest geographic concentrations were Taiwan and Korea at 24% of revenue each in the March. Taiwan represented a new record level for us in dollar terms. The Customer Support Business Group generated approximately 1,700,000,000 in revenue for the March, down a little bit from the December, however, 21% higher than the same period in 2024. Sequentially, the decline was attributable to lower Reliant Systems revenue, partly offset by record upgrade revenue. Turning to the gross margin performance.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

The March came in at 49%, at the high end of our guidance range and improving from the December level of 47.5%. The increase reflects a stronger mix, as well as the efficiencies we're delivering from our close to customer manufacturing strategy. Operating expenses in March were $763,000,000 up from the prior quarter level of $735,000,000 The increase was due to growth in R and D activities associated with our ongoing roadmap differentiation. R and D accounted for 70% of the total operating expenses. Operating margin in the March was 32.8% above the December level of 30.7% and near the high end of our guidance range, primarily because of the higher revenue and the stronger gross margin performance.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Our non GAAP tax rate for the quarter was 13.3% in line with our expectations. Our estimate for the June is for the tax rate to be in the single digit range due to an anticipated tax reserve release tied to a statute of limitations expiration. Beyond the June, we continue to believe the tax rate will be in the low to mid teens for the remainder of the calendar year. Other income expense for the March came in at $7,000,000 in expense compared with $11,000,000 in income in the December. The change in OI and E was due to lower gains on our equity investments and lower interest income.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

OI and E will continue to be susceptible to market related fluctuations that will cause some level of volatility each quarter. I do believe OI and E will have a slight negative bias in the June. On the capital return side of things, we allocated approximately $347,000,000 to open market share repurchases, and we paid $296,000,000 in dividends in the March. As I indicated on the last earnings call, in the quarter, we retired $500,000,000 of unsecured notes that reached maturity using cash from our balance sheet. We returned 63% of free cash flow in the quarter.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

This was a little lower than normal due to that cash that we allocated for the debt retirement. For the March, diluted earnings per share came in at $1.04 The diluted share count was roughly 1,290,000,000.00 shares, about flat with the December. We have $8,800,000,000 remaining on our board authorized share repurchase program. Let me pivot to the balance sheet. Our cash and short term investments totaled $5,500,000,000 at the end of the March, down slightly from $5,700,000,000 at the end of the December.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

The primary factors behind the cash decrease were the repayment of those notes, our capital spending, as well as our capital return activities. Total debt on the balance sheet obviously declined by that $500,000,000 to $4,500,000,000 at quarter end. Day sales outstanding were sixty two days in the March, which was a decrease from sixty nine days in the December. Inventory at March totaled $4,500,000,000 a slight increase from the December as we prepare for higher revenue levels in the June. Inventory turns were 2.2 times compared with 2.1 times in the previous quarter.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

We will continue to manage inventory levels to align with customer demand. Our non cash expenses for the March included approximately $87,000,000 in equity compensation, 83,000,000 in depreciation and $14,000,000 in amortization. Capital expenditures in the March were $288,000,000 up $100,000,000 from the December. A major driver of this increase was a purchase of land in India to enable our planned lab expansions there. Our capital spending otherwise was focused on lab investments in The United States and global growth in manufacturing.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

We ended the March with approximately 18,600 regular full time employees, which was an increase of approximately 300 people from the prior quarter. We had headcount growth primarily in the factory and field organizations to support increased tool installation, as well as growing manufacturing activities. We also saw headcount increases within R and D to support that long term product roadmap. Now let's turn to our non GAAP guidance for the June 2025 quarter. We're expecting revenue of $5,000,000,000 plus or minus $300,000,000 We expect systems revenue in Foundry and NAND to be up in the June.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

This business level is consistent with our expectations from the beginning of the year. I want to specifically point out that we don't see anything being pulled in from future quarters. We're expecting gross margin of 49.5% plus or minus one percentage point. This guidance includes our current assessment of the direct impacts of tariffs on our business. Operating margin of 33.5% plus or minus one percentage point and finally, earnings per share of 1.2 plus or minus $0.10 based on a share count of approximately 1,280,000,000.00 shares.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

This guidance for gross margin and operating margin percentage would represent record levels since our joining of Lam and Novelis. I would also just point out that this would be the highest operating margin percentage that Lam has delivered since the late 1990s. These earnings would obviously represent an all time record level of profitability. Only wrap up. We're off to a strong start in 2025.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

We're executing well on our critical operational and financial objectives. While the tariff related macro uncertainty is keeping the environment dynamic, customers are continuing to invest consistently with their planned technology roadmaps. At Lam, we're laser focused on driving innovation and delivering new product and service capabilities, while at the same time enhancing operational efficiency and managing our profitability goals. We believe we're well set up to outperform overall WFE growth in 2025, as well as in the years ahead. Operator, that concludes our prepared remarks.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Tim and I would now like to open up the call for questions.

[Operator]

We will now begin the question and answer session. Our first question today comes from C. J. Muse with Cantor Fitzgerald. Please go ahead.

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

Yes, good afternoon.

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

Thank you for taking the question. I guess first question, was hoping to hit on the NAND upgrade cycle that you're seeing. You talked about that being the biggest growth driver into the June. Would love to hear, you know, your thoughts around the sustainability of that beyond June. Are you anticipating a broadening of spending beyond just the one or two customers in the first that you're seeing in the first half of the year?

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

And as you think about the growth there, I guess how much of that will come through tools versus CSPG upgrades? As well as, is there a way to think about your share of wallet with the industry focusing so greatly on upgrades where it would appear that you're going from 30% to maybe 40% to 50%?

[Tim Archer, President and CEO at Lam Research]

CJ, this is Tim. I'll go ahead and start on this. As we talked a couple of times on earnings calls recently, a significant portion we said two thirds of the industry's bits are still at around the 128 level. That's the 1XX generation. So, we see a tremendous number of bits that ultimately have to get upgraded to 2XX plus And so, we don't know exactly what the rate and pace of that is.

[Tim Archer, President and CEO at Lam Research]

Right now, we see a strong move in that direction, and obviously, we're watching for that. But Lam is in an incredibly good position on two fronts. One is the fact that we are the ones who upgrade our own tools, and so we capture a tremendous amount of the wallet with the spend associated with upgrading the tools that are in place. At the same time, as we described at our Investor Day, as you extend beyond the 2XX to the 3XX and 4XX layers, you begin to need additional new tooling to enable that stacking. We talked about the sacrificial carbon gap fill that helps enable tier stacking.

[Tim Archer, President and CEO at Lam Research]

We talked about the backside deposition tool that helps with wafer stress as we move beyond 200 layers. We talked about the need to change the means of gap fill to an ALD gap fill. These are things that are new tools. So, I think you're going to see a mix. You're going to see existing tools like our etchers, some of the mold and stack depth tools be upgraded.

[Tim Archer, President and CEO at Lam Research]

But I think then you'll see new tools being added. And one of those most significant new tools from a technology perspective is what I talked about in my script, which is the Halo Moly. And we're seeing strong momentum there. And eventually, because of the improvement it makes in terms of resistance and that impact on device performance, we think that ultimately broadens out and is adopted across all customers.

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

Very helpful. I guess as my follow-up, your Taiwan revenues, in the quarter, were were spectacular. I think the the the highest level that I can see over the last decade, or more. And I guess, you know, curious on on on kind of two fronts. One, how sustainable is that contribution to Lam?

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

And then how does that inform your thinking about what second half tool shipments could look like versus first half? Thanks so much.

[Tim Archer, President and CEO at Lam Research]

Actually, CJ, let me just start from the standpoint of the comments we've made around leading edge foundry logic strength. It's been our stated strategy for the last several years to invest in new tooling to increase our exposure to leading edge foundry logic. And so, I don't think it should come as any surprise. We talk about record foundry revenues. We talk about strength in places like Taiwan.

[Tim Archer, President and CEO at Lam Research]

A lot of that is coming, because we've been executing on the new product roadmaps. And I talked about the Aqara Conductor etch tool off to a strong start. We talked about Spark ALD in my prepared remarks. I mean, it goes well beyond that. Obviously, packaging, a big portion of that as well.

[Tim Archer, President and CEO at Lam Research]

Lam is really well situated in the technology inflections that are coming in leading edge foundry logic, and I think that accounts for a lot of the strength. I'll let Doug answer kind of the second part of it.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Yeah. I mean, Tim covered it. It's sustainable, CJ.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

It's not going away. It's all about the gate all around node. It's all about advanced packaging. It's all the stuff we've been talking about. So not much to add from Tim's comments.

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

Thanks so much.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Thanks, CJ.

[Tim Archer, President and CEO at Lam Research]

Sure.

[Operator]

The next question is from Timothy Arcuri with UBS. Please go ahead.

[Timothy Arcuri, Managing Director at UBS Group]

Thanks a lot. Tim, you made a comment on the call that you're I think you said, taking steps to limit the impact of tariffs. Can you talk about that? I guess, you do have a free trade zone in, Fremont and then when you make the tools in Malaysia, the country of origin is Malaysia.

[Timothy Arcuri, Managing Director at UBS Group]

So you should be fine there too. So but you did say taking steps to limit the impact. So can you kind of go into some details on that?

[Tim Archer, President and CEO at Lam Research]

Well, don't know that I can go into a lot of details on as far as the specific steps. But what I can say is that we've worked hard over the last several years to build a very flexible manufacturing supply chain operation that's centered around our U. S. Operations, operations in Asia, as Doug said, close to our customers, close to the supply chain. And so when I say taking steps, it's no different than what we're always doing.

[Tim Archer, President and CEO at Lam Research]

We look at the environment, we look at the customers, and then we optimize that capability that we have that exists in many different places in the world to deliver our tools most efficiently and most effectively to our customers. And so, it's kind of what we're always doing. And I think that that's a result. I mean, that flexibility is, again, part of the strategy we executed when we saw disruptions like COVID and other things over the past years to really broaden out the global capability of our supply chain and manufacturing operations.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

And Tim, I'd just remind you, it's Doug.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

We've got factories all over the world, right? We've got factories in The United States, factories in Austria, factories in Malaysia, factories in Taiwan, factories in Korea. And we've been talking about this for a while. The fact that we have that broad footprint enables us to have some level of flexibility. And I guess I'd just leave it there.

[Timothy Arcuri, Managing Director at UBS Group]

Cool. Okay, Doug. And then I had a question for you. So sounds like NAND upgrades you think should continue. But if we look at TSMC's CapEx, it looks like it does kind of flatten off as you get to the back half of the year.

[Timothy Arcuri, Managing Director at UBS Group]

I know that you don't track business doesn't track to their CapEx. But I think the feeling was that your revenue bias would be a little bit lower in the back half of the year. Is that still the case? If you can give us some sort of puts and takes into the back half of the year, that'd be great. Thanks.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Yes, Tim, you're exactly right. You remember exactly what we intimated last call and that's still the right way to think about it. It's a little bit of a first half weighted year. And you'll remember we talked last quarter about the fact that we lost some of those Chinese customers that were as we looked into the year would have been second half weighted. We talked about a number of approximately $700,000,000 of business that we had planned on being there that is no longer there.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

So thinking about it a little bit first half weighted is still the right way to have it, Tim.

[Timothy Arcuri, Managing Director at UBS Group]

Okay, Doug. Thanks.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Thanks, Tim.

[Operator]

The next question is from Harlan Sur with JPMorgan. Please go ahead.

[Harlan Sur, Executive Director - Equity Research at JP Morgan Chase & Co]

Yeah. Good afternoon. Thanks for taking my question. Maybe to follow-up on Tim's question. So on the reciprocal tariffs that were levied on many countries, including Malaysia and Taiwan, Obviously, there's a ninety day reprieve through early July, but let's assume that somehow this doesn't get resolved or you still have some residual tariffs even post resolution.

[Harlan Sur, Executive Director - Equity Research at JP Morgan Chase & Co]

Like, does the Lam team have enough manufacturing capability in The US to service your leading edge customers that are going to be aggressively building out plants here in The US? I know before your manufacturing consolidation initiative, you did have manufacturing in Oregon and in California, but not sure how that footprint has changed, as you brought on your Malaysia factory.

[Tim Archer, President and CEO at Lam Research]

Yes. So I would go back to what it's a good question. Go back to Doug's comment about our long standing strategy of putting our capabilities close to our customers. And you referred to this as, as we see customers expanding aggressively in The U. S, obviously, that will occur over a period of time in which we've already shown an ability to be agile within our manufacturing and supply chain, like I mentioned, in response to COVID, where we moved things to regions where we could meet our customers' needs more effectively.

[Tim Archer, President and CEO at Lam Research]

I think that if we continue to see more investment in The US, we still have operations significant manufacturing capabilities and footprint in The U. S. And obviously, as each region grows, we reassess what local manufacturing we need to support that capability.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

And Harlan, it's Doug. I'd just add, we can't instantaneously change things, but given enough lead time, once you know what the rules are, you can adjust certain things with a period of time.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

So just think about that. It might take a little bit of time depending on what shows up, but we have an ability to be flexible.

[Harlan Sur, Executive Director - Equity Research at JP Morgan Chase & Co]

Great. Thank you for that. And good to see the very strong performance in the gross margins. I assume near term you have spares and subsystems inventories that were there before tariffs were put in place. Just wondering if there are some basic materials that you or your subsystem partners source from China, which could potentially be a cost headwind for the team, maybe beyond the June, either on spare parts or subsystem side of the business that could impact product costs if the tariff headwinds remain?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Listen, Harlan, I don't want to get into everything like what do you have where in which country. We've got a global supply chain footprint. We've got a global manufacturing footprint. We have an ability to respond to different things depending on what the rules are and how they change. I guess I'd just leave it at that.

[Harlan Sur, Executive Director - Equity Research at JP Morgan Chase & Co]

Okay. Thanks, Tim. Thanks, Doug.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Thanks, Harlan.

[Operator]

The next question is from Stacy Rasgon with Bernstein Research. Please go ahead.

[Stacy Rasgon, Analyst at Bernstein]

Hi, guys. Thanks for taking my questions. First, it does sound to me like you're based on your comments that you still expect China revenues to be a mix to be down in the second half versus the first half. I guess can you just confirm that that is correct? And if that is true, does that have any implications for the sustainability of gross margins at these levels given that China's business has tended to have higher gross margins?

[Stacy Rasgon, Analyst at Bernstein]

Like how do we think about the gross margin sustainability into the back half of these levels given those dynamics?

[Tim Archer, President and CEO at Lam Research]

Yes, Stacy, I'm not going to give details on mix quarter by quarter. I still would tell you what we said last quarter was we expect the China concentration year over year to be down. That's still absolutely what we expect quarter by quarter. Things might bounce around a little bit, but I'm not going to give you specific details on the quarter by quarter amount.

[Tim Archer, President and CEO at Lam Research]

But you're right, gross margin will go up and down depending on customer mix, product mix, overall revenue levels. It's a very complicated calculus when you look at all the things that move it around. So there will be variability there.

[Stacy Rasgon, Analyst at Bernstein]

I guess so then should I not be thinking about gross margin sustainable at these levels into the back half then? Or are you talking about variability around the current level or what?

[Tim Archer, President and CEO at Lam Research]

Yeah, there will be variability around the current level, Stacy. It won't go up every quarter. It'll bounce around a little bit.

[Stacy Rasgon, Analyst at Bernstein]

Okay. So I mean, should I be thinking about it going down, like just to be direct?

[Tim Archer, President and CEO at Lam Research]

Yes. Variability means it'll go up sometimes. It'll go down sometimes.

[Stacy Rasgon, Analyst at Bernstein]

Okay. Okay.

[Stacy Rasgon, Analyst at Bernstein]

So my follow-up is very quickly. I think last quarter you said you thought services at CFPG revenues would probably flat year over year in the calendar year. Is that still your expectation?

[Tim Archer, President and CEO at Lam Research]

Yes, flattish is how I would describe it. Reliant will have some headwinds offset by the tailwinds that the upgrade part of the business has, Stacy.

[Stacy Rasgon, Analyst at Bernstein]

Got it. That's helpful. Thank you.

[Operator]

The next question is from Krish Sankar with TD Cowen and Company. Please go ahead.

[Krish Sankar, Managing Director at Cowen and Company]

I had two questions. One is just to double check on this overseas manufacturing. Doug, can you meet all of your non U. S. Customer demand from your non U. S. Manufacturing sites like Malaysia and Taiwan?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Yes. I'm not sorry, Chris, I'm not going to get into the exact details, right? We don't build every single tool at every single factory. But with enough lead time, we can adjust depending on what is where. And like I said earlier on the call, depending on what the rules end up being, we can move things around as necessary. Not instantaneously though.

[Krish Sankar, Managing Director at Cowen and Company]

Got it. Got it. And then a question on China too. I understand many of your Chinese customers are probably not don't have much long tenure. But I'm curious, what is the visibility into China?

[Krish Sankar, Managing Director at Cowen and Company]

Because when you look at the last three years, it seemed like China surprised to the upside for WFE and demand. Do you think a similar scenario could play out this year or the calculus different this time around?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

I don't know that it's really all that different. Every customer, Chris, whether they're new or they've been around for decades, communicates plans on what they intend to do, where they intend to go. They all have roadmaps. They all tell you what they want to do. It's no different in a region like China or Korea or Taiwan, frankly.

[Krish Sankar, Managing Director at Cowen and Company]

Got it. Got it. Thanks, Doug.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Okay, Krish.

[Operator]

The next question is from Srini Pajjuri with Raymond James. Please go ahead.

[Srini Pajjuri, Managing Director at Raymond James Financial]

Thank you. A question on the foundry logic. I know you get a lot of questions on NAND. It's up 60% sequentially, and I think you're guiding for growth again. First, we all know that advanced logic spending is coming back here, but if you could maybe parse it out to what extent is it just the spending coming back versus you talked about GAA being a driver and backside power being a driver.

[Srini Pajjuri, Managing Director at Raymond James Financial]

And also you talked about share gains in the past. If you could kind of help us understand what's driving that sequential strength continued strength into June?

[Tim Archer, President and CEO at Lam Research]

Yeah. No, we obviously like talking about Foundry Logic story because you just highlighted a couple of really big drivers for us. We're talking about it as billion dollar plus technology inflections. You left out a couple, though. So, of course, we talk about gate all around nodes and how we're really putting a lot of new tools into support that transition.

[Tim Archer, President and CEO at Lam Research]

Backside power, obviously, plays well for an etch and deposition company where you're looking at more metalization interconnect layers going on to the backside and those being thicker and generally requiring more tooling. What you left out was the advanced packaging and the important role that it's playing and the role that Lam has in really a very significant leadership position in steps like TSVH, copper plating, many of the dielectric deposition films that are required for advanced packaging. And that's an area where from both a served market as percent of total WFE spending, we've kind of reset the mark for us relative to foundry logic. And so, advanced packaging is big. And then the one that's still small but coming is progress we're making on dry EUV resist processing, which when you look out and you think about continued shrinking on the foundry logic roadmap and the challenges with lithography, we think it has a big role to play and we are making progress there both on DRAM side, which we previously announced at our Investor Day, but also making progress with advanced customers on the Foundry and Logic side as well.

[Tim Archer, President and CEO at Lam Research]

So, it's just a lot technology opportunity for a company like Lam.

[Srini Pajjuri, Managing Director at Raymond James Financial]

Yeah, that's helpful. Thanks, Tim. And then, at a high level, Tim, know you guided for mid single digit WFE growth and you're kind of maintaining that. But if I look at your first quarter results and also your second quarter outlook, you're growing north of 20%. So is this the level of outperformance that you expect for, I guess, for the rest of the year?

[Srini Pajjuri, Managing Director at Raymond James Financial]

I mean, how should we think about if WFE grows 5%? And how should we kind of think about your level of outperformance expectation going forward?

[Tim Archer, President and CEO at Lam Research]

Yes. I don't think we're ready to quantify that number specifically. But we have talked about outperformance of WFE overall. Obviously, the mix and where the spending is occurring, how much of that spending is on those advanced technologies where Lam's served market has stepped up and we've got new tools going in that comes into play as well. But overall, I think I finished my prepared remarks with the comment about being highly confident in our ability to outgrow. And I think that's where we'll probably leave it.

[Srini Pajjuri, Managing Director at Raymond James Financial]

Thanks, Tim.

[Tim Archer, President and CEO at Lam Research]

Thanks, Shereen.

[Operator]

The next question is from Atif Malik with Citi. Please go ahead.

[Atif Malik, Analyst at Citigroup]

Hi. Thank you for taking my questions. The first question is on WFE. I understand you guys are maintaining the $100,000,000,000 range as it's still early and there's no meaningful change in customer plans. One of your North American customers going through some major restructuring and we get asked from investors if you guys have baked in kind of like a net neutral spending scenario for the logic customers in an event that customer tends to abandon the foundry plans or change its direction?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Akhiv, I guess what I would say, and you know I won't talk about any one specific customer. I mean, generally speaking, you guys hear about something, we've known about it well in advance of whatever you're hearing, right? Because they got to tell us what they're doing. If we're going to have people there, we're going to have spare parts there to do installation and whatnot. So yes, to the best of our ability, we've contemplated everything we've seen in the totality of the market.

[Atif Malik, Analyst at Citigroup]

Totally understand. Doug, have a follow-up for you. In your prepared remarks, I think you mentioned that your outlook for June, you do not see any pull ins from future quarter. So I'm just curious, is that comment based on the fact that the lead times are super long for your tools? Or your customer kind of pipeline kind of has not changed much from what you were seeing ninety days ago?

[Atif Malik, Analyst at Citigroup]

So, if you could expand on what is that comment based on?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Patif, it's based on plans that we've known these customers have had in place well in advance of even ninety days ago, right? If I think back to late last year, the outlook that we had for the current quarter that we just guided has not changed. Frankly, Atif, the whole year hasn't changed. Now I don't want you to communicate or I don't want to communicate, hey, could something change? Of course, anything can change, but we're not seeing anything change in the environment.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

We're staying very diligent on contemplating, okay, tariffs are out there, might that have a macro impact, might the economy get softer? Of course, we're aware of those things. Could that negatively impact things at some point? It could. We're not seeing anything now.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

So I wanted to be very specific about saying that to you guys, so you understand. Nothing's changing that we can see.

[Atif Malik, Analyst at Citigroup]

Thank you.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Yep. Thanks, Alec.

[Operator]

The next question is from Vivek Arya with Bank of America. Please go ahead.

[Vivek Arya, Managing Director at Bank of America]

Thanks for taking my questions. For the first one, if all China restrictions are already captured in your March results and June guide, why can't your second half sales be at or above first half levels? I guess my real question is what non restricted customer or end market could drop in the second half versus the first half?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Vivek, it's just the totality of the market, right? Nothing grows every single quarter. And when we look at everything that we see going on relative to customers' plans and timing of things, it's a little bit first half weighted. It's not one customer or even one or two customers. It's just how the plans of our customers are laying out in total.

[Tim Archer, President and CEO at Lam Research]

Yes. We've talked about it in the past. Some of these projects are quite lumpy, and there's periods of large shipments. And then, we spend a lot of time installing and the customer ramps those tools. And then, next phase of the expansion comes in.

[Tim Archer, President and CEO at Lam Research]

And I think that's especially true when you talk about upgrades that are occurring in some of these fabs where they may not all be occurring over a very short period of time. They'll be spread out, and they might be lumpy in particular quarters.

[Vivek Arya, Managing Director at Bank of America]

I guess what I'm trying to ask is, is this second half, right, is that impacted in any way from China restrictions? Because, I mean, you should not be shipping to any restricted customers already. So what they do in the second half should not matter. And is it just conservatism about the nonrestricted customers or lumpiness in the back half? I'm just trying to understand how second half could look like.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Vivek, you're overly focused on China. What we did describe is, hey, if you go back to early December, there were some customers we were shipping to last year that all of a sudden became restricted. The plans those customers had were second half weighted. So that kind of went away from what we're looking at. So if not for that, we would be describing a second half that's different in profile than what we see right now.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

I don't know if we're confusing you or if I'm confusing you with that, Vivek.

[Vivek Arya, Managing Director at Bank of America]

No, not at all. I just wanted to clarify. For the second one, on the gross margin upside, how much of benefit, Doug, could you get from just the CSBG being down in terms of mix, so kind of that being a headwind, you know, versus the benefit from, you know, perhaps shipping more from Malaysia? So, is there a point at which CSBG starts to grow and that becomes a headwind to gross margin? So, I guess back to the can gross margin sort of sustain at these levels?

[Vivek Arya, Managing Director at Bank of America]

What are the positives and negatives? Then is 50% line of sight for you right now?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Listen, CSPG moving around really doesn't do a whole lot relative to the variability in gross margin right now. That's not kind of when I go through the reconciliation anything I'm seeing. Frankly, here's an interesting observation I had as I was prepping for earnings that might be interesting for you guys to think about too. If you go back to late twenty twenty two and that was kind of the last time we're at these revenue levels. Gross margin was 45% to 46%, and now we're 48%, forty nine %.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

At that period of time, the overall geographic mix was fairly similar to what we're seeing today. So if you think about it over that timeframe, what's changed? Well, what's changed is our close to customer strategy, right? That's uplifted gross margin, frankly, you normalize for everything, I don't know, 200 basis points, maybe even a little bit more. It's come from what we've done with the company, frankly.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

So I think Tim and I feel really good about that. That's the strategy we executed. It's benefiting customers too, because we're closer, we can turn things more quickly, and frankly we can do it more affordably. That's the big reason over the last several years that gross margin has performed the way it has. That's the most important thing to be thinking about from my point of view.

[Vivek Arya, Managing Director at Bank of America]

Thank you.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Yep, thank you.

[Operator]

The next question is from Blayne Curtis with Jefferies. Please go ahead.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Hey, guys. Thanks for taking my question.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

I actually want to ask you, I know I probably already know the answer. You said things hadn't really changed since the tariffs. I'm just kind of curious your conversation with customers. I mean, there's some sense people think, hey, they'll pull in ahead of tariffs. The other sense is demand destruction and maybe they'll rethink their capacity for the second half.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

So can we walk through what your conversations have been? I know you said overall nothing changed, but I'm just kind of curious how customers are thinking about this.

[Tim Archer, President and CEO at Lam Research]

Sure. I'll take a shot at it. Obviously, as I mentioned in my comments, we've been having a lot of conversations with customers to check-in for changes. I think over the timeframe though in which we've been operating, which is essentially kind of two months or less than two months with this discussion around tariffs, customers really are not haven't thought about really what they would be looking for, for the demand changes. Those are going occur over a longer period of time.

[Tim Archer, President and CEO at Lam Research]

These projects are multi year investments. They've thought through them. In many cases, they're technology investments to ensure that they have the right products. We spent a lot of time in our February Investor Day talking about the debate around NAND bits and the need. And I think we were trying to make the case at that point of independent of end demand, you need a higher quality, more capable bit to compete for the types of applications that are needed in AI.

[Tim Archer, President and CEO at Lam Research]

I think you say the same thing on foundry logic. You see the same thing for the investments being made in advanced packaging. And so, maybe there's a little bit of a disconnect between a true end demand discussion and a technology positioning. And a fair bit of the momentum that we're talking about for our business is really coming from engaging customers at the leading edge, where I think strategically they feel they don't have as much of a choice but to continue to invest in those areas to make sure they're as competitive as they can be. And that's a broad statement.

[Tim Archer, President and CEO at Lam Research]

It may vary customer by customer, but it's how we are engaged with our customers to make sure that, however, this plays out, they competitive in their markets. And Lam is positioned with the tools that we've been investing for years to place in those fabs to help them.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Thanks for that. And then for my second, I just wanted to ask Doug, in terms of the guidance on the gross margin, is there any impact from tariffs? It's a little bit confusing. There's a minimum tariffs. I know we have the ninety day reprieve, but I'm just kind of curious if you factored in anything.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Yeah, Blaine, there absolutely is an impact, but it's contemplated based on everything we know and everything we understand, it's contemplated in that guidance of 40, 40 nine point five percent. But I don't want to communicate there's not an impact. There is absolutely an impact.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Okay. But is there any way to quantify it? Or you don't want to go there?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

I'm not going to go there.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Okay. Appreciate it. Thank you.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Yep. You're welcome.

[Operator]

The next question is from Mehdi Hosseini with SIG. Please go ahead.

[Mehdi Hosseini, Senior Equity Research Analyst at SIG]

Yes. Thanks for taking my question. Two follow ups. Is there any way we could think about WFE in terms of strategic investment versus technology upgrade, which could also be a strategic versus maintenance? And then separately, highlighting wafer capacity addition.

[Mehdi Hosseini, Senior Equity Research Analyst at SIG]

And I'm asking you this question because if you think about all the questions that have been asked put to you over the past half an hour, it either has to do with China or sensitivity of the hundred billion WFE to macro picture. And I'm trying to understand how we could better think about the downside risk, which could be mostly related to wafer capacity add. Any color would be great. And I have a follow-up.

[Tim Archer, President and CEO at Lam Research]

Sure, Mehdi. I think I acknowledge what you're saying. We think most of the questions have come in this area. But if you look at where I focused most of my prepared remarks, it's on Lam's long term outperformance and even outperformance in this year. And that's simply because what really matters from our company perspective in both the short term and long term is product alignment to key technology roadmaps of our customers in the industry, how we enable that, how we get those products out.

[Tim Archer, President and CEO at Lam Research]

We're only two months removed from our Investor Day where we described an opportunity to significantly outperform the industry in terms of served market expansion as deposition and etch intensity grows, and also to gain share because we have a unique opportunity to increase our served markets faster in some of the key markets like foundry logic. And so, when we look at this year and I think both Doug and I said we're pleased with the execution of the company, I think a lot of it, of course, is around the financial performance, but even more so, it's around the seeds we're planting for future outperformance in the latest R and D fabs, the latest strategic investments. And I think that's ultimately what is more important to Lam's future regardless of where WFE happens to be in any given year. And so, I like your question and it's like it's what we tried to address with our scripted remarks.

[Mehdi Hosseini, Senior Equity Research Analyst at SIG]

Sure.

[Mehdi Hosseini, Senior Equity Research Analyst at SIG]

Thank you. And a follow-up for Doug. If I just take the midpoint of the June guide, it seems to me that the operating drop through margin of like almost 90% is reflecting all the investment of the past couple of years. And now there is limited increase in limited incremental increase in operating margin and this is how you're going to scale incremental increase in revenue. Is that the right way to think about sustainability of the margin?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

I guess, Mehdi, what I'd point out is that we're growing R and D. We're growing R and D because we see these amazingly unique opportunities for us to continue to outperform, right? The intensity of etch and deposition is growing. And so we're putting our foot on the gas a little bit relative to growing R and D because we see an opportunity to continue to expand the addressable market as well as gain share. Absolutely not apologizing for this, because as I pointed out, this is an all time record level of operating margin for this company. Right.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

I think, Tim and I feel extraordinarily good about what we're delivering right now. So and we wanna keep doing that. And so we're to make that happen.

[Mehdi Hosseini, Senior Equity Research Analyst at SIG]

Yeah. And that captures the incremental drop through that you're capturing here?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

It's part of it, yes. Yes.

[Mehdi Hosseini, Senior Equity Research Analyst at SIG]

Okay. Thank you.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Thanks, Mehdi.

[Operator]

The next question is from Joe Moore with Morgan Stanley. Please go ahead.

[Joseph Moore, Managing Director at Morgan Stanley]

Yes. Thank you. I wonder if I could ask a little bit more on CSPG kind of flat for the year. You said Reliant is a headwind. Can you just give us a sense for the rank order of the sub segments within CSPG?

[Joseph Moore, Managing Director at Morgan Stanley]

How big is Reliant now? And is there also a headwind on the service and spares from some of the restrictions in China?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Yes, of course, there is those customers that all of sudden became restricted. We can no longer provide service and spares. That factors into this too. But I mean, what you have going on is we described the point of view that China's down as a percent of total year over year. So that's the Reliance statement, right?

[Douglas Bettinger, Executive VP & CFO at Lam Research]

A lot of the tools going in China are Reliant. And then we have this amazing upgrade business right now that's showing up especially in NAND, right? Not just NAND, but it's quite strong in NAND. And so when you think about those two things kind of offsetting each other, overall utilization year over year is stronger. So that's beneficial for spares and service.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

There's a lot of moving pieces in here. Spares continues to be the biggest individual component of CSBG and then upgrades are growing a bunch this year and Reliance is down.

[Tim Archer, President and CEO at Lam Research]

Yeah. The only thing I would add is again, just like for many years we were viewed as strong in NAND and we've certainly made investments to broaden our portfolio quite successfully in foundry, logic and DRAM. In the services side as well, we've talked a lot about Reliant.

[Tim Archer, President and CEO at Lam Research]

We've talked a lot about upgrades. But you're starting to hear us talk a lot more about intelligent services, equipment intelligence, cobots, the types of capabilities that our customers are going to need, especially as they think about expanding their global manufacturing presence, where there might not be as many people who are skilled at bringing up and ramping an advanced manufacturing fab. And so, we think things like cobots, equipment intelligence, the use of AI to make sure our engineers are equipped to troubleshoot and repair those tools faster. Those are things that are going to allow us to then, perhaps, grow our services business to be even a larger portion of that total CSBG. And that's a real focus for us.

[Joseph Moore, Managing Director at Morgan Stanley]

That's helpful. Thank you. And within Reliant, that used to be kind of a refurbished tools business. And then for a while, everything was so tight that there were no refurbished tools, so was all new tools. Like can you just is there anything changing in that business?

[Joseph Moore, Managing Director at Morgan Stanley]

Is that how much of that is kind of new tools? And are you seeing the refurbishment kind of come back into the picture there on Reliant?

[Tim Archer, President and CEO at Lam Research]

Sometimes is the use of these tools for really new applications in those more mature fabs.

[Joseph Moore, Managing Director at Morgan Stanley]

Okay. Thank you.

[Tim Archer, President and CEO at Lam Research]

Thanks, John.

[Operator]

The next question is from Tom O'Malley with Barclays. Please go ahead.

[Thomas O'Malley, Director - Equity Research at Barclays]

Hey, guys. Thanks for taking my question. I had a broader one. So I think you guys said at the Analyst Day that if you look at the upgrades of existing equipment, you thought it was about a $40,000,000,000 WFE opportunity. Obviously, if you look at the NAND industry, like the backdrop here is that you may have some impacts to consumer spend, etcetera.

[Thomas O'Malley, Director - Equity Research at Barclays]

And when you look at like that handoff, how long do you think that you can continue to grow on the NAND front before you start to get some greenfield kick in or some new equipment kick in versus the replacements? Any context around that would be super helpful.

[Tim Archer, President and CEO at Lam Research]

Boy, that's a little bit of a difficult question. I thought you were going in the direction of how long will it take us to get through that $40,000,000,000 of upgrades, which at the Analyst Day, we did we gave a range. I think we said it could be anywhere from a few years to more than that. But I think, again, some of these things are end market dependent. And we've talked in the past about the importance of getting the NAND technology up to a point where it can play a significant role in the AI data center and some of the enterprise SSD.

[Tim Archer, President and CEO at Lam Research]

That's one of the areas where there is more demand, it seems, more investment. So, I think that it's a little too early for us to say. Like I say, we're two months beyond that view of $40,000,000,000 and we think it still plays out over the next three, four, five years over that period of time. And I think that we're moving. I think the most important for GLAM is it's not just upgrades, but as we talked, it's also a lot of the new tools that are needed to enable those higher layer counts.

[Tim Archer, President and CEO at Lam Research]

And that's really, I think, means we see both upgrades, but also really SAM expansion and share gain opportunities as a result of those technology investments.

[Thomas O'Malley, Director - Equity Research at Barclays]

Maybe just a tangent off of that question is maybe as demand declines, you'll see increases to capacity coming offline, so more underutilization. In your conversations with customers, is that a linear relationship with how much capacity is taken offline and the desire to do more upgrades, aka, like if you see more underutilization from your customers, do you think that they will be more inclined to do more upgrades? Or is this the amount of upgrades that you're expecting kind of not going to change depending on utilization?

[Tim Archer, President and CEO at Lam Research]

Well, we've said that in the past, and I think in most instances, it has been true. Obviously, in that when customers have the tools offline, that is the most ideal time before they start those back up to perform the upgrades. Obviously, the last NAM down cycle was so severe that I think we saw the tools stay offline longer than we might have expected. But I do believe that generally those things kind of act kind of counter cyclical to each other. When you see utilization fall, next up cycle will usually come up at a different technology node, which means upgrades will have occurred and Lam will have captured some of that revenue.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Thanks, Tom. Operator, we're going to take one more questioner.

[Operator]

And that question will come from Tim Scholes Melender with Redburn Atlantic. Please go ahead.

[Timm Schulze-Melander, Partner at Redburn Atlantic]

Yes, hi. Thank you so much for taking my questions. Maybe the first one just on CSBG, you've talked about upgrades up, reliance down. Maybe you could just give us a little bit of color on the spares, just kind of how that was tracking sequentially and any color you have on the utilization rates of your fleet? And then I have a quick follow-up.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Listen, spares are doing well, right? I mean, chamber count grew last year, so the incremental opportunity to sell more spares is up. Utilization is trending favorably. So that drives spares to be doing reasonably well, Tim.

[Timm Schulze-Melander, Partner at Redburn Atlantic]

Okay. That's great. And then maybe just on the NAND upgrade opportunity. Just as you look out maybe over a longer term, maybe one or two years, can you just maybe kind of break that up for us? Just kind of how does that split between upgrade sales and OE sales?

[Timm Schulze-Melander, Partner at Redburn Atlantic]

Is it like pretty equal? Or is it skewed one way or the other over the next couple of years? Yes.

[Tim Archer, President and CEO at Lam Research]

I think that as time progresses, I think you'll see it become more balanced. I mean, as we said, it's a combination of upgrades to the existing tools that are already there to be able to accomplish higher layer counts. And immediately, you need to also add additional tools to provide the types of technologies that are needed to deliver higher layer counts. And so, already it's a mix, but I think as you move forward and I think one of the previous questions is eventually customers might even start developing new sites as they get better line of sight to stronger demand in the future, then new equipment sales would kick in as well. So, it's already a mix, and I think it will continue to be a mix kind of for the next several years when we work through that $40,000,000,000 upgrade opportunity.

[Timm Schulze-Melander, Partner at Redburn Atlantic]

Got it. Very helpful. Thank you.

[Douglas Bettinger, Executive VP & CFO at Lam Research]

Okay. Thanks, Tim. Operator, with that, we're going to complete the call. Thank you, everybody, for joining us today, and I'm sure we'll see a lot of you guys during the remainder of the quarter.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Ram Ganesh, Vice President, Investor Relations
• Tim Archer, President and CEO
• Douglas Bettinger, Executive VP & CFO

Analysts

• CJ Muse, Senior Managing Director at Cantor Fitzgerald
• Timothy Arcuri, Managing Director at UBS Group
• Harlan Sur, Executive Director - Equity Research at JP Morgan Chase & Co
• Stacy Rasgon, Analyst at Bernstein
• Krish Sankar, Managing Director at Cowen and Company
• Srini Pajjuri, Managing Director at Raymond James Financial
• Atif Malik, Analyst at Citigroup
• Vivek Arya, Managing Director at Bank of America
• Blayne Curtis, Managing Director at Jefferies Financial Group
• Mehdi Hosseini, Senior Equity Research Analyst at SIG
• Joseph Moore, Managing Director at Morgan Stanley
• Thomas O'Malley, Director - Equity Research at Barclays
• Timm Schulze-Melander, Partner at Redburn Atlantic